Member Article

Prospects remain uncertain for Small Businesses

Britain’s small businesses are riding the wave of the country’s ongoing economic recovery. The UK suffered a difficult few years in the wake of the credit crunch and financial crisis of 2007 and 2008, but indicators increasingly suggest that a bright future could be around the corner.

This week, a forecast from the Ernst & Young Item Club suggested that Britain is poised for growth, with business investment returning to pre-crisis levels this year. Ernst & Young said that it expects investment to increase by 6.4% each year between now and the end of the decade, buoyed by growing economic confidence and lower rates of corporation tax.

Small and medium-sized enterprises (SMEs) appear to be in rude health, according to a recent survey carried out by American Express. The firm’s research found that 88% of small businesses say they are growing in 2015, compared with just 43% who said the same last year.

American Express also found that three-quarters of SMEs were either hitting or surpassing current growth targets, while owners and CEOs said that on average their turnover had grown by 18% over the past 12 months.

These results reflect the data trends in our Barometer Surveys and, as things stand, the future looks bright. But there are one or two potential dark clouds on the horizon – and they could have a significant impact on firms’ prospects for the next few years.

The first issue concerns the fallout from the financial crisis. As economic events in China over the summer have suggested, the global recovery from the shocks of 2008 is not yet complete, and many analysts believe that there could be further turmoil to come.

It looks like China’s growth is slowing more than had been expected, and falls in the Shanghai stock exchange in August led to share-price slumps around the world. China’s woes could well lead to lower global demand and perhaps even a further downturn in the world economy.

This has serious implications for the availability of credit, for small firms in particular. If the banking sector does suffer further problems, we could see a return to the old days of restricted lending. Already, the Bank of England’s chief economist has suggested that interest rates may have to be cut even further – and could even enter negative territory – if policymakers need to take action to boost the availability of loans.

A squeeze on credit could be exacerbated by new rules – proposed by the Basel Committee on Banking Supervision – which will force banks to hold higher levels of capital against certain loans. The Federation of Small Businesses has warned such legislation could “derail small firms’ ambitions for growth”.

Finally, late payment continues to be a significant problem for SMEs: but the government has just introduced a new Enterprise Bill which aims to tackle the issue.

The Bill will create the role of a small business commissioner and high on their list of priorities will be tackling late payments. Ministers say that SMEs will be able to contact the commissioner when they have issues over unpaid invoices. The commissioner will be able to assist by, for example, signposting firms to the mediation services available to help resolve payment disputes out of court.

There may be tricky economic times ahead, so to ensure their current success continues, SMEs should take steps now to ensure they are prepared to weather any storms.

Find out how the best business leaders are offering alternative ways to fund business growth: A New Landscape: Business lending after the financial crisis. Copy and paste this link into your browser: http://bit.ly/1XyH4W2

This was posted in Bdaily's Members' News section by David Thomson .