SME Business News

Small firms experiencing a tentative recovery, FSB statistics reveal

Ten months of FSB data shows small firms are beginning to enjoy an improved outlook

Small businesses which were hit hard by the worst of the credit crunch and the recession nearly a year ago are starting to experience a tentative recovery, according to analysis by the Federation of Small Businesses (FSB) which has documented the economic downturn’s impact on small firms since last September.

A comparison of FSB data collected over the past ten months suggests that the economic position small businesses are in is starting to improve since a low point at the end of last year.

A rising number of small businesses are now experiencing an increase in trade, with the latest poll showing 23 per cent of FSB members noticing a rise compared with 16 per cent in February.

By the end of last year, up to 40 per cent of small businesses had highlighted the cost of finance as a big problem. Now 25 per cent cite the cost of finance as a concern, which indicates that small firms are seeing a very gradual easing. According to the latest poll, 68 per cent of business owners are looking to act on a rise in confidence and say they plan to grow in the next six months, with firms hoping to invest in new products, more staff and marketing.

Over half of respondents (57 per cent) said they were ‘quite confident’ about the future prospects of their business. The FSB is urging the Government to ensure small firms can be at the forefront of tackling unemployment by supporting apprenticeships, short-time working subsidies and increasing the thresholds before Income Tax and National Insurance contributions are payable, which would benefit employers and employees.

John Wright, National Chairman, Federation of Small Businesses, said: “Small businesses are naturally flexible and innovative in recessions and these figures show that despite the very many negative forces on them, they are being cautiously optimistic and are looking to expand. Although we are certainly not out of the woods yet, many small firms are seeing increased footfall and finding it easier to obtain crucial finance than in the winter months, when things were at their worst so far.

“The Government must look to small businesses to build the post recession economy and help them employ more people and ease the bureaucracy and tax burdens which many still face.”

A new FSB report entitled Social and Environmental Responsibility and the Small Business Owner reveals that a staggering 92% of small businesses are socially and environmentally responsible, with 83% already engaged in waste minimisation and recycling. 41 per cent of businesses bought products specifically because they were better for the environment.

Recent research conducted by the Environment Agency highlighted that 40 per cent of small and medium-sized businesses had an environmental policy implemented. In 2005, the figure was only 25 per cent.

The specific objectives of the survey were to:

- determine to what extent small businesses practice Social and Environmental Responsibility;

- determine what motivates them and what barriers they face;

- to inform the debates taking place in the European parliament and on a national level on how to engage SMEs.

The FSB commented: “This report shows a shift in attitude and a proactive approach by many small businesses to environmental issues.”

The Federation of Small Businesses (FSB) has welcomed the Government’s commitment to ensure universal access to fast broadband, but warns the expected 2mbps by 2012 lacks ambition and shows the UK is in a time-warp.

“Research by the FSB shows that a third of small businesses already have 2mbps broadband speed, yet struggle to do core, day-to-day business activities. More than half of small businesses rely on the internet for up to 50 per cent of their annual turnover, yet simple tasks such as emailing, marketing, buying and selling, are time-consuming because their broadband speeds are letting them down.

“The online world is crucial to small business development, especially for firms in rural Britain where businesses have been waiting for years for promised Government action to deal with the ‘notspots’ - where there is no broadband access.

“By 2012, £1 in every £5 will come from online commerce, but if small businesses are to compete, the Government must take bolder action.  Around 60 per cent of small businesses want a minimum broadband speed of 8mbps. But with Japan leading the way, making high speed broadband of 90mbps available to everyone, the FSB urges the Government to do more.

“Small businesses are ready to play their part. Now the Government needs to step up and take the country into a future when UK businesses are internationally competitive.”

Small and medium sized businesses have been invited to give evidence in a review on the availability of finance.

According to the newly formed Department for Business Innovation and Skills (BIS) the review will determine whether government intervention is needed to ensure adequate finance will be available to firms as the economy improves.

As well as small businesses, the government has extended the invite to contribute to the Rowlands Growth Capital Review to banks, industry representatives, regional agencies, venture capitalists and academics.

BIS said the period immediately following a recession is usually when small and medium sized businesses find it most difficult to access long term growth finance. However, it is also when demand for this type of finance is strongest.

Commenting on the launch of the review, business secretary Lord Mandelson said: “Small businesses will play an important role in the recovery of the British economy. These businesses now have the opportunity to contribute to our thinking on the frameworks we will need to put in place for a competitive, thriving market.”

Christopher Rowlands, who is leading the review, said: “We are keen to hear directly from businesses to ensure our recommendations reflect their needs in an appropriate way.”

Businesses that wish to contribute can visit the Department for Business, Innovation and Skills website at http://www.berr.gov.uk/files/file51817.doc.

Nearly two thirds of UK small firms bear a credit rating which may negatively affect their ability to obtain credit finance and favourable credit terms from suppliers, according to new research from Graydon UK, a leading credit risk management agency.

Using Graydon UKs credit scoring rules, their June 2009 study reveals that 60 per cent of the three million SME businesses analysed were assessed by the agency as being High Risk or Above Normal Risk, in terms of defaulting on trade payments or getting into financial difficulties. Just 13 per cent of the companies reviewed were awarded Low Risk ratings by Graydon UK.

Martin Williams says: “While the recession has unquestionably had an adverse impact on the creditworthiness of small firms in the UK, just as much damage has been inflicted by the sheer absence of relevant information on their financial performance. This lack of data is known to damage companies credit scores, just as it does with personal credit scoring.”

Rising unemployment and falling disposable income growth will lead to a sharp reduction in consumer spending and help to drive business failures up to a record 36,200 (almost one hundred businesses everyday) according to the latest Industry Watch report by accountants and business advisors, BDO Stoy Hayward LLP.

According to the report, low interest rates and policy measures aimed at boosting the economy are not likely to halt the rate of UK business failures until at least  2011, paving the way for a far worse picture to come in 2010  where a staggering 40,400 (111 businesses everyday) are expected to go under.

Shay Bannon, Head of Business Restructuring at BDO Stoy Hayward commented: “Business failures in Great Britain are rising unabated as the fall-out of the economic downturn becomes ever clearer. Consumer spending is set for a steep contraction in 2009 and households will continue to be hit by rising unemployment, weaker earnings growth and reduced perceived wealth levels due to declining asset prices. This will drive up business failures in a number of sectors however, we expect slightly less businesses to fail in 2011 as the banking rescue package, rate cuts and other policy measures begin to significantly slow down the rate at which companies fail.”

FSB welcomes appointment of Sir Alan Sugar as Enterprise Champion

The Federation of Small Businesses (FSB) is celebrating victory with the Government’s introduction of an Enterprise Champion – in the form of respected businessman Sir Alan Sugar.

The FSB has been campaigning for a corporate mediator to act as a go-between for high street banks and small businesses on lending issues and it is now hoped that Sir Alan Sugar can use his role to restore trust and confidence between small businesses and their lenders and ultimately help kick-start the economy.

A recent FSB poll revealed that more than 70 per cent of FSB members thought a corporate mediator would help build better relations between banks and small businesses. The inclusion of prompt payment in his brief is also welcome as this is another big issue impacting on cash-flow.

John Wright, Federation of Small Businesses National Chairman said: “We welcome Sir Alan to his new role and are very pleased the Government has heard our concerns over bank lending. The appointment of enterprise champion Sir Alan, with his stature and no-nonsense approach, should help compel the banks to lend fairly to viable small firms.

“Small businesses thrive on personal and direct relationships but their dealings with the bank manager deteriorated over the last year with increases in the cost of finance and firms being denied new credit. We look forward to working with Sir Alan to help him break down the barriers which have made it so hard for viable new and existing businesses to gain vital loans and overdrafts to help them survive and grow.”

The FPB is urging the Government to step up its efforts to reduce the burden of regulation on small businesses, following new research showing that red tape costs the UK’s smaller business employers almost £12 billion per year.

According to the FPB’s latest Referendum survey on the ‘cost of compliance’, small business employers devote an average of 37 hours each month to complying with regulations. The FPB believes that reducing the time and cost of complying with legislation must not be sidelined, particularly as many firms are struggling to survive because of the recession.

The FPB’s Policy Representative, Matt Goodman, will attend a meeting of the Better Regulation Executive (BRE) today. The meeting follows reports that the Government is not pushing through plans to reduce regulation following its scrapping of ‘regulatory budgets’ that had been earmarked for individual departments.

In addition, two committees on regulation announced by Peter Mandelson in April, the Secretary of State for Business, Innovation and Skills (BIS), have still not been set up. Further, in a recent blog on its website, and ahead of the publication of the Treasury’s forthcoming consultation on regulating lenders, the BRE said that ‘financial services [are] at the forefront of our issues now’.

“As part of a new department with a broader remit, the BRE must continue to put the smallest businesses at the forefront of its plans to change the culture of bureaucracy in the UK,” said Mr Goodman. “Our research shows that complying with red tape remains one of the major cost burdens facing smaller businesses, swallowing up valuable time and money that could be used more profitably elsewhere.”

He added: “In addition, at a time when protecting both workers and businesses should be a priority, regulations are increasingly burdensome as businesses take on more staff.”

The trend for “olderpreneurs” is set to increase with 8% of UK adults aiming to start a business in retirement. This rises to 11% of those currently aged 18-25, suggesting a long-term upward trend.

Commenting on the findings, John Lawson from Standard Life said: “Quite simply, people do not get old like they used to. The Baby Boomers started a trend for redefining what is effectively their ‘third age’ and these findings point to a continued trend for re-writing the rule book for younger generations.

“Whereas a ‘job for life’ is now a thing of the past, fulfilment and job satisfaction are expected. So having worked over 30,000 hours before feeling confident and until age 50 to feel fulfilled, it stands to reason that people will choose to continue to do a job that they enjoy and are good at.”

The research also sought to understand ambition amongst different generations and found that the mean age for feeling most ambitious is 31 years old. Although those respondents aged 18-25 estimated that they would feel most ambitious at 26, those over 55 were, on average, most ambitious at 35.

The study was commissioned as part of Standard Life’s active money campaign launched in recognition that baby boomers are not growing old as they used to and need their money to be as active as they will be. It follows publication of the ‘Death of Retirement’ report earlier this year which found over 45 year olds have greater ambitions for their future than ever before. The olderpreneurs are set to take up a fresh opportunity to use their wealth of experience and shine as a new breed of SME business owner.

Many more firms can now purchase top-up cover as part of the Government’s extended trade credit insurance scheme.

Since 1 May, companies who have had their credit insurance cover reduced have been able to purchase six months top-up cover under the £5bn Government Scheme. In response to business demand, eligibility for the scheme will now be backdated to include suppliers who had their cover reduced since 1 October last year. Previously, the Scheme was available to companies who had cover reduced since April this year.

Business Secretary Lord Mandelson said:”This extension will give more small and medium sized businesses flexibility to respond to a reduction in their credit insurance cover. We are acting decisively to help more businesses and allow them the breathing space to adjust their business models in response to the current climate.”

CBI Director-General, Richard Lambert said: “This change, which the CBI called for, gives more help to those businesses left vulnerable without sufficient trade credit insurance cover since the autumn. Restoring confidence is critical to improving the economy, and this gives companies more certainty about their ability to trade.”

Also credit insurance provider, HCC will join the three largest credit insurers (Euler Hermes, Atradius and Coface) as a provider of the Government Scheme. The Scheme, which runs until 31 December 2009, allows suppliers to purchase Government-backed insurance to either restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £1m (whichever is the lower).

You can find out more information from your trade credit insurer or through Business Link.