Originally posted on 2 Jan 2014

The great and late Napoleon Hill said those words. He meant that even if you don’t achieve any impressive accomplishments in life, it is important to do your best in everything that you do, including the little things. Inspirationally, – Dwight D Eisenhower said: What counts is not necessarily the size of the dog in the fight–it’s the size of the fight in the dog. Being a small business isn’t as hard as some people make out. After all, most successful businesses started out very small.

In this article, I’ve provided a round-up of factors, fears and finance issues facing SMEs. As you can see towards the end of the article, the impact of cloud computing and the adoption of technology choices, could set SMEs aside from their bigger rivals. Indeed, it’s no longer necessary to be big to succeed – an earlier post from me – In Tomorrow’s Business, Size Doesn’t Matter said that increasingly, the distinctions between differently sized businesses are disappearing.

But today, let me start with banking: new bank Aldermore has come a long way since launching in 2009. Last year, Mark Stephens, group commercial director at the bank acknowledged that the current environment is making it harder than ever for entrepreneurs and small and medium-sized businesses in the UK to operate. SMEs are the lifeblood of the UK economy and it is imperative they are given the right support for the economy to continue its recovery. He says that the most common ways for businesses to gain access to finance currently are through bank overdraft facilities and loans, but this is changing. The economy, or rather the state of it, is cited as the main obstacle to the success of businesses and 8% say cash flow is their main challenge while 6% say obtaining finance is a major barrier.

Famously, entrepreneur James Dyson was turned down by every bank for a start-up loan and was forced to seek alternative methods of funding to get his business on the map.

Mark Stephens says that Aldermore has lent more than £1.2bn to SMEs over the past four years and their mission is to continue to increase our lending to businesses at a time when many large banks are scaling back their lending. Interestingly he says that Disney, Microsoft, McDonalds, Procter & Gamble – some of the most successful businesses around today – were started during periods of economic uncertainty. Necessity is the mother of invention and when redundancies go up, inevitably people see it as an opportunity to start again and do something they are passionate about. 

He uses a great quote from writer Vivian Greene and one I think that is apt for many businesses in the UK at present, “Life isn’t about waiting for the storm to pass. It is about learning to dance in the rain.” 
As a bank, we are doing all we can to help SMEs dance in the rain.


British SMEs show signs of optimism in global surveys

Having a positive attitude always helps and it certainly looks like SMEs have an abundance of that characteristic: Global research for Zurich Insurance shows optimism amongst British SMEs with 34% of decision makers being optimistic about their ability to diversify with new ranges of products or services. The global average is under 19% suggesting that small businesses in the UK are better placed to meet the changing challenges they face.
The new research from Zurich (conducted in the UK by YouGov and elsewhere globally by GfK), examined the challenges, risks and opportunities for SMEs around the world. See press release here.

British SME Survey

  • Around 1 in 7 (14%) of small businesses in the UK said that they had reduced their prices, and 9% said that they have reduced wages in the last 12 months.
  • Over a third of the small businesses surveyed in the UK feel confident about making the most of new customer segments, with 34% stating this as another one of the three biggest opportunities to their business.
  • In the past 12 months, over a quarter (28.6%) of respondents say their businesses expanded activity to target new customers in domestic markets.
  • Almost a quarter (23%) have diversified their product range and a similar amount (23.9%) felt confident enough to raise their prices in the past year.
  • British SME are concerned about risks in their markets, with almost half (46%) saying that high competition / lower prices impacting sales margins is one of the three key risks to their business.
  • Over a third of respondents are concerned about lack of consumer demand, with 33.7% stating this as a key risk, which may be a reason for the focus in diversification and why only a small number (7.7%) say their business has obtained additional financial investment or extended credit terms in the past 12 months.
  • Around a sixth of respondents are concerned about a failure of partners and suppliers with 16.6% stating this as a key risk to their business.

Are there really opportunities in China for SMEs?

Yes, China presents a great opportunity for UK companies despite being a challenging market for small businesses, according to the Head of Advanced Engineering & Transport for UKTI, in an article here.  Ian Lockhart, based at the British Embassy in Beijing, talked to Information Daily about the challenges and opportunities of new companies entering the Chinese market.  He especially believes that there are a lot of green technologies, being developed in the UK, which are of increasing interest to the Chinese.


Careful though – the emergence of zombies

Q3 of 2013 saw the first signs of a recovery in the UK, and with it a debate about the existence and prospects of so-called ‘zombie’ companies, reported on here. These businesses are unable to create value and grow, yet somehow survive thanks to banks’ forbearance and low interest rates.

Warnings abound against mistaking the ‘simply ill’ for the ‘living dead’. Imaginatively, to help separate fact from fiction, ACCA invited a group of economists, bankers, representatives of credit rating agencies and turnaround professionals to a debate that we felt was long-overdue. The debate, which took place last November, explored the definitions, the demographics, the economics and the turnaround prospects of the UK’s supposed ‘zombie’ companies, but also the unseen side of the recovery: the health of UK banks, the skills of entrepreneurs, managers and advisers, and the ability of the UK economy to allocate resources.

On 2 January 2014, the insolvency trade body R3 reported that the UK ‘zombie business’ population has, in fact, fallen: the number of these businesses’ – those only able to pay the interest on their debts – has fallen to 103,000 from a peak of 160,000 in November 2012, according to R3 research.

The number of ‘zombie businesses’ – 103,000 – is equivalent to 6% of UK businesses with a turnover of over £50,000.

Liz Bingham, president of R3, said: “While we have seen ‘zombie business’ numbers fall and stabilise, there hasn’t been a corresponding rise in corporate insolvencies. Encouragingly, many struggling businesses will have used the unexpected grace period between recession and recovery to put their house in order, allowing them to spring ‘back to life’. However, our research also shows thousands of businesses moving beyond ‘struggling but surviving’ into potentially dangerous territory.”

The R3 research shows a record 166,000 businesses saying they are having to negotiate payment terms with creditors. 96,000 businesses say they would be unable to repay debts if there was a small increase in interest rates – the highest number of businesses in this position for over a year.

Liz Bingham adds: “Whereas ‘zombie businesses’ can keep going for the time being, businesses in these latter two situations are approaching crunch time. It’s a positive [sign] that businesses are taking action and addressing their problems by talking to their creditors. But, unfortunately, successfully negotiating new payment terms that work for both the creditor and debtor isn’t always possible.”

She adds a warning: “Whether or not there is an insolvency ‘spike’ still to come depends on the fortunes of those companies that are negotiating with their creditors or who would be unable to pay their debts if interest rates were to rise. A genuine ‘spike’ in insolvencies may now be unlikely, but there could well be a prolonged period where corporate insolvency numbers are higher than where they might typically be, so long after a recession.”


Improving fortunes?     Number of British businesses who are…

June 2012 November 2012 February 2013 May 2013 August 2013 November 2013
Having to negotiate payment terms with creditors

130,000

75,000

74,000

137,000

93,000

166,000

Unable to repay debts if small increase in interest rates

145,000

91,000

47,000

69,000

34,000

96,000

Struggling to pay debts when they fall due

110,000

111,000

101,000

134,000

98,000

56,000

Just paying interest on debts

146,000

160,000

135,000

108,000

102,000

103,000


A ‘winter of growth’ for UK’s small businesses: A new report from Cebr and British Gas Business

This winter will see the strongest SME growth since the financial crisis began, according to a report from the Centre for Economic and Business Research (Cebr), commissioned by British Gas Business and reported on here.

The research predicts £400bn of revenue for the UK’s small businesses during winter 2013/14, representing a 7% increase on the same period last year, and 12% up since winter 2010/11.Wholesalers have the largest opportunity, with an estimated £130 billion of potential revenue available, whilst retail and manufacturing businesses are looking to share a slice of £24bn and £42bn respectively.

The winter growth opportunity varies by SME sector:

  • Educational businesses have the largest proportion (27.2%) of turnover in winter, as the long school and university summer break pushes work into other parts of the year.
  • Winter is quietest for construction firms, who only generate around 22% of their annual turnover between December and February.
  • The winter months also present a number of significant challenges for SMEs. The lead up to Christmas brings bumper sales for many retailers and other businesses, but this is typically followed by lower revenues in January and February.

Severe weather can compound the pressures on small businesses. Cebr forecast that a repeat of the kind of supply chain disruption caused by snow and colder weather in 2010 would cost the economy more than £1.9bn this winter, wiping 0.5% off UK economic growth.

The unique peaks and troughs resulting from Christmas create both opportunities and risks for all small businesses, with many more liquidations and bankruptcies coming in Q1 compared with any other time of year: Q1 liquidations are around 14% higher than average in the wholesale and retail sector; whilst small financial intermediaries in fact see 7% fewer liquidations than the industry’s quarterly average.

Improved Borrowing Landscape
The research shows that many SMEs continue to face significant difficulties in accessing the finance necessary to realise the growth opportunity. Over the past three years, small and medium-sized businesses have borrowed more than they have paid back in only three given months, indicative of an unfavourable credit market.

Online trading
The research also reveals that online shopping will play a major role in SME growth this year.


Tackling the IT security and compliance challenges for SMEs

While mentioning online trading, it’s worth talking about the IT security and compliance challenges that SMEs face. This was covered in an article here.

Cyber threats at SMEs
Don Smith, vice-president of engineering and technology at Dell SecureWorks, says there is a real gap in understanding of the scale of the cyber threat that organisations face. “On average we see two positive security incidents per week per customer. SMEs are exposed because they commonly have no full-time security staff and can’t track the security landscape,” he said.

Compliance issues
SMEs are often overwhelmed by the sheer volume of regulatory compliance around security, with PCI-DSS (payment card industry data security standard) seen as a particularly expensive headache for many. SMEs can also face difficulties in understanding what laws and regulations they must comply with.

Mobile payments and cloud services
Mobile payments and cloud services are just some of the technology trends that SMEs should be embracing and developing in 2014, according to a posting on Information Age last month, here. The article says that technology and business go hand in hand:  for large firms, early adoption tends to ingrain technology in the workings of a business, and it should be no different for the UK’s SMEs.  I agree with all of this.

The Information Age article credits Forbes, with saying: business networks is now a must-have rather than a perk. It suggests four technology trends for 2014 that SMEs should be embracing and developing.

  • Mobile payments: Mobile payment systems allow SMEs and sole traders to take and make payments on-the-go, even on a mobile phone.
  • Social media: Social media exposure has changed the face of marketing around the globe. Social media is about choice, exposure, interaction and interest. Every SME should be making a mark. They need to dig in and branch out with regular, honest, good quality content to inform, entertain and engage.
  • Exporting online: The current coalition government is keen to promote UK SME exports. For many SMEs, that means credit. Not sure if your SME’s Credit Expert Report is up to the challenge? UKTI wants to make business advice and credit more readily available to SMEs in the hope of doubling the UK’s SME exports by 2020. Chancellor Osborne has cited China as being a huge potential market for British SME products and services, making website localisation a key tech trend.
  • Cloud services: Cloud storage and IT services are a common solution for businesses of all sizes. And for SMEs, the growth in demand for cloud services means more affordable solutions are cropping up here in the UK.
Martin Pollins

Martin Pollins

Managing Director at Bizezia
Martin Pollins is a Chartered Accountant with wide experience in corporate finance and business management. He holds a number of directorships and has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX.

He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.

Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).

Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.
Martin Pollins
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