The Big Picture - Prepare For Growth

11/27/2013
Gauge

Growing confidence among UK SMEs may be justified - although challenges remain, says Peter Ewen


Peter EwenAs the UK economy finally checks out of intensive care, a sense of cautious optimism prevails. Over the last few weeks we’ve seen the Bank of England signalling more bullish growth expectations and the OECD predicting a 1.4% rise in UK GDP in 2013. That’s a significant upgrade from the previous forecast of 0.8%. What’s more, the organisation predicts a growth rate of 2.4% in 2014. All good news and, crucially, our research suggests the SME sector – the motor of the British economy – is also looking forward to a period of expansion.

The ABN AMRO ‘Road to Growth’ survey of decision-makers within SMEs has found that more than two thirds of Britain’s small and medium-sized enterprises are planning to grow over the next one to two years. It’s an indication of growing confidence and the increasing strength of the economy. Underlining that ambition, 58% of interviewees said they were more actively considering growth opportunities than they were a year earlier. We ourselves have seen the beginnings of a shift in confidence with both in terms of the number of funding solutions we’ve been asked to provide but also the reason for finance. Growth seems to be making a comeback and it’s just these type of opportunities which we love to support – take a look at the recent successes of Prism Network and Covpress.

But questions remain. When you look at the bigger economic picture, the predicted growth in the UK economy could be derailed by weakening economic performance elsewhere in the world, notably in the Eurozone. Meanwhile, our survey finds that SMEs have their own issues to address.

For one thing, a significant number of SMEs admit that they are to some extent playing catch-up, with more than half (55%) of decision-makers saying that strategic decisions were – perhaps understandably – delayed during the prolonged period of uncertainty that afflicted the economy. What’s more, around 40% of decision-makers believe their businesses are currently in a state of limbo, their growth chances hampered by inaction.  

It would be easy to draw the conclusion that this is the result of challenging economic circumstances stretched out across a longer period of time than anyone expected. However, our survey suggests that there may be something more fundamental going on.

When asked about the roadblocks to growth, 22% of respondents cited the differing priorities of senior decision-makers and business leaders, while 24% said those diverging priorities had become much more pronounced as a result of hard economic times. And as the recovery gains traction, around half of the decision-makers felt they didn’t have the right people or finance in place to take full advantage.

Clearly, when you consider the numbers, not all or even a majority of SMEs face these problems of diverging priorities and agenda, but clearly a significant minority do.

And there’s a wider point here. Confidence is growing, but if SMEs are to take full advantage, it’s important for stakeholders to align their priorities and work together towards the best possible outcome.

Certainly we have seen transactions on the rise in the both the SME sector and in the larger corporates – with business’ stepping up at gear via MBO or M&A activity – or accelerating growth to prepare for that eventuality.

For many businesses, this will require stakeholders to sit down and hammer out thorny issues such as the business plan, succession planning and exit strategies for shareholders. And, of course, financiers can play their part. 

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