The Federation of Small Businesses (FSB) latest monthly survey shows that a quarter of all respondents are dissatisfied with the support offered by their high street bank over the last 12 months. This comes on the same day as the Future of Banking Commission report into the banking sector.

Throughout the duration of the recession small firms have faced difficulties in accessing finance and credit, and an FSB-ICM survey of more than 1,300 members showed that 25 per cent of firms are not happy with the support offered during that period – equivalent to 1.2 million small businesses.

The results show that the level of dissatisfaction rises as the number of business managers in charge of the account over the previous two years increases.

Dissatisfaction ratings for those who have had one (13%) or two (27%) business managers is quite low but the rating increases significantly when you get to those firms which have three or more, with three at 52 per cent, four at 53 per cent and five at 70 per cent dissatisfaction.

Despite 26 per cent of firms saying that having a good working relationship with their bank manager is one of the most important factors in their choice of high street bank, almost half (46%) of respondents’ bank managers are not based locally.

Other factors important in the choice of bank for small firms are convenient location of the branch (33%), holding a personal account with them (30%) and having the most competitive business account package (30%) – which 21 per cent of respondents note as the single most important factor.

The FSB is calling for the establishment of a Post Bank utilising the Post Office network. This will provide a local and trusted option for the UKs small businesses as well as providing more competition into the banking sector.

John Walker, National Chairman, Federation of Small Businesses, said:

“As we move into recovery it is imperative that the banks start to engage with their customers again.  Businesses need to have a good relationship with their bank manager and as many aren’t based locally this can prove difficult.

“On average, the firms surveyed had held their account at the same bank for 14.7 years. When they first started banking there, the manager would have known their name and the business and would have been the one to make a decision about the account, not a centrally based computer as happens now.

“The future health of the economy depends on restoring trust between small firms and the banking system, as turning ideas and innovation into business growth requires a reliable financial partner. Businesses also need to have a right to appeal decisions the high street banks make which they deem unfair.”

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The website, which aims to give the public the chance to nominate the laws they would like to see abolished will also ask which regulations should be removed to make running a business easier.

A third (33%) of small business owners said that regulation was the biggest barrier to growth in 2009, and the FSB has set up its own portal to encourage member feedback on what regulation they would like to see removed.

The announcement was made on the same day that a new Cabinet committee with the job of reducing the heavy burden of red tape on business, chaired by Business Secretary Vince Cable, met for the first time.

Mike Cherry, Policy Chairman, Federation of Small Businesses, said:

“Giving the public and business owners the chance to shape the regulation and legislation which directly affects them is a welcome move by the Government. We urge our members to log on to the website to help reduce the bureaucracy faced by small firms.

“Small businesses want to grow, but are stifled by red tape and excessive legislation, with 33 per cent of FSB members citing regulation as the biggest obstacle to growth in 2009.

“We have seen similar initiatives from previous administrations and we hope that the Government puts the needs of the 4.8 million small businesses in the UK first.”

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Business Secretary Vince Cable has hit out as ‘misleading’ banks’ claims that, despite demand for lending being low, approval rates are high. In a green paper launched today entitled ‘Financing a Private Sector Recovery’ banks could face penalties for failing to boost lending to small businesses.

According to the Forum’s latest Economy Watch survey there is ‘significant latent demand’ that is not being met by banks, contrary to claims made by several lenders.

The Forum’s July survey shows that loan facilities for the 358 members on the Economy Watch member panel have declined by £66,000 during the past month, while overdrafts were down by £34,500.

This deterioration comes despite an anticipated requirement for external finance of £1,057,000 per month, recorded in January 2010.

In all, just 1% of respondents said access to finance has improved, compared to 3% in May, and 15% said it has worsened – almost four times the number in May when 4% reported a decline. In addition, 67% have seen no changes in their ability to access to finance.

The majority of the cuts were to overdrafts, with some businesses reporting reductions of more than 50% and even outright cancellations to their overdraft facilities. However, the biggest individual reductions came in the form of rejected loan applications and the withdrawal of credit by factorers.

“Contrary to what some of the banks are saying, some firms are still not able to access the finance they need and both business growth and economic recovery is under threat as a result,” said the Forum’s Head of Policy Matt Goodman. “According to our members, demand is certainly there but lenders are not providing the funding or the levels of service that they should be. They are telling us that creeping costs and charges are making finance that is available less accessible.”

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In a survey Angels Den conducted with 50 experienced Angels, a staggering 73% said they used their ‘gut feel’ to a great extent or as the main way to value an early stage business and every single Angel said they used it to some extent . “When a company is just starting out it generally has no assets or track record on which to base an accurate valuation.” said Lois Cook, co-founder of Angels Den (www.angelsden.co.uk), one of Europe’s largest Angel networks. “Instead most Angels rely on their own intuitive judgement of how much money the company could make and what share would make that a good investment.”
Human and market factors also play a big part, the main one being the management team, and whether they could work with them, which was used to a great extent by around half the Angels.

Surprisingly, most said that they don’t rely to a great extent on an accountant’s or professional advisor’s valuation. Almost a fifth of respondents said they didn’t rely “at all” on their advisor’s calculations. Only 5% said that they relied completely on an advisor’s calculations.

“Angel investors are drawn to entrepreneurs with passion,” said Bill Morrow, co-founder of Angels Den. “The most recent deals we have done have been based on personality, on the Angel seeing some spark and almost investing in the person rather than the idea,” explains Bill. “Business Angels invest up to £1bn a year in early stage businesses in the UK. They are the life-blood of the start-up business world. As well as finance, Angel investors invest knowledge into young companies.”
In the three years since it launched, Angels Den has become one of the largest Angel networks in the UK and Europe. Over 3,000 plus Angels are registered directly on the site with links to thousands more via syndicates.

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According to the survey, nearly two thirds (64 per cent) of credit professionals anticipate that business failure rates will rise by more than 10 per cent during the coming months, with 13 per cent of those questioned forecasting that the insolvency hike will exceed 20 per cent as public sector agency buying power is diminished.

Despite this warning from credit professionals that the knock-on effect on the wider economy is set to be painful, only one third of the companies they represent (33 per cent) are already monitoring actively their customers’ reliance on public sector contracts as a source of revenue as an established part of their own supply chain risk management process.

Meanwhile, despite the looming prospect of a surge in company failures, just under half (49 per cent) of credit managers questioned agree or strongly agree that a rise in business failures will be a price worth paying in order to restore the UK’s future economic stability.

Martin Williams, Managing Director, Graydon UK, said: “Credit managers are clearly well aware of the potential consequences of scaling back public spending at the rapid pace being advocated by the new Government. But despite the prospect of a commercial insolvency boulder gathering momentum as it rolls down the economic hillside, the potential dangers have not yet been recognised by other operational areas.

“Firms need to heed this warning now and ensure they are fully equipped to monitor exposure to public sector based revenues across the entire length of their supply chains. The failure of a key supplier or customer dependent upon Government contracts could inflict huge damage to business stability at very short notice.”

In addition to public spending cuts, the survey also revealed that four fifths (79 per cent) of respondents agreed that the rising number of rejections by HMRC to businesses applying for its Time to Pay tax deferral scheme will add to predicted rise in insolvencies across the UK.

Martin Williams added: “HMRC is clamping down on firms’ requests for additional time to meet their tax liabilities. Credit managers are already anticipating the critical impact this could have on businesses already struggling to meet their other financial obligations, in particular those who did not set cash aside to pay the tax man when times were good economically.

“And although firms can take steps to assess how they will be affected by public spending cuts they cannot anticipate how they will be affected by the winding up of the Time to Pay programme as HMRC has refused to publish a list of applicants.

“The Government’s reasoning here is justifiable as by revealing which businesses are asking for additional time, HMRC risks inadvertently shutting off those companies’ other credit lines. Further corporate failures would be the inevitable consequence of this, and HMRC needs to protect its position now that it has lost its preferred creditor status.”

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A study of the reaction of 500 businesses to measures introduced in the emergency Budget, carried out by YouGov research, found that 30 per cent of respondents believe that the rise in VAT from 17.5 per cent to 20 per cent, planned for January 2011, will have a detrimental impact.

As a result, 19 per cent of those expressing a concern intend to freeze or reduce employee pay.

A similar proportion (31 per cent) do not think that the Budget’s national insurance announcement, which will see the threshold at which employers start to pay NI climb by £21 a week, will encourage them to take on more staff.

John Walker, the national chairman of the Federation of Small Businesses (FSB), said: “This research highlights the feelings of small firms about the potential problems they face come the New Year. For many, the increase in VAT to 20 per cent in January 2011 could put businesses at serious risk.

“The increase will especially hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.

“Even the move to decrease VAT by the previous administration cost small businesses up to £1,500 in bureaucracy alone.”

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Of the 439 manufacturers that responded to the Quarterly Industrial Trends Survey, 38% said output rose during the last quarter, while 15% said it fell. The resulting rounded balance of +24% is the fastest growth since April 1995 (+26%), and a marked improvement on the previous quarter’s flat performance (+1%).

A strong rise in home-grown orders helped boost output. 29% of firms said the volume of domestic orders rose and 19% said they fell, giving a balance of +10%, the strongest since April 2004 (+12%).

Overseas demand was buoyant with 28% of firms reporting a rise in export order volumes, and 11% a decline, giving a rounded balance +18%. As a result, the volume of total new orders, which reflects combined domestic and overseas orders, rose (+18%).

The rise in output was also driven by a shift in the stock cycle, which saw firms building up inventories of raw materials and finished goods.

Looking ahead to the next three months, manufacturing output is expected to rise again, although at a slower pace (+6%), as growth in domestic and export orders is expected to moderate. The balances for expected domestic and export orders are +4% and -3% respectively.

Ian McCafferty, the CBI’s Chief Economic Adviser, said:

“With demand for UK-made goods at home and abroad having strengthened, manufacturing production really stepped up a gear during the past three months. Output was also boosted by firms taking action to rebuild stocks.

“Looking ahead, production is expected to rise further, but at a more moderate rate. In our view the risk of a double-dip recession remains low and the fortunes of the manufacturing sector are continuing to slowly and steadily improve.

“It is particularly encouraging that credit constraints are continuing to ease, and confidence about business and export prospects has risen for the fourth successive quarter.”

Sentiment about the overall business situation and export prospects are continuing to improve with a balance of 10% more optimistic than three months ago.

While costs rose sharply last quarter, their rate of growth is expected to ease. A balance of 25% of firms reported average unit costs rising, the fastest rise since October 2008 (+56%). A balance of +6% said domestic prices increased during the quarter, the first rise in prices since October 2008 (+21%). In the coming quarter, a balance of +12% expect average unit costs to rise and +5% anticipate a rise in domestic prices.

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The rate of growth was four times higher than for the first quarter (0.3 per cent) and the highest since 2006.
Output in the construction industry jumped 6.6 per cent on the quarter, rebounding after bad weather affected the start of the year.

But the main driver behind the improvement was the upturn in the services industry, which saw a 0.9 per cent boost in output, three times better than in the first three months of 2010.
The last time the UK enjoyed such impressive quarterly growth figures was 1999.

Experts, however, warned against premature optimism that the recovery might be accelerating.
Jonathan Loynes of Capital Economics said: “The second quarter’s much stronger than expected rise in UK GDP is a pleasant surprise, but is likely to prove as good as it gets as far as the pace of economic recovery is concerned.

“There are two reasons not to get too over-excited. First, while strong by any ordinary standards, the second quarter’s gain in GDP is less impressive in the light of the sharp falls seen during the recession. There were two quarters when GDP fell by more than 2 per cent and activity is still over 4 per cent below its first-quarter 2008 level.

“And second, with recent business surveys weakening and the fiscal squeeze looming, the second quarter looks very likely to be the peak in terms of the pace of growth - expect a much weaker second half.”
It was a view echoed by Graeme Leach, chief economist at the Institute of Directors: “The latest quarterly GDP figures were good news, but we think they’re likely to be as good as it gets. We do not think this rate of growth can be maintained.”

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The Federation of Small Business (FSB) says that the Royal Mail needs to improve its services if it wants to hold onto its customers.

A report by the FSB, uncovered that the Royal Mail is letting down small firms in the UK by not delivering an acceptable service even though companies continue to be loyal.

The survey reported that 94% of people want a UK-wide postal service and 60% want to continue to receive mail deliveries six days a week.

It has been acknowledges that problems highlighted two years ago have still not been addressed. Many days have been lost often due to strikes of which last postal strike cost businesses an average of £500 to £5,000.

Clive Davenport, trade and industry chairman at the FSB, said: “It is completely unacceptable that small businesses have to take the hit in poor services from the postal service.”

“Two years ago, the Hooper report clearly stated that the Royal Mail and the postal service needed serious reforming to ensure that it is sustainable and provides the service small businesses and consumers deserve.”
However, a Royal Mail spokesperson said that the organisation remained committed to small businesses.

“We recognise the importance of small business to the Royal Mail and are absolutely committed to maintaining and improving our quality of service as well as developing new tools and products aimed specifically at assisting small business.”

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Hays recruitment carried out a survey among 420 employers, which found that 55% small businesses approve of the plans and 70% expect an increase in requests for flexible working and nearly 40% are bracing themselves for a resulting impact on their budgets.

The research highlighted that the main motivation behind offering flexible working is to support workers, with just 18% saying they would offer it simply to comply with legislation. Only 29% feel that offering flexible working is integral to the success of their business.

Charles Logan, Director at Hays, commented: “Employers and their staff see flexible working policies as a positive move but more needs to be done to make sure these are implemented in the workplace. The research shows clear evidence that flexible working can improve productivity and work-balance, if employers can make the types most desired by staff available.”

The survey was also carried out across a span of 680 workers in the UK. 85% said they would be more likely to stay with an employer if they offered flexible working while 95% said such policies help them achieve a good work life balance.

35% of the workers said the main reason they used flexible working is to gain more personal time and to cope with arrangement for children or elderly relatives.

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