Entrepreneurs are reporting a modest uptick in their business's financial outlook since last spring. "Entrepreneurs are moderately positive about their company's financial situation. Although there has been a slight improvement, the level still remains below the measurement from May 2022. Businesses are grappling with some of the same factors affecting households: high interest rates are impacting indebted companies, and rising costs are denting the profitability of many," states Juhana Brotherus, Director and Chief Economist.

A bit over half (58%) of the businesses perceive their financial situation as either very or fairly good. Around 29% gave a "neither good nor bad" assessment, while 17% rated it as fairly or very poor, according to the recent Entrepreneur Poll. This sentiment is strongest among companies with over 10 employees and weakest among solo entrepreneurs.

"The smaller the company, the less favorable the outlook. Business size is indeed the primary distinguishing factor—regional or sectoral variations are surprisingly minimal," notes Brotherus.

A third (32%) of businesses anticipate an improvement in their financial situation over the next year. The highest optimism for improvement is found in Uusimaa region (38%).

"Thankfully, despite the prolonged economic downturn, entrepreneurial confidence in the coming year has remained steadfast. Many are awaiting the new government to deliver on its promises at the outset of their term, which is generating significant interest in next year's budget and labor market reforms," adds Brotherus.

Challenges and Closure Predictions

Nationally, 19% of companies anticipate a decline or closure. This trend is most pronounced in Northern and Eastern Finland (23%).

"Inflation treats companies unevenly: some can raise their prices and profitability to counter increased costs, while others can't transfer these elevated costs to their product prices. Worrisomely, due to inflation, as much as one-fifth of companies have either canceled or postponed their investments. This translates to the deterioration of both a company's and the national economy's growth potential."

Interest Rates Hampering Growth and Investment

Interest rates are indeed affecting businesses. Higher rates have led to a 27% decline in profitability, a 17% postponement or cancellation of investments, and a 15% reduction in growth ambitions.

"Inflation, along with interest rates, is stifling investment and growth aspirations. These figures suggest that the negative impact of an inflation and interest rate peak may persist longer than anticipated on the future development of companies and the economy."

Currently, 39% of companies carry debt. Typically, homes or other properties serve as collateral. Meanwhile, 51% state that interest rates have no impact on their business operations.

Over half (59%) of businesses have no debt at all: the industrial sector accounts for 44%, while professional services boast 78%. The highest number of indebted companies can be found in Northern and Eastern Finland.

"For businesses in debt, over half have homes or properties as collateral. Hence, the development of the housing and property markets is pivotal to the investment capacity of the entire SME sector."

To explore the detailed findings, click here.

The Entrepreneur Poll garnered responses from 1,207 representatives of SMEs between August 9 and August 16, 2023. The confidence interval for the overall result is approximately ± 2.8 percentage points. The survey was conducted by Kantar Public on behalf of the Federation of Finnish Enterprises.