Key findings from American Express's study of 3,200 business leaders

- Leadership - Feb 10, 2017

Small and Medium-sized businesses (SMEs) across Europe are confident about their future business performance, optimistic about the economy and believe they have the strategies in place to thrive in an age of uncertainty, according to the American Express Global SME Pulse.

The research, carried out among senior executives and decision-makers in SMEs across 15 countries, reveals that SMEs globally and across Europe are confident in their ability to deliver increased revenues and profitability. Globally, 58 percent of SMEs surveyed expect significant revenue growth over the next 12 months. Almost fifty percent or more of SMEs in France, Germany, Italy, Spain and the UK anticipate revenue growth of at least four percent over the next 12 months. Furthermore, 16 percent or more of SMEs surveyed across Europe look forward to revenue growth of at least eight percent over the same period.

In terms of profitability, SMEs in Europe are similarly upbeat with 52 percent forecasting a net profit of 4 percent per annum over the next three years. A further 19 percent of European SMEs forecast net profits in excess of eight percent over the same period.

Healthy optimism

More broadly, SMEs across the globe are optimistic about the health of the world economy over the next 12 months, with SME decision-makers more than twice as likely to be positive than negative about the economic climate (39 percent positive versus 16 percent negative). This optimism is replicated at a European level, albeit to a diverse extent with SMEs in France and Germany respectively the least and most positive among the European SMEs surveyed.

Economic and political uncertainty seen as key challenges

While SMEs are optimistic about the economy and their own business, they also identify areas for concern. Economic and political uncertainty in their home markets is seen as the largest threat to the business, both globally and in Europe.  European SMEs are also concerned about uncertainty in their European export markets: 30 percent identify this as a leading threat to business performance and European SMEs were in fact twice as likely to cite this as a concern as SMEs in the rest of the world.

Focus on expansion and sales growth to drive financial performance

Despite uncertainty, SMEs globally and in Europe are focusing on growth and expansion strategies to improve their financial performance. Forty-one percent of European SMEs say expansion into new domestic markets will be a top priority for their business over the next three years, while 32 percent make growing their share of current markets a key focus. 

Exporting is a core pillar of many SMEs’ growth strategies globally and Europe is no exception: al-most one third (32 percent) of European SMEs cite expansion into new international markets as a pathway to improved financial performance over the next three years. SMEs are confident they are ready for export growth, with half (50 percent) of European SMEs strongly believing their company has the right plans in place to increase export sales. Most significant is the fact that over half of SMEs in Europe believe the timing is ripe to grow exports: interestingly 52 percent agree it is easier to access new export markets than it was three years ago.

Seeking alternative sources of finance to fund growth

Many European SMEs struggle to finance the investment required for growth. Just over half (52 per-cent) say they face difficulty accessing the finance they need to grow their business while 56 percent say that inadequate cash flow affects their ability to pay suppliers on time. While just over half are satisfied to some degree with the current options available to their business, almost a quarter (23 percent) are dissatisfied with their finance arrangements.

Today, most European SMEs rely on bank loans (57 percent) and existing working capital (54 per-cent) to fund their investment. Over the next year, SMEs plan to take advantage of a far more diverse set of funding options. Their existing funding arrangements will remain important, but many SMEs will also be looking to non-bank sources of finance such as private equity, crowdsourcing and cards to gain access to capital to grow.

Look beyond the short term

As part of the research, top executives in European SMEs were asked about the long-term goals of the business. While profit margin growth (53 percent) and revenue growth (48 percent) are identified as the number one and two objectives respectively, well over a quarter (29 percent) of Europe-based SMEs state that sustaining the business for future generations is an important long-term goal.  Europe’s SMEs are more likely to take this long-term view than SMEs in the rest of the world (23 percent of respondents outside Europe ranked sustaining the business for future generations as a top objective).

Commenting on the findings of the research, Jose Carvalho, Senior Vice President, Global Commercial Payments Europe at American Express, said: “It’s very encouraging to see this evidence of optimism and self-confidence among Small and Medium-sized Enterprises, both in Europe and globally. Businesses are deftly navigating through challenges and this resilience is helping them to thrive.”

Continuing, Jose Carvalho said: “The research shows SMEs are focusing on expansion and growth opportunities, reaching out to new markets and customers at home and globally. However, it’s clear these enterprising businesses often find it difficult to access the finance they need to invest, and as a result they’re looking beyond traditional sources to secure funds to enable them to grow in the long term.”

Read the January 2017 issue of Business Review Europe magazine. 

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