Small businesses are facing the most uncertain economic time in recent history, yet the Make or Break Report 2017 from Xero examining the opinions and character traits of successful small business owners going into 2017 has revealed irrepressible optimism as a common trait.

Small business confidence was still found to be high, particularly with very young businesses, despite economic uncertainty being the most pressing concern for UK and US business owners. The vast majority of 1 year old (94%) and 2 year-old businesses (84%) said they felt more confident going into 2017 than the previous year, and over three quarters (79%) of small businesses said they felt confident about their business’ survival in 2017. For those going through a tougher time, nearly a fifth said they expected 2017 to be a turnaround year for their business. So why is it that small businesses are feeling so confident?

They want to cut themselves free of the red tape

• A huge 74% of UK small businesses said they remain confident about the future despite Brexit and the resulting economic instability being the number one concern for small businesses going into 2017.
• Nearly a fifth (18%) said that Brexit would reduce some of the restricting red tape and legislation surrounding the EU, increasing trading and local buyers as a result. This view was shared by US small businesses who were asked the same question in relation to Trump’s presidency, highlighting fewer regulations as the most positive impact.

They are shunning traditional office structures to increase productivity

• Successful SMBs are exchanging traditional office structures for remote working and flexible working hours (42%), hailing this as the biggest driver of productivity for themselves and their staff in 2016.
• 94% of small business owners using cloud software report benefits, citing paperless systems, remote working and simplified software management.

They are prioritising the health and happiness of themselves and their employees

• Over three quarters of small business owners (78%) across the UK and US believe the personal health of them and their staff directly impacts on the success of their business going into 2017.
• Getting enough sleep was revealed to be the most important factor for nearly two thirds (63%) of small business owners to stay healthy in body and mind.
• Exercising regularly, getting support from friends and family and giving themselves adequate time off was also highlighted by small business owners – in the last year 84% found ways to take a break with holidays and avoiding the commuting rush by working from home occasionally.
• In fact, over half of small business owners (52%) said they wanted to give themselves more of a work-life balance in 2017 than they did the previous year.

They see themselves as in control of their own destiny

• For successful business owners, the report revealed that risks are seen as part of the job, as over half (54%) said they have taken financial risks with their business.
• When these risks did not result as expected however, over three quarters (77%) of small business owners said they had no regrets – they see these mistakes as a fundamental learning experience.
• Business owners were again found to be optimistic when forecasting despite the economic outlook - over two thirds (69%) said they are optimistic and aggressive about their achievable targets.
• For 52% of those surveyed, they did not think Brexit would have an impact at all, and for nearly three quarters (74%) they were confident in their business’ success, regardless of instability.

Keeping grounded

While confidence and optimism from small businesses was found to be the underlying trait of small business owners, the report revealed areas for improvement and viewpoints to consider.

• Over a third (42%) of small business owners considered their accountant to be a trusted business advisor or mentor, but over half do not necessarily always follow their advice.
• Fewer than one fifth of small business owners (16%) said they were worried about automatic pension enrolment, but behind Brexit and changes to the national living wage, auto enrolment was the third policy accountants were most concerned would impact their clients in 2017.
• Chasing payments for overdue invoices still plagues as the biggest time waster for a fifth of small business owners across the UK and US. The threat is compounded by the importance small businesses put on cash flow in 2017 – for over a third (34%), cash flow was said to be more important than ever given the instability of the economy.
• With small businesses’ biggest worry for Brexit being reduced consumer spending, small businesses admitted to forecasting far more aggressively than accountants would like their clients to.

Gary Turner, UK co-founder and managing director at Xero, said: “Our report has revealed a remarkable trait among small businesses to look on the bright side, particularly in the current climate when faced with so much uncertainty. Given the importance of small business health on our economy here in the UK, it is fantastic to see that small business owners are feeling so confident about the future. But, as cash flow and healthy finances have never been so vital, owners must keep a sense of realism and listen to external advice and support to ensure that business continues to grow and prosper through the next few years.”

Josephine Fairley, Green & Black’s co-founder and serial entrepreneur said: “Owning a business is invariably a rollercoaster full of ups and downs and you must learn ways of thinking your way out of difficult situations, so it’s brilliant to see such optimism coming through as a defining quality in an entrepreneur from Xero’s report. Having a concrete plan for your business combined with a can-do attitude can help you to win regardless of what you are faced with.

“While optimism is important, consulting with experts and keeping on top of your data can enable you to make the right decisions for your business that will help you not only survive, but thrive.”

(Source: Xero)

Following years of sluggish economic recovery, business leaders believe 2017 stands to usher in a long-awaited acceleration in growth. According to ‘America's economic engine - Breaking the cycle’, Deloitte's 2017 report on business and economic trends in the privately-held and middle-market segment, 83% of executives surveyed after the November election are confident that the US economy will improve over the next two years (compared to 65% last year). In fact, 39% of respondents expect the US economy to grow in excess of 3.5% over the next 12 months.

The executives surveyed are equally optimistic about their company's success and performance in the year ahead, particularly across key business metrics such as employment, productivity, profits and capital investment. 78% of respondents expect revenue growth in excess of 5%.

"Our postelection survey paints a positive picture for breakout growth in 2017, pointing to a strengthening economy and potential improvement in business conditions year-over-year," says Roger Nanney, vice chairman, Deloitte LLP, and national managing partner of Deloitte Growth Enterprise Services.

In addition, the survey revealed that two-thirds of respondents believe the US election results will boost the US economy; another 63% believe the new administration will have a positive impact on their company's operations.

Optimism tempered by heavy dose of uncertainty
While postelection promises have buoyed confidence in the economy and in company growth among private company and middle market executives, the results also show increased uncertainty: 70% feel more uncertain than they did a year ago about the main factors driving their future business prospects.

"Certain economic and geopolitical issues are among the obstacles these executives cite in the survey," says Bob Rosone, managing director, Deloitte Growth Enterprise Services, Deloitte LLP. "However, the respondents appear hopeful that these challenges might be addressed with policy changes by the new administration."

According to the survey, business leaders see increased regulatory compliance (33%), keeping up with the pace of technology (33%), and rising health care costs (32%) as the top three obstacles to their company's growth. Executives also emphasized skills shortages as a growing concern, increasing by 10 percentage points from last year as a roadblock to economic and business growth.

When asked which government measures would help their businesses grow the most over the next 12 months, the No. 1 response cited was reducing corporate tax rates; keeping interest rates low, rolling back health care costs, and supporting infrastructure needs were all tied for the next most important measure.

Technology and talent continue to drive mid-market investments
Technology yet again tops the list as the key investment priority for surveyed companies over the next 12 months. Business leaders are particularly looking to focus their technology investments on cloud computing (42%), data analytics (40%), and customer relationship management (34%). They indicated the greatest potential returns from technology investments like these may be business process improvement, employee productivity and customer engagement.

Employee development and training also continue to be a key investment, as 72% of survey respondents indicated they have difficulty finding new employees with the right skills and education. For this reason, training (47%), increasing full-time employees (44%), and increasing compensation (33%) were cited as the top investments in talent over the next 12 months.

Mid-market companies tap M&A and IPO to remain in growth mode
According to the survey, private and mid-market companies are also looking to mergers and acquisitions (M&A) and initial public offerings (IPOs) to reach their business goals. While global M&A and IPO activity slowed sharply in 2016, more companies from the survey expect to pursue deals and go public in 2017.

More than half (53%) of the companies surveyed say they will likely pursue M&A as an acquirer, up from 39% a year ago. Furthermore, 45% of companies say they will likely be an M&A target, up from just 21% last year. Two of the main factors that respondents believe will drive M&A activity in their company over the next 12 months are increased availability of capital and renewed confidence in the economy.

As for pursuing an IPO, 28% of companies reported that they would likely go public in the next 12 months, nearly doubling the number of companies from last year (15%). Reasons cited include broadening the exposure of the company's brand and products, the cost-effectiveness of equity capital, and the need for additional capital to fuel growth.

Companies look to global markets to help address challenges
The survey reiterated the importance of the global economy as US mid-market companies are increasingly looking overseas to expand their operations, boost their productivity, and develop new products and services.

More than half of the companies surveyed expect to increase their revenues generated outside of the US, with 29% predicting revenue increases between 26 and 40% over the next 12 months. Canada, Western Europe, and Asia Pacific are expected to be the top three contributing markets. Additionally, nearly 60% of mid-market companies expect to have 11% or more of their workforce outside the US, compared to 42% currently. This will be an important trend to follow as the skills gap consistently emerges as a growing concern.

"As mid-market companies plan for overseas expansion and closing the skills gap, new policies and regulations around trade could have a significant impact on economic activities abroad," concluded Nanney. "The good news is that companies in this segment are confident and looking for opportunities to improve their businesses in an ever-changing landscape.”

(Source: Deloitte)

With an in-depth analysis into the overall effect of the pound’s fluctuation on small businesses, here Saskia Johnston, Foreign Exchange Expert at Sable International provides exclusive insight for Finance Monthly’s economy savvy on several ways SMEs can protect themselves for the coming years.

As we wait to see what kind of effect the UK’s looming exit from the European Union will have on the national economy, there is very little in the way of absolute certainties. The weakening pound is one of the only tangible consequences of the vote so far (political unrest notwithstanding), to the point that HSBC’s chief currencies analyst described it as the ‘official Opposition’ to the Brexit-enabling UK government.

But beyond the politics and macroeconomics of it, a weak pound has an immediate effect on the bottom line of many UK-based SMEs. Any company importing products from Europe has seen costs rise by at least 22% - enough to deliver a serious blow to margins, and for businesses with sensitive enough cashflows, enough to be outright lethal.

If you’re running one of these SMEs, it’s vital to protect your organisation against exposure to the weakening pound. Here’s how.

Forward contracts

As the UK and the EU continue to circle around each other, each peering suspiciously at the other, currency markets will continue to be volatile. Uncertainty is the new norm, so make use of whatever certainty is available.

Forward contracts represent a kind of security, if not certainty, for any company with a foreign currency amount due at an agreed date. They involve you agreeing a fixed exchange rate at a certain point in the future, and can cover an individual payment or multiple payments across different periods of time.

By setting these dates in advance, you effectively agree to buy or sell the pound at the predetermined price point for up to a year in advance of the sale or purchase. This removes currency risk for you and your supplier or customer – after all, for all that the pound has weakened in recent months, it also tends to shoot back up at times that might be inconvenient for the other party. It may limit your upside gain, but it takes the element of chance and the risk inherent in a changing political context out of the equation – allowing you to lock in your profit and continue working on your projects without losing money.

Limit orders and stop-loss orders.

If your currency exposure is shorter, it may be worth setting up limit orders on certain transactions.  This has one chief benefit: it allows you to set a price target above where the market is currently trading, ensuring that your orders are automatically filled when this price is hit. This offers a clear upside and allows you to cover your bases in the event that the pound outperforms expectations.

Stop-loss orders offer the opposite, doing exactly what the name implies: preventing unnecessary loss. They insure you against the possibility of currency underperformance, allowing you to set a “worst case” price against the current market level.

Your order will be filled if the market drops to (or past) your protective price.

One Cancels the Other (OCO)

Of course, limit and stop orders are naturally complementary, and it’s possible to use both as part of a combined One Cancels the Other (OCO). This kind of arrangement allows you to run a limit and stop-loss order together, ensuring that the second your upper or lower price limits are hit, your orders will be filled – with the unfulfilled price target being immediately cancelled. You can also split your gross amount up into a number of smaller transfers if your currency need isn’t especially pressing.

This goes some way towards mitigating your risk and improving your trading position. When you know what your upper and lower rate limits are, much of the uncertainty of currency fluctuation is entirely removed – allowing you to ring-fence your revenues and focus on the things that matter most to your company, rather than the economic and political factors you can’t directly affect.

Of course, every business has different requirements, and the solution that’s most appropriate for yours won’t always be immediately clear. To truly hedge against the uncertain, it’s important to seek the right foreign exchange advice. Currencies may be unpredictable, but you can set your business up to make the most of them.