SMEs – is there a future?

SMEs – is there a future?

As the info nerd, and the one who pushes hard for a defined business strategy in our small business, I am fascinated by how many SMEs there are in the UK and what their survival rate is.  I want to know what lessons we can learn from others, and what pitfalls we should try to avoid.

SMEs are an integral part of the UK’s economy, with over 99% of all of Britain’s businesses classified as small or medium.  Although there are a record numbers of new start-ups, many don’t stay in business for long; 55% of small and medium-sized enterprises don’t survive more than five years[1].

This doesn’t seem to stop entrepreneurs from chasing their dreams however; between 2010 and March 2017 there was a 17% rise in the number of SMEs[2].  It is good to read some positive statistics.  SMEs are key drivers of growth, and contribute to the overall financial health of the country; in 2015 SMEs had a combined turnover of over £1.5 trillion[3].

As a small business, we are fully committed to not only surviving, but growing and developing our business, however the fact that 55% of start-ups don’t make it is daunting.  What are the barriers to growth?  What do we need to be aware of, so we don’t just become another statistical failure?

In a recent survey, SMEs businesses were found to be predominately self-financing with over half (57%) of businesses claiming they don’t rely on anyone or anything for financial support. Less than one in five (19%) also rely heavily on personal savings[4].

The full impact of Brexit is still unclear, but the recent fall in the value of the pound indicates that it is likely that things are going to be tough for a while.  With increased economic uncertainty and a slowdown in growth forecasted, it is likely that SMEs are going to be hit hard.

It looks like inflation is set to rise for businesses in 2017 because of the weakness in the pound. Businesses that import goods are already finding that items are more expensive and fuel prices are also on the rise[5].  This will, without doubt, have an impact on small businesses across the UK.

Analysis of the latest full year 2014-2015 British Bankers Association (BBA) lending figures shows that across the top 10 cities in the UK, lending dropped by 6%. Tougher lending criteria set by banks have meant that SMEs that wish to borrow have found themselves unable to do so[6].

This all makes for sobering reading.  If small businesses can’t access funding, then they can’t invest in the key areas that need it, to not only enable them to survive this tough economic climate, but grow and thrive.  This particularly affects emerging small businesses, who are beginning to trade in uncertain times with spiralling costs.

Businesses that are further down the road may have cash in business savings accounts, which allows them to plan for their future.  But what about the newbies?  How are we supposed to survive?

Finance is key to the success of any business, but particularly for SMEs; without it we are can hover on the edge of success.  Will we get lucky and break away with the 45% that survive 5 years, or will we flounder and end up as another business that tried and failed to succeed?

Not only do we need access to finance, but we also need to make sure we are on top of our cashflow.  Debtors are high-risk to small business. According to a study by BACs in 2015, the average late payment burden shouldered by smaller companies is more than £30,000, a cumulative total of £32.4billion. This figure is eye watering, and the effect can be crippling.  Time spent chasing unpaid invoices or trawling through emails is time that could be spent adding value to the business.  The £30,000 reduction in cash flow could mean that small businesses cannot afford to add an additional employee to the company, pay overheads or make payments on existing loans[7].

As Nina Skero, Managing Economist at the Centre for Economic and Business Research (Cebr) says “Boosting the availability of financing could encourage SMEs to increase investment in capital, people, research, and domestic or international expansion — ultimately fuelling UK economic success.”

Whether the Government and banks are willing to make this happen still needs to be seen.  For the time being, I will be erring on the side of caution.  SMEs need to keep a tight grip on finances; make clever purchasing decisions negotiating savings wherever possible.  We must also make sure that our invoices are paid on time; if needs be, making tough decisions on who we want to do business with.  We also need to think strategically and consider reigning in our growth plans until the future of the country outside of Europe is clearer, or until we are offered appropriate financial support by the banking sector.


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