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SME bosses predict growth despite worries over management skills

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Well over half of UK SME leaders are optimistic about growing their businesses over the next few years despite rising concerns over the lack of skills – including their own.

A new report from venture capital firm Albion Ventures found that 61 per cent of small to medium-sized firms plan to grow “dramatically” or “moderately” in the next two years. Only four per cent indicated shrinking or winding down was likely.

Around 40 per cent of the survey’s respondents said they were looking to increase staff numbers over the next 12 months, compared with eight per cent who were looking to cut jobs.

However they said finding skilled staff was now the second biggest challenge they faced, up from fifth place in 2014, and expected an “increasingly competitive war for talent” in the years ahead. The sectors most concerned about skilled staff shortages included manufacturing, medical and health services.

Surprisingly, small business owners also raised fears about shortcomings in their own management expertise – it, said Albion, has risen up their list of growth barriers from eleventh to sixth place.

Read more about growth in the UK:

The most confident SMEs are to be found in Yorkshire and South East England with 66 per cent anticipating growth, closely followed by those in North East England, where 65 per cent were optimistic and London with 64 per cent.

East Anglian businesses were the least optimistic with just over half, 55 per cent, of firms anticipating growth. However this was much cheerier than this time last year when only 39 per cent thought expansion was on the cards.

On a sector basis, transport and distribution businesses report the highest levels of confidence with 79 per cent of them expecting growth.

In order to improve productivity firms have become focused on up-skilling existing staff and investing in new technology and processes.

When asked how the government can help SMEs to increase productivity, 42 per cent said that investment in fixed-line broadband would deliver the biggest benefits, followed by roads, 31 per cent and affordable housing, 25 per cent.

Regarding finance, bank loans and overdrafts have continued to fall in popularity – down to 49 per cent from 76 per cent in 2013. The use of third party equity or other long term finance has shot up from 6 per cent in 2013 to 34 per cent in 2015.

Those sectors most willing to seek equity finance were manufacturing, 43 per cent, followed by IT/Telecoms, 40 per cent. The construction industry had the lowest likelihood at 19 per cent.

Millennial entrepreneurs, who admitted to suffering from more skills shortages than their older counterparts, were also found to be more willing to exchange equity for hands-on support – 17 per cent versus 7 per cent of 45 – 54 year olds.

Patrick Reeve, managing partner at Albion Ventures, said: “This year’s report is particularly encouraging as it shows that many of the current barriers to growth are problems of success rather than failure. Concerns about access to finance have given way to shortages of skilled staff and insufficient management expertise. While red tape remains as ever the biggest concern, what has emerged very clearly is a trend towards long term financing horizons and the growth of the equity culture.”

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