Key findings: top concerns

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2 About the survey In October 2010, Forbes Insights conducted a survey of small and mediumsized enterprises (businesses with 250 or fewer employees) in the U.K. and five other countries (Canada, China, Italy, Singapore, and South Africa). In total, 341 U.K. SMEs participated in the survey, including representative samples of micro businesses (under 10 employees), small businesses (10-49 employees), and medium-sized businesses ( employees). The survey was done in association with ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants; the Certified General Accountants Association of Canada (CGA-Canada); and CNDCEC, the professional body for certified accountants in Italy. The aggregated findings are available in the study: Small and Medium-Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth. 2

3 Key findings: top concerns Cash flow is a major concern to U.K. SMEs. Cash flow issues appear to be haunting SMEs in the U.K. more than in other countries, and may be hampering them as they try to move past recent economic turmoil. Asked about their top concerns over the past year, 41% of SMEs in the U.K. cited managing cash flow/maintaining cash position, followed by finding new customers and prospects (39%), and maintaining or maximizing profit margins (34%). 3

4 Managing cash flow/maintaining cash posi6on 41% Finding new customers and prospects 39% Maintaining or maximizing profit margins 34% Over the past 12 months, what have been the top challenges your SME has faced? (select three) Economic uncertainty Retaining exis6ng customers Finding financing 17% 25% 25% Opera6ng with smaller staff 14% Determining an appropriate growth strategy 13% Government regula6ons 13% Increased compe66on 12% 0% 50% 4

5 Key findings: revenue performance Revenue growth for U.K. SMEs has been inconsistent over the past year, but the outlook is brighter. Overall, just 31% of U.K. SMEs said current revenue was higher than it was a year ago, 37% indicated revenue was lower, and 33% said it was about the same. Small businesses were the most likely to have grown 40% said revenue was higher but 36% said it was lower. Looking ahead, 49% of U.K. SMEs expect higher revenue in the next year, 9% anticipate lower revenue, and 42% expect it to stay about the same. 5

6 How does your current revenue compare to what it was 12 months ago? Where will it be in 12 months? Today 12 months from now 8% 11% 23% 38% 33% 42% 28% 9% 1% 8% * Significantly higher Higher About the same Lower Significantly lower 0% 100% *Within the survey, the term significantly was defined as an increase or decrease of 20% or more. Canada 13% 27% 43% 15% 2% How does your current revenue compare to what it was 12 months ago? (by country) China Italy Singapore 14% 5% 6% 19% 37% 46% 42% 37% 24% 29% 13% 16% 3% 5% 4% Significantly higher Higher About the same Lower South Africa 10% 21% 31% 28% 10% Significantly lower U.K. 8% 23% 33% 28% 9% 0% 100% 6

7 Key findings: contributors to growth Product/service innovation could fuel revenue for U.K. SMEs that anticipate growth next year. Asked what factors they believe will contribute to their increase in revenue over the next 12 months, SME respondents overwhelmingly turned to sales of existing products/services (69%), and introducing new products/services (45%). These factors were fairly consistent among the micro businesses, small businesses, and medium-sized businesses. 7

8 Increased sales of exis6ng products/services 61% 69% 75% 70% Introducing new products/services 38% 45% 43% 53% What factors do you believe will contribute to this increase in revenue in the next 12 months? Increasing quality of product or service Increased online presence Strategic partnerships Entering new geographical markets (interna6onal) Hiring addi6onal staff 25% 20% 28% 26% 25% 29% 19% 30% 23% 21% 20% 28% 17% 16% 16% 21% 17% 18% 19% 15% Entering new geographical markets (domes6c) 15% 14% 13% 19% U.K. SME Total Micro Raising addi6onal capital (debt or equity) 4% 10% 11% 14% Small Change of loca6on / increasing office size 6% 5% 3% 11% Medium 0% 80% 8

9 Key findings: cash flow management U.K. SMEs are struggling with cash flow. Overall, 48% of U.K. SMEs said it was harder to manage cash flow today than it was a year ago, and a mere 9% said it was easier; 43% indicated it was about the same. U.K. micro businesses are having the hardest time, but even 36% of medium-sized U.K. enterprises are finding cash flow management harder. 9

10 U.K. SME Total 9% 43% 48% Is it easier or harder today to manage your company s cash flow (cash position) than it was 12 months ago? Micro Small 6% 10% 42% 40% 52% 50% Easier About the same Harder Medium 16% 48% 36% 0% 100% 10

11 Key findings: cash flow challenges Slow receivables are putting the greatest strain on cash flow at U.K. SMEs. Asked to select their greatest cash flow challenges over the past year, 44% of all U.K. SMEs cited slower paying or non-paying customers. Other top cash flow concerns were lower revenue (28%), higher business expenses (24%), and a reduced sales pipeline (21%). 11

12 Slower paying or non paying customers 44% 42% 41% 49% Lower revenue Higher business expenses 24% 24% 25% 23% 22% 28% 31% 29% What were the greatest cash flow challenges your business faced in past 12 months? Reduced sales pipeline Difficulty cu`ng expenses Difficulty in securing financing Higher discoun6ng/charging less 10% 21% 25% 17% 19% 19% 15% 22% 19% 19% 17% 20% 21% 14% 14% 18% Loss of loyal customers Longer sales cycle More stringent payment terms from vendors 14% 17% 10% 15% 13% 13% 11% 16% 12% 8% 17% 15% U.K. SME Total Micro Small Medium 0% 60% 12

13 Key findings: anxiety about survival A significant number of respondents are anxious that they don t have a strong enough capital position to survive another downturn. Asked whether or not they felt they had adequate cash reserves to weather another financial crisis, 39% of U.K. SMEs said they did not, while 56% agreed they did. Medium-sized businesses appeared the least anxious 65% agreed they had adequate cash reserves to weather another financial crisis. 13

14 We have adequate cash reserves to weather another financial crisis. 8% 48% 5% 28% 11% Strongly agree Agree Don t know Disagree Strongly disagree 0% 100% 14

15 Key findings: financing performance Even during the depths of the recession, more than 80% of U.K. SMEs said they secured all or most of the finance they sought. But the U.K. s strong approval rate over the past two years may be because many weaker businesses have been discouraged from applying in the first place. Overall, only 69% of SMEs in the U.K. said they applied for financing over the past 24 months. Of those, 43% said they secured the full amount, 40% secured most, 16% secured a little, and just 1% received none. 15

16 We secured the full amount 43% Thinking of all your financing needs over the past 24 months, which of the following best describes the outcome for the financing (regardless of type) that you actively sought? We secured most of the finance required We secured only a lidle of the finance required 16% 40% We did not secure any of the finance required 1% 0% 50% 16

17 Key findings: access to financing U.K. SME respondents said they re seeing little easing of their financing markets. Just 10% said their ability to secure financing improved over the past year, while 22% said it worsened, and 50% said it remained about the same. The outlook for the next year is more positive: 19% of U.K. SMEs anticipate their ability to secure financing will improve, 10% expect it to be worse, and 54% foresee no change. 17

18 2% 3% Over the past 12 months, did your company s ability to secure financing improve, worsen or remain the same? How will it be in the next 12 months? Today 8% 50% 19% 2% 1% 18% Significantly improved Improved Remained about the same Worsened Significantly worsened Not seeking financing 12 months from now 17% 54% 9% 17% 0% 100% 18

19 Key findings: debt financing When it comes to debt financing, U.K. SMEs today are using business credit cards and secured bank loans, but trade credit is also critical. That financing mix will stay consistent over the next two years. Overall, the top forms of debt financing U.K. SMEs use today are business credit cards (28%), secured bank loans (25%), and trade credit from suppliers (24%). Those are also the main debt vehicles U.K. businesses intend to seek over the next two years. 19

20 Business credit cards 28% 27% Secured bank loan 25% 24% Trade credit from suppliers 24% 23% Types of debt financing used Unsecured bank overdrag Secured bank overdrag 18% 17% 22% 21% Personal credit cards 11% 16% Unsecured bank loan 14% 14% Loans from friends/family 10% 12% Today Revolving line of credit 7% 10% Next 24 Months Factoring/invoice discoun6ng 6% 8% 0% 30% 20

21 Key findings: goals for financing U.K. SMEs overwhelmingly want to use debt and equity financing for working capital. Given the number of U.K. businesses that are voicing cash flow concerns, it is not a surprise that these enterprises are looking for ways to smooth their cash position. The top three things they expect to use debt financing for over the next two years are: working capital (48%), domestic expansion (20%), expanding capacity (18%), and plant and equipment (18%). Those seeking equity have similar goals. 21

22 Working capital 48% 49% Looking ahead to the next 24 months, what will you be using financing for? Domes6c expansion Plant and equipment Expanding manufacturing/service capacity Refinancing exis6ng debt New technology investment Hiring addi6onal staff Acquisi6ons Customer financing 20% 23% 18% 18% 18% 20% 16% 11% 16% 22% 15% 20% 15% 17% 12% 11% Foreign expansion 10% 11% Debt Trade financing Research & development 7% 5% 5% 6% Equity 0% 60% 22

23 Key findings: lessons learned U.K. SMEs in the survey said the recession essentially forced them to become better businesses. Overall, 80% said they are planning more effectively, and 74% agree they are smarter today about running their businesses than they were before the recession. 62% feel they are in a stronger position today than they were prior to the downturn. 23

24 2% The recent global recession put addi6onal pressure on our business to plan more effec6vely 15% 65% 5% 13% Please rate your level of agreement with the following statements about your small or medium-sized enterprise. I am smarter about running my business today than I was before the recession 10% 64% 7% 17% 2% Strongly agree Agree Don t know Disagree Strongly Disagree 3% Surviving the recent recession made our business stronger 7% 55% 8% 27% 0% 100% 24

25 Key findings: financial management Looking at how SMEs use outside advice, four profiles emerged based on an SME s need for confidence in their business decisions and their trust of outside advisors. Community Networkers: Community-based businesses that try to get maximum value from their advice relationships. They work with professionals, and also leverage trade associations and chambers of commerce. Confidence Seekers: SMEs that value advice mostly from highly trusted authorities, gaining confidence from the expert s experience and insight. They also trust the government for advice more than do other SMEs. Skeptics: These SMEs don t find themselves reassured by advice. They are only confident in formally qualified advisors, but may be just as happy not to seek advice at all. Go-It-Aloners: This group takes almost no advice, and they don t go out of their way to find outside counsel. Compared to other countries, U.K. SMEs are most likely to be Confidence Seekers. 25

26 Methodology The information in this report is based on the results of a survey conducted online in October 2010 by Forbes Insights in association with ACCA, CGA- Canada and CNDCEC. Forbes insights received responses from 341 owners and decision makers at small and medium-sized enterprises in the U.K. In total, 1,777 responses were received from SMEs in six countries: Canada, China, Italy, Singapore, South Africa, and the U.K. For purposes of this study, SMEs were defined as businesses having up to 250 employees. The sample included SMEs of three sizes: micro businesses (those with fewer than 10 employees) made up 42% of U.K. respondents; small businesses (10-49 employees) were 33%; and medium businesses ( employees) were 24%. 26