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4 key business challenges for 2016

At a glance

  • In 2016, SMEs will have to adjust to a new National Living Wage and deal with the on-going uncertainty over Britain’s future in the EU
  • In addition, they will face a range of other risks, including the growing threat from cyber attackers
  • We offer brokers a quick guide to four key challenges that are likely to be focussing the minds of SME owners in 2016

Are your customers facing a skills shortage? Are they ready for the introduction of the new National Living Wage? How will the uncertainty over Britain’s future in the European Union affect them?

We take a look at some of the most important challenges your SME customers could face in the year ahead.

National Living Wage

From April, workers aged over 25 will be entitled to a National Living Wage (NLW) of at least £7.20 an hour, from 2020, the NLW will rise to £9 an hour.

What does that mean for SMEs? Recent analysis from the Resolution Foundation think-tank found that:

  • Around one in five small business employees will receive a pay rise when the NLW is introduced in April
  • This will increase to three out of 10 workers in 2020
  • Total wage bills will rise by 0.3% in April

John Allan, National Chairman, Federation of Small Businesses, said the NLW would pose, “significant challenges for many small firms, particularly those in the hospitality, retail and social care sectors.”

Recent surveys have found that nearly four-fifths of SMEs believe that the NLW will have a negative impact on their ability to hire staff and grow their business, while only one in 20 think it will have a positive impact on their business.

Brokers should discuss with their customers how the introduction of the NLW might affect them, and whether they have appropriate strategies in place to cope with the change.

Whatever approach your customers adopt – from increasing their prices, to focusing on finding efficiency savings, to hiring a greater proportion of workers under 25 – there will be risks and challenges to consider.

For example, taking on younger staff or apprentices may save money, but will these new recruits have the skills required? One recent survey of businesses that take on school leavers, for instance, found three-quarters of such recruits required significant training to be ready for work. There are also age discrimination laws to consider.

Skills shortages

Having a workforce with the right skills is essential for business growth.

One recent survey discovered that a third of SMEs do not believe their workforce has the skills required to meet their business needs, while another study found that more than a quarter of SME manufacturing and engineering firms believe the lack of skilled potential recruits is a barrier that prevents them from growing.

LivingWage_Infographic

A shortage of skills is a particular challenge for medium-sized companies, with 44% of firms with between 50 and 249 workers citing it as a problem. Nearly nine out of ten (87%) businesses of this size say they plan to increase the skills of their workforce over the next two to three years.

Businesses may take various routes to bridge the skills gap, including:

  • Investing in staff training
  • Setting up apprenticeship programmes
  • Widening the pool of potential talent (e.g. recruiting more workers from overseas)
  • Outsourcing parts of their business where there is a skills gap

Each approach brings unique challenges, from the cost involved in training staff, to the need for robust supply chain management when outsourcing.

Brokers should be aware of how their customers might be affected by a skills gap, and of the strategies they are employing to bridge it.

Britain’s uncertain future in the European Union

The referendum on whether or not Britain leaves the EU could take place as early as spring 2016.

Various polls have attempted to gauge SME opinion on whether Britain exiting the EU – often referred to as ‘Brexit’ – would be a good or a bad thing.

A poll by the Federation of Small Businesses found that SMEs that export to Europe are far more likely to support the UK’s continued membership of the EU.

Brokers should be aware that speculation over a Brexit may already be affecting their SME customers. Nearly a third of SMEs say they have delayed their investment plans in the third quarter of 2015 as a result of uncertainty in the UK’s role in the EU.

Cyber risk

While cyber attacks on major corporations such as TalkTalk and Wetherspoons may generate more media interest, SMEs are increasingly being targeted by cyber criminals too.

Over the past year, 74% of small UK businesses have experienced a cyber breach. It is estimated cybercrime costs British businesses £34 billion a year and can also have a devastating effect on a company’s reputation.

A recent Zurich survey of SMEs in 15 countries found that concern about cybercrime has doubled over the past year, with theft of customer data the biggest worry.

Although it is impossible for SMEs to completely eliminate the threat from cyber criminals, there are measures they can take to reduce the risk.

For example, more than 1,000 UK businesses have adopted Cyber Essentials, a government scheme to protect firms against some of the most common online threats, including viruses, malware and hacking.

Businesses can also build a human line of defence against cyber attack – for example by educating staff on phishing scams and encouraging employees to report these types of scams to their company’s IT department.

An opportunity for brokers

By following developments in the four areas outlined above, brokers can demonstrate their knowledge and expertise to customers.

To find more about the insurance and risk management solutions we can offer your customers, speak to your usual Zurich contact.

Image © Getty

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