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Glimmers of hope in stop-go recovery

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6th Jul 2011
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Business owners and managers are more confident in 2011 than 2010, in spite of some underlying concerns about growth, margins and headcounts, according to a new Baker Tilly survey.

The mid-tier firm works with YouGov to compile an annual survey of owner-managed businesses. Among the 276 respondents this year, 59% expressed positive sentiments about their prospects for 2011 compared to 50% in 2010.

The opportunities exist mainly from winning business from failing competitors, as cited by 41% of the survey respondents; 23% also confirmed that they saw opportunities for reducing costs, while 16% said technology growth and the same proportion cited increased demand for emerging as opportunities.

While the overall picture shows confidence improving, detailed responses uncovered concerns over growth and profitability. Only 44% of respondents expected to see an increase in sales volume this year compared to 61% in 2010. Only 24% anticipated increases in gross margins, compared to 50% of respondents last year. Some 28% of respondents expected headcount to decrease this year, compared to 17% last year.

Other perceived threats included reduced demand (cited by 32% of survey respondents), public sector cuts (30%), increased inflation and rising fuel costs (both 29%). But taken as a whole, the combined figures for major and minor threats were lower than the 2010 results.
 
One issue that has receded as a threat to business is access to credit; 41% said difficulty in obtaining credit was as a threat in 2011, compared to 77% in 2010 and 78% in 2009.

Baker Tilly M&A and private equity partner Ali Aneizi questioned whether this shift was due to banks being “back in business” for lending or because businesses were operating within their means, so fewer of them were looking for credit.

“The aggregate value of UK SME bank deposits is at an all-time high, reported to be close to £60bn. These cash piles have grown as a result of a slowdown in investment and capital expenditure, selling down stock and better credit control,” said Aneizi.

“It is important to bear in mind that these are aggregate figures, and that there are many viable businesses across the UK that would benefit and thrive with easier access to credit. Nonetheless, these cash stockpiles might explain why concern over access to credit has seen such a significant fall since last year – we are seeing a slight loosening in credit policy from the banks but the appetite to borrow just isn’t there.

“OMBs are getting smarter about managing cash flow and running on lower levels of working capital - a fortunate by product of the recession.  Those businesses that allowed themselves to develop some fat have been the subject of crash diets, let’s see if they can keep the weight off.”

With organic growth hard to come by, Aneizi suggested that businesses sitting on large cash balances may look to drive growth through acquisitions and investment.

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