Business confidence has plummeted to levels similar to those in 2010, according to the Baker Tilly Outlook 2012 survey. Only half of the 614 respondents reported feeling confident in their own business, a decrease from 60% last year.

One in five respondents expect the economy to dip back into recession in the next 12 months and 38% expect stagnation. For example, only 35% of respondents have a positive outlook for their 2012 operating profits, which is even lower than in 2009, when 39% were confident in their operating profits. Less than one in five respondents are confident about their region, which is less than in 2010 and only 27% are confident in their sector compared to 39% in 2011 and 34% in 2010.
 

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Executive summary

Business confidence

• Overall business confidence has dropped across all areas, back to similar levels as seen in 2010.
• Business decision-makers tend to feel more confident about prospects for their own business over the coming 12 months (54%) than their sector (27%) or their regions’ economy (18%).

No difference in sales, gross margins and profits

• Prospects for sales, gross margins and profits remain the same as this year with a return to the levels seen in 2009.

Regional confidence

• Levels of confidence are typically higher in the Midlands and the East of England compared with other regions.
• Business decision makers in the North have the lowest levels of confidence in their sector and their regions’ economy.

Top business strategies

• Improving internal processes and/or systems is the top priority for business decision makers.
• 40% of businesses have introduced new risk management procedures this year.
• Of these, the most common controls centre around credit control and implementing and monitoring more stringent risk registers/procedures.
• Other top priorities include the development of new products/services and direct cost cutting.

Raising finance

• A quarter of business decision makers expect to raise finance in 2012.
• Of these, traditional bank lending is the preferred option (37%), followed by ABL (25%) and PE/VC (18%).

Banking needs

• More than two-thirds (70%) of respondents say all or most of their business needs have been met by their bank over the past 12 months.
• Fewer than 1 in 10 (9%) feel that their business needs have not been met by their bank, which has declined since last year (15%).
• Providing access to more and cheaper credit is what business makers want from their bank.

Financially aware

• Nearly 2 in 3 (58%) of business decision makers would agree that they are more aware of developments in the financial markets than before the period of economic instability.
• Residents of the North are more likely to indicate they have increased their awareness of developments in the financial markets than their counterparts in the Midlands and East of England.

Threats to businesses

• Increased costs directly to the business (69%), followed by downturn in demand (63%) and tax complexity and burden (56%) are the top three threats to their business in the coming 12 months.
• The impact of economic woes in the EU/US  (55%), consumer confidence (54%) and increasing regulation (53%) are also serious concerns.
• Access to credit is only considered a threat by a minority.

Opportunities for businesses

• Taking business from failing competitors is expected to present the greatest opportunity over the coming 12  months (selected by 42%).
• The next greatest opportunities are lowering costs and technological development (24%), which may explain why developing products and services are also considered a crucial part of business strategy.

Spending review impact

• Almost half (44%) of business decision makers claim that George Osborne’s Spending Review has had little or no impact on their business.
• Yet, 58% expect the Review to have a negative impact in the next 12 months.

Recession or stagnation?

• 38% of business decision makers expect the UK economy to remain stagnant over the coming 12 months.
• Only 22% expect the UK to enter a recession again.
• Business decision makers believe that the manufacturing sector is most likely to lead growth in the UK economy in 2012.

Inflation and interest rate impact

• A quarter of business decision makers are unsure what impact an increase in inflation or interest rates would have on their business.
• 1 in 4 claim that only a rise in inflation of more than 2.5% would significantly impact the running of their business.
• 1 in 4 think that an interest rate rise of 2.5% would impact their day to day business.