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Five tips for SMEs to take away from ABN AMRO Commercial Finance’s Welsh Finance Roundtable Discussion

5th Feb 2015
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In a recent roundtable event hosted by ABN AMRO Commercial Finance, key representatives from various sectors of Welsh finance were invited to take part in an open discussion on the state of finance in Wales.
 
The discussion included speakers from Deloitte and Finance Wales. Over the course of the meeting, attendees were invited to share their insights based on their own experience and expertise.
 
For business owners and financiers with a vested interest in Wales, the insights offered from this discussion are invaluable. Read on to discover our top five points from this discussion.
 
1. Money out is not money wasted
 
An issue that was addressed many times throughout the course of the discussion was that of attitudes to growth. “Growth is a mind-set,” said Kelvin Thomas of ABN AMRO Commercial Finance. “The advice is out there, but it comes with a cost.”
 
By choosing not to explore their options in business consultancy, many Welsh SMEs are denying themselves access to growth, a number of members in the committee concluded.
 
“Business owners see accountants, business management teams, and other types of business services as costs,” said Mike Fenwick of Broomfield & Alexander. “They don’t see how they provide a benefit.”
 
Being “open to ideas” and having the willingness to step outside of one’s comfort zone was proposed by the committee as a solution to the negative perception of business services spending – particular for those businesses which had suffered during the recession.
 
The problem was defined as one localised to Wales. “It’s a culture issue. It’s inherent in the Welsh blood,” Neil McDonagh, owner of HCF Commercial Finance, told the room. “[Welsh business owners] come from community-based areas. [They] would rather do business with people [they] know.”
 
“But the mentality is completely different outside of Wales,” he continued. “People are much more open to ideas, much more prepared to invest in skillsets.”
“It is a unique problem to Wales.”
 
2. Perceptions to borrowing need to change
 
Another limiting factor proposed by the room was that many business owners in Wales have a negative perception towards taking out loans and being in debt. “There is a [significant] percentage of businesses who are saying things along the lines of: ‘I don’t need to borrow, I’m just floating along, I have no aspirations to expand my business’. If they changed their mind-set, certainly they could become borrowers,” suggested Eddie Ball of EB Associates. “And they should.”
 
Many voices in the room echoed this criticism. Once more the problem was described as being confined to Wales. Many speakers voiced their concerns for businesses that would not seek finance solutions to enhance or support their development.
 
But with various finance options available from the Welsh government, experts were keen to differentiate their own services from that of the government’s. “I have five businesses that I work with on a monthly basis,” explained Rob Warlow, owner of Business Loan Services. “It’s interesting to question why they keep coming back, why they pay me a monthly retainer, when they could get it free from the Welsh government.”
 
“It because what they’re getting [from the Welsh government] is so basic, not like what professional advisers offer. There are no assumptions, they don’t consider outside effects on the business. They’re just being told what they think they need.” The bottom line, agreed by many participants, was that the support and options made available by seeking professional finance solutions is an essential service for Welsh business owners.
 
3. Creative Start-Ups need to start making use of Finance Wales
 
The panel at ABN AMRO Commercial Finance’s roundtable event came to an agreement that young entrepreneurs and business-owners, having witnessed the demise of the banks during the last recession, felt dejected and insecure about borrowing money. “We have lots of young talent in Wales. But for the people who are in these creative industries, the outlook is bleak,” said Kelvin Thomas.
 
But for these business owners, one piece of advice remained encouraging. “If you look at the figures, creative industries actually need much less capital to get them on their feet,” Mr Warlow told the room. “With creative industries, their initial investment is all in intellectual capital. They don’t need to make big investments in materials or manufacturing elements.”
 
The cost of creating a tech or creative-based start-up is much less than some suspect. As such, the experts at ABN AMRO Commercial Finance’s discussion agreed with the suggestion that creative start-ups would do well to utilise Finance Wales as their initial source of funding.
 
“The start-up and forecast-led businesses with lots of bright ideas have this great opportunity [in Finance Wales]. They have access to finance without having to go to the banks,” explained Mike Fenwick.
 
4. Alternative lending options are a growing opportunity
 
Alternative lending has increased in popularity by a staggering 64%, according to ABN AMRO Commercial Finance’s Kelvin Thomas.
 
Financing options such as crowdfunding and peer-to-peer lending were a hot point of discussion at the event. “Alternative lending as a whole has grown up,” Mr Thomas stated. “[There has been] a massive leap. That has been driven by the crowdfunding platform, plus banks exiting the SME market. Our market is maturing. What they had 5 years ago doesn’t work now … This is where venture finance is headed.”
 
For smaller businesses in need of instant access to loans of up to £200,000, alternative finance was unanimously described as the ideal solution.
 
But what does this mean for bank lending? According to Rob Warlow, the challenge posed by alternative finance is good for banks. “Bank lending is shrinking,” he said. “And that’s good. We should congratulate banks for shrinking their lending book. It means diversifying, spreading the range of options out. We want to encourage banks to lend more but also to lend right.”
 
5. Businesses should begin to work more closely with their accountant – and accountants should take more responsibility for encouraging growth
 
With businesses being encouraged to spend on third-party services, several attendees at ABN AMRO Commercial Finance’s roundtable were in agreement that the role of the accountant in a business should become more prominent.
 
Kelvin Thomas recounted the results of ABN AMRO Commercial Finance’s own research, which proposed that “the role of the accountant is vital in the SME sector.” Mr Thomas said the accountant should act “as an educator, letting people know it isn’t just about production – you need to focus on growth.”
 
“It leads to a win-win-win situation. It creates a triangle; happy lender, informed client, quality advice.”
 
However, Mr Thomas echoed a previous argument, acknowledging that business owners were not happy spending more to receive better accountancy. “Again it comes back to psyche and cost. People don’t want to see money going out of the business.” Mike Fenwick explained that many business owners “don’t see how they provide a benefit.”
 
“That’s a challenge and someone has to change that.”
 
The problem, according to Mr McDonagh, was that “[accountants] do what they have to do and collect their paycheque.”
 
“That has to change,” stated Mike Fenwick. “You have to be a business adviser.”
 
“The accountancy sector is pivotal,” was the unanimous conclusion.
 
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