SMEs can thrive in a slowing economy

by Holly Williams on 25.11.2011 06:27

SMEs and Business Confidence

Last week saw the release of the Q4 ICAEW/Grant Thornton Business Confidence Monitor (BCM) report.  The findings highlighted the largest decline in the Business Confidence Index (BCI) since the height of the recession in 2009. Decreases in both turnover and profit for two successive quarters were also noted therefore suggesting that growth will be slow. Capital investment has also dropped significantly which implies business nervousness. The report predicted that the UK economy will contract by 0.2% during the final quarter of 2011. This is not good news for SMEs, who have had a difficult time maintaining business levels in the face of the recent volatile market conditions. SMEs are eagerly awaiting the Chancellor’s autumn statement on 29 November, in the hope that the Government will address a number of key issues affecting them such as obtaining finance, exporting, borrowing and training. As the Chancellor’s statement is imminent, ICAEW has produced a list of policy actions which could help restore business confidence in the short term.

If the Government takes action and trading conditions improve, SMEs have the potential to boost UK economic growth by providing jobs amidst rising unemployment levels. On the other hand, despite the lack of confidence in the economy, SMEs can survive by ensuring they are fully equipped with sufficient knowledge to implement strategies that are both innovative and effective.

The BCM has identified exports as one of the key sources of UK growth potential however there appears to be a lack of insight among SMEs on how to conduct business in certain international markets. Key reasons for the lack of exporting among SMEs were discussed at the London conference as not having an actual product to export, exporting not initially being part of the business plan and sufficient existing business in the UK were the main reasons put forward. It was noted that SMEs in the UK need to export to destinations anticipating high growth such as Asia Pacific, the Middle East, Africa and South America focussing beyond the traditional markets of Europe and the USA.  The lack of confidence in exporting coupled with the lack of knowledge in doing so puts UK SMEs at a disadvantage but there are a range of services that can help such as ICAEW’s new Business Advisory Service and the ICAEW and UKTI’s collaborative guide for first time exporters.  

SME Conference London

At ICAEW’s recent SME conference in London, MP Mark Prisk identified the need for the Government to ensure that the UK is both politically and economically stable in order to provide a safe environment for businesses to grow and thrive. He suggested that the Government prioritised implementing measures to make the UK the best place in Europe to set-up, finance and expand a business.

Mark Prisk also advised SMEs to adapt to contemporary circumstances and the modern environment.  SMEs need to ensure they are fully prepared and have an awareness of the alternatives available to them regarding finance options and are able to select the correct export strategy to expand.

SME Conference North West

We are holding an SME Conference in the North West, conveniently on the same day that the Chancellor, George Osborne will make his quarterly address.  The key actions will be outlined during a session at the conference. ICAEW will give its stance on the statement and you will have the opportunity to ask questions and discuss the implications of the Chancellor’s chosen actions.

Advice will be given on key topics affecting SME’s such as exporting, obtaining finance, alternative finance options, borrowing, utilising effective technology to support growth and attracting and retaining the best employees and how to reap the benefits from social media networking. Clive Drinkwater will explain exactly how UKTI can support SMEs, how to identify high value opportunities in international markets and also how to employ appropriate market entry strategies. Santander’s Chris Sharkey will outline the options available to SMEs for accessing external finance and provide guidance on how to manage your relationship with your bank.

Difficulties obtaining finance

A recent bank-funded quarterly Business Monitor has indicated that banks were eight times as likely to reject loan applications and twice as likely to reject overdraft applications as they had been before the credit crisis of 2009. The research found that 95% of those rejected for a loan application were not offered an alternative.  New businesses appear to have suffered the most, with just over a third of first time applications for overdrafts being successful compared to 96% of those renewing finance. Many applicants are reluctant to even attempt to gain external finance as they either felt they would be unsuccessful because of the lack of stability in the economy. 

Last week BDRC Continental published the second quarterly SME Finance Monitor. This independent report investigated the availability of finance for the UK’s SMEs and this showed that the economic climate and discouragement are the main barriers to borrowing. It is a vicious circle as SMEs are fundamental to future UK economic growth; however the majority of SMEs are unable to obtain external finance or experience difficulties in doing so, which is a significant barrier to growth.

As the 29 November draws nearer SMEs are urged to remain positive and reminded that some sectors are seeing growth potential. SMEs can put their business in a favourable position for growth simply through education and innovation. Attending the SME Conference is a good place to start.