Thinktank Venture Finance drew together industry representatives from BIS, the British Business Angels Association, KPMG, the Asset Based Finance Association, the Financial Services Research Forum and various successful small businesses. The report, called Financing Britain’s Growth, boiled down to four main points:
1. Don’t take the recovery for granted
The latest figures show that business insolvencies fell by 11.3 per cent in the fourth quarter of 2010. This is great news for the private sector, but businesses need to remain cautious of the economic hurdles that await them in 2011. As well as a recent blip in the economy, we are yet to feel the full repercussions of the government’s Comprehensive Spending Review and the VAT rise.
In addition to this, HMRC’s Time To Pay (TTP) scheme provided a lifeline for many SMEs during the recent economic storm. However, as Kate Sharp, CEO of the Asset Based Finance Association (ABFA) pointed out, deferred tax payments of this nature can store up problems for the future. The taxman will clearly not wait forever.
2. But have the confidence to grow
Allan Laing, chief executive of manufacturer Pentagon Chemicals, observed that SMEs are very cautious now about seeking and investing capital in new projects. Kate Sharp supported this view in saying that some companies are not using available funds.
In the recession, businesses adopted a defensive formation as their survival instincts kicked in. Now, many are recognising opportunities for growth, from the acquisition of weakened competitors to attacking export markets. Having the confidence to invest in these projects is not only crucial for economic recovery, but also provides a significant first-mover advantage opportunity for those businesses that get it right.
3. Push for the best possible payment terms
Laing of Pentagon Chemicals pinpointed customer uncertainty (specifically second guessing what their biggest customers will want to do next) as one of two major issues currently affecting his business. The second major issue was cashflow management, in particular the credit terms stipulated by customers.
Businesses need to consider what is acceptable to them, and negotiate better terms and conditions with their customers where possible. Also, be realistic – a late payment can be just as, if not more, disruptive than a timely long-term payment.
4. Consider the wider menu of finance options available
There’s an increasing demand from SMEs for finance that is reliable, but also responsive to any change in market conditions or business focus.
SMEs must take stock of the changed finance environment. In Venture Finance’s last credit check survey, two thirds (60 per cent) of accountants said that traditional bank finance is still barely available to UK SMEs, while almost a third (30 per cent) believe that business angels are less accessible.
When asked about the best finance for SME growth, over half of accountants (53 per cent) recommend invoice finance. They also recommend asset-based lending, venture capital and private equity as other options for sustainable growth finance.
The final piece of the puzzle is lenders themselves who need to take a more common-sense approach to lending. SMEs’ priorities have changed, and reliability now trumps price.
Read the full report.
Peter Ewen is managing director of Venture Finance and chairman of the International Factors Group.