Sharp fall in optimism among small firms

Small business owners have seen their business optimism plummet in the past six months, according to a recent survey.

The Optimism Index, by private equity firm Bownman, tracks how positive directors of small and medium-sized businesses are about their own operations. It has dropped nearly 10 points to 66.7 since the first survey was published in January. Their view of prospects for their own industries and UK entrepreneurial companies generally is even grimmer.

Other survey highlights

• companies have become more concerned about the impact of government intervention and legislation on their businesses - 70 per cent cited these as obstacles to growth, up from 56 per cent in January, while nearly two-thirds see tax as a major obstacle;
  
• profit and revenue growth have slowed;
  
• rising energy prices have had a negative impact on a third of companies surveyed;
  
• the credit crunch is starting to bite - around a quarter of companies said that the availability and terms of bank debt have worsened since the previous survey.

Legislation

Growing unease about the outlook for the UK economy has severely dampened the positive mood of entrepreneurial companies six months ago.

While the Optimism Index measuring their attitude to their own businesses has dropped nearly 10 points to 66.7, their view on prospects for their industries is even gloomier - down nearly 17 points to just above 50. Their optimism about UK entrepreneurial businesses generally has tumbled 13 points to 49.7.

Growth in turnover and profits has slowed since the last survey. Companies have also reined in their expectations for future growth and employment prospects have also worsened.

Obstacles to growth have become more onerous in the past six months, especially legislation and government intervention and taxes. One in seven of respondents cited government initiatives as obstacles to growth. Two-thirds rank skills shortages as a burden (unchanged from last time) but taxes have become a bigger obstacle to growth this time - nearly two-thirds said taxes were a burden, against 43 per cent in January.