Posted on 20 February 2017
A really great question posed by David Bowie in his Black Star album…..and never more relevant to the business market than in these rapidly changing political times. I’m not sure the answer lies in the Black Star album but who knows?
Certainly the 2016 Annual Growth Report by Albion Ventures (published in November 2016 based on surveys in July 2016) sheds some light on the answer as regards SMEs, albeit that it’s potentially already out of date in this fast changing environment.
One measure considered in the report is SME’s confidence in growth which, at one end of the spectrum shows the Midlands topping the UK at 70% (followed by East Anglia at 69% and London at 65%) and, at the lower end, a sobering low 39% for Wales. Generally speaking, the levels seem quite high to me, perhaps reflecting the need for SME owners to be optimists by nature, and the fact that unless a business is very directly affected by the potential impacts of Brexit (e.g. significant imports with weakened Sterling value) sentiment remains robust….at least for now. The regional variances are surprisingly marked though.
In fact, on the Brexit topic, the survey shows that whilst only 6% regard it as a specific barrier to growth, 54% of CEO’s under 35 think it will “hinder access to new markets”. It also shows that Brexit concern is, predictably, highest in Scotland and London, and that younger CEO’s are more concerned than older ones.
As regards the variability of SME’s confidence in growth across different sectors of the economy, the survey shows quite a range – confidence is highest in manufacturing (73%), with IT/Telecoms at 65%, retailing at 54% and construction at 48%. I’m struggling to find logic as to why the ranking is as it is, but maybe it reflects the more global markets for manufactured products (so less reliant on the UK market and less affected by Brexit fears), and IT/Telecoms being a generally younger and more dynamic sector than some.
Interestingly, issues with “red tape and bureaucracy” has fallen from top spot in the list of SME’s grouses for the first time in 4 years; it’s been pipped by the difficulty in finding appropriately skilled staff - and that promises to be an enduring issue because 50% of SME’s with more than 5 staff are looking to recruit between mid-2016 and mid-2018. There are of course Brexit related concerns here, albeit more acute in sectors like Care and Agriculture than in some others. The fact remains though, that without the right people, there will be a natural brake on SMEs’ growth to the extent that robotics and IT can’t replace manpower.
Finally, and on a positive, it seems that access to funding continues to improve for SMEs, now ranking at 13th in the list of issues facing SMEs. Our experience supports this trend, which we think partly results from the long-term, steady growth of asset-based lending which in recent years has been augmented by increasing numbers of alternative finance providers and private capital investors. We hope that continues and that the recent wobbles in (mainly large US based) P2P providers’ share prices (as currency values shift, defaults begin to occur and, in the US, interest rates rise) are merely growing pains always associated with new industries.
So, pending some unpredicted political or economic event, the outlook for 2017 looks good to us at Smith Cooper - and that’s certainly borne out by the workload across our 3 Corporate Finance divisions and, more critically, the pipeline and level of enquiries. What’s almost certain however, is that there will be a few surprises that spring up from the fast changing political and financial landscape we operate within; as such, getting a grip on options, having a contingency plan and making ready expansion or exit plans is a good strategy – and one that we’d be pleased to help with.