SME Sentiment Scotland

Transcription

1 SME Sentiment Scotland A look at Scotland s small and medium sized enterprise sector 1

2 Contents Foreword According to the BBC - if oil revenues are included - Scotland generates a greater GDP per-head than the UK as a whole ( 26,424 vs 22,336). Its growing service sector is a breeding ground for enterprise, driven by a buoyant tourism industry worth 11.6bn and employing over 290,000 people. Foreword... 1 Summary of key findings... 2 Respondent business profile... 5 Size... 5 Location... 5 Employee numbers... 6 Length of trading... 6 Sectors... 7 Business owner age... 7 The findings... 9 Business performance and expectations... 9 Independence Growth and investment Business advice Finance Conclusion Recommendations Financing an enterprise nation References About Bibby Financial Services It is clear that Scotland s economy is a formidable force to be reckoned with. Figures announced later in the year are likely to reflect a further boost following Glasgow s hosting of the commonwealth games which have only a few days remaining at the time I write this. But services is not the only sector performing well and according to Construction Scotland, accounting for over 170,000 (10% of total) Scottish jobs, the sector contributes 21.4bn to GDP each year. Add to this a burgeoning manufacturing base turning-over c 40bn and it is clear that Scotland s economy is a formidable force to be reckoned with. Bibby Financial Services Scotland As the referendum draws-nearer, so does the fifteenth anniversary of Bibby Financial Services Scotland. We opened our doors in Scotland in October 1999 with an office in Edinburgh. Fifteen years on, we have built a reputation as champions for SMEs and gained a name for providing market-leading finance solutions. We have an office in Glasgow and are looking to the business environments in Dundee, Aberdeen and Stirling as means of expanding our SME funding further. We have significantly invested in our teams in Scotland and in the first quarter of 2014 we doubled the number of funding agreements provided for SMEs an achievement I m extremely proud of. There are opportunities in abundance here for SMEs with innovative products and services, unique routes to market and the financial means to grow. But there are also a number of challenges. To understand these challenges and opportunities and to ascertain a view from the coal-face - we conducted a study of 500 businesses across the country. This report outlines the findings of this research and includes a look at business profiles, SME views of independence, sources of business advice and growth expectations over the months leading up to the decision over Scotland s political and economic future. David Postings, CEO, Bibby Financial Services August

3 Summary of key findings the research The survey that underpins this report was undertaken by Bibby Financial Services (BFS) in Q The total number of interviews conducted was 501 and this was made up of owners and decision makers for private sector businesses, with turnover of up to 25m and employee numbers ranging from one to 250. Business performance and expectations Over half (52%) of businesses have seen increasing sales over the past three months The majority (61%) expect sales growth in the next quarter Only four per cent anticipate falling sales over the next three months Growth and investment Seventy per cent of businesses expect growth over the next three years Renewable energy, oil and gas represent the biggest opportunity for economic growth according to 65 per cent of businesses Almost two thirds (64%) invested in their businesses over recent months Over half (54%) expect to invest in the next three months with technology and equipment, staff training and recruitment the key areas of focus Sixty per cent expect to fund this investment from cash deposits and existing profits Business advice and finance Accountants are the most frequent source of business advice (58%) SMEs seek advice from friends and family (17%) more often than financial advisers (15%) and solicitors (12%) One in ten businesses (11%) do not seek advice and the same amount use online resources Only 14 per cent of businesses have applied for external funding over the past year 86 per cent do not plan to apply for funding over the next three months Of those using external finance, 42 per cent use bank overdrafts and 37 per cent have bank loans Invoice finance is used by 13 per cent of SMEs Independence Well over a third (43%) think independence would have a negative impact on the Scottish economy One in four (21%) say independence will be positive for the economy with 27 per cent undecided One in five (9%) believe it will have no impact on the economy 2 3

4 Respondent business profile Size Excluding those that did not provide financial figures (142), the majority of businesses included in the survey (58%) have turnover of less than 500,000, and one fifth between 500,000 and 1m. Businesses with turnover between 1m and 5m made up 17 per cent of respondents and four per cent have turnover in excess of 5m, up to 25m. 70% of businesses expect growth over the next three years The average annual turnover across the sample was 1.24m. Location Geographical Split Glasgow & Clyde Valley 25% Edinburgh & The Lothians 23% Aberdeen & Grampian 13% The Scottish Highlands 7% Angus & Dundee Stirling & The Trossachs Ayrshire Dumfries & Galloway Perthshire The Scottish Borders 5% 5% 5% 4% 4% 4% Argyll The Shetland Islands The Outer & Inner Hebrides Orkney 2% 1% 1% 1% 4 5

5 Respondent business profile Respondent business profile Employee numbers In line with the UK definition of small and medium sized enterprises, respondents with employee numbers exceeding 250 were excluded. Almost two thirds of businesses have one to nine employees, which - along with the average turnover would classify the majority of respondents as microbusinesses. Sectors Though featuring a good split of broad-sector businesses, the study was somewhat weighted towards Scotland s services and manufacturing SMEs (58% combined). Number of employees 7% 60% 30% 3% 0 1 to 9 10 to Sector 15% Wholesale 28% 13% Construction 14% 30% Manufacturing Services Transport Length of trading Most businesses are established and have been trading for 10 years or more, with just 13 per cent younger than five years. Five per cent have been trading for 50 years or more. Business owner age Business owners are typically experienced with only 13 per cent younger than 35 years of age. However, in a similar study - and identical sample size - of businesses throughout the UK, this figure was nine per cent. Two thirds of business owners are over the age of 46, with almost a third aged 56 or older. 35% 31% 13% < 5 years 16% 21 to 30 Business age 19% 5 to 10 18% 31 to 40 20% 29% 11 to 20 5% % 1% 1% < 25 years 26 to to to Not known 6 7

6 The findings Business performance and expectations Following a period of economic decline, the UK has entered the recovery stage and the results show confidence among Scottish SMEs in terms of sales performance and expectations over the months and years ahead. Over half (52%) saw an increase in sales over the past three months and only one in ten businesses (12%) had declining sales in the first quarter of the year typically a stagnant period for orders following rising sales over the Christmas and New Year periods. Further encouragement can be taken from forecasted performance, which shows that the rise in sales is set to continue into the third quarter with even more SMEs (61%) expecting orders to rise. Only four per cent expect business to decline in the months ahead. Sale performance and expectations Last 3 months (%) Next 3 months (%) We have continued to grow in the last quarter and we are looking strong for the coming quarters. We have invested in a second warehouse and continue to look at new opportunities to grow the business. Stuart Forrest, Operations Manager, PBG Paper. Significant increase Increase Stay the same Decline Significant decline Longer-term expectations were also positive with 70 per cent expecting growth over the next three years and one in five anticipating significant growth. Less than seven per cent expect to either sell, close or scale-back operations between now and mid % 0.6 % Significent growth Scale-back operations Expectations for the next 3 years 50.2 % 3 % Some growth 24.6 % 2.6 % No change Sell the business Close the business 9

7 The findings The findings Independence Findings show that many believe Scottish independence would have a negative impact on the economy (43%) but one in five (21%) believe the effects would be positive. One in ten think there would be no impact and over a quarter don t feel they have enough information to decide. Growth and investment SMEs appear to be gearing-up and looking for efficiencies, with more and more utilising technology. This is reflected in their investment focus over recent months, with 40 per cent citing technology as a channel for investment. Perhaps even more encouraging are results showing that a third of businesses recruited throughout this time and it s likely that this will be reflected in employment figures for Q2, when they are announced. Looking at the months ahead, one in four (24%) intend to invest in staff training and development; more than one in Impact of independence on the Scottish economy 9 % 21 % No change 43 % 27 % Negative Positive Don t know five (22%) in employee recruitment and eight per cent will invest in trading overseas. Business advice The majority of SMEs seek advice (89%) and the research highlights a variety of sources, with accountants topping the list. Advice from friends and family is sought-out before financial advisers and solicitors, with one in five decision makers using online resources and the same turning to a high street bank for advice. Sources of business advice Of those who believe that independence would have a negative impact, almost half (47%) cited concerns over relationships with suppliers outside of Scotland with 13 per cent specifically fearing that English customers would not trade. Fourteen per cent sign-posted uncertainty over currency as the reason they believe independence would negatively impact the Scottish economy. 58% The overwhelming majority of respondents (89%) have not planned for the outcome of independence. When asked about their personal views setting aside business interests 56 per cent of decision makers do not want an independent Scotland from September. A quarter (25%) intend to vote for independence and one in five (19%) are still undecided. 56 Do you want an independent Scotland? % 15% 12% 11% 11% 10% 8% 3% Yes No Undecided Accountant Solicitors High street banks Results show that the location of a business and whether it is based in a rural area or city has a direct impact on Friends & family I do not require advice Other decision makers views and voting intentions. Almost two thirds of decision makers based in rural areas will vote against independence in September, this figure dropping to just half for those based within cities. Financial advisers Online resources Social media When asked to choose what is the most important factor in deciding, almost half (47%) said the Scottish economy following closely by personal belief regarding an independent Scotland

8 The findings Finance The issue of SME lending and finance is a frequent feature for most newspapers, however, it s perhaps surprising to note that despite ambitious investment plans only a quarter of businesses currently use external finance, such as bank loans and overdrafts, peer-to-peer lending or asset based finance. Use of external finance 25 % Yes 75 % No We have found it very difficult to secure finance for our business over the last few years. Even though the work was there and the company was growing very quickly, we had very little support from the banks. Rob Petrie, Director, Access Platforms Aberdeen. Bank finance overdrafts and loans - accounts for 79 per cent of external finance used by SMEs. Despite this weighting, many small businesses still talk of a lack of support from traditional channels. Nevertheless, this figure highlights an apparent lack of awareness of alternative forms of finance and perhaps a tendency for SMEs to turn to banks, rather than asset based lenders or other funders. There are a myriad of funding types and non-bank funders are now starting to gather pace in their efforts to promote the benefits of their propositions. 12

9 Conclusion Financing an enterprise nation The report findings show a thriving small business customer and supplier relationships were the main According to figures from the national business to alternative finance, including the assignment of environment in Scotland. Recent sales performance has reasons cited. advice service, Business Gateway, enquiries from receivables, which has been a disadvantage for invoice been good and expectations for the months ahead are much the same. Business investment shows an encouraging trend in recruitment, staff training, technology and new product development. But the report highlights some cause for concern in relation to funding specifically relating to the number of businesses leveraging external finance to help overcome challenges. Those with the cushion of a suitable and sustainable funding source are better placed - not only to grow - but to safeguard their businesses for the future. But at present 75 per cent do not use external finance. Of those using external finance, 79 per cent use bank overdrafts and loans, with invoice finance currently used by 13 per cent. Crowd funding and angel investment are used by a modest number, despite much media attention surrounding the former in recent years. Most businesses actively seek advice with the majority utilising the expertise of accounting professionals. However, over a third either does not seek advice or turn to nonprofessional sources, such as family and friends or online resources. Broadly, independence is looked upon unfavourably by This is not to say that independence does not have its supporters within the business community. One in four decision makers believe that independence will be positive for the economy. Perhaps even more significant is that over a quarter are still undecided, and it s these decision makers that could make the difference in relation to the referendum vote. Recommendations 1. It is evident that businesses are reliant on a limited number of funding sources. It is the recommendation of this paper that more is done to make businesses aware of non-bank channels but also to increase access to a variety of funding types in Scotland. 2. With 19 per cent of SME decision makers and owners undecided on how they will vote, with only weeks to go before the referendum, there is a lack of information about how individual businesses could be impacted. Both Better Together and Yes Scotland need to address this information-gap before September if they are to gain the vote of Scotland s currently undecided SME owners and decision makers. start-up businesses grew by 13 per cent to 48,280 in the year ending in March, signifying a growing entrepreneurial environment in Scotland. On top of the rising number of start-ups, we have mature and established businesses across a range of sectors, operating both within the country and throughout export markets around the world. Our research shows that these SMEs are ambitious and currently performing well. But behind every successful enterprise is a robust support network - be it a productive work-force, expert accountants, knowledgeable business advisors or committed family and friends. Before a business can properly look ahead to the future, however, it must ensure that it has a source of funding which is not only sustainable, but tailored. Seasonal business cycles, differing customer (and supplier) payment terms and fluctuating staff wage-bills all play a pivotal role in deciding the most suitable source of funding. Sectoral variances also need to be considered. From construction to transport, engineering to services, energy production through to wholesale; each industry has nuances that should form part of this decision making process. financiers for many years. If Scotland becomes independent following September s referendum, the Scottish Government will also need to address this awareness gap but having an aspirational SME sector is a good start. For Bibby Financial Services, over the past year, we have increased our funding to SMEs in Scotland by 22%, and this support has been vital in helping our clients overcome barriers to growth. The businesses we speak to value the flexibility invoice finance provides. Furthermore, they talk of invoice financiers offering a more personalised level of service than traditional bank-lenders. This is simply explained as we have one of the lowest client-to-staff ratios which is reflected in our customer satisfaction rating of 91 per cent. As this report shows, confidence of businesses in Scotland is rising with investment plans in abundance particularly for recruitment and technology. If these ambitions can be coupled with access to finance and a genuine choice of funding, there s no reason the Scottish economy cannot continue its impressive performance either as part of the UK or as an independent nation. SMEs, though this could be due in part to uncertainty Funding providers have expanded product portfolios surrounding potential changes. Many businesses are still in need of further information about the impact independence would have before they make a decision. Of the SME decision makers and owners who voiced to meet the varying demands of their customers, but product development has to be coupled with a drive to raise awareness of different funding types, such as invoice finance. Alan Anderson, Head of Sales Scotland Bibby Financial Services alan.anderson@bibbyfinancialservices.com concerns about independence, its potential effects on UK Government plans to legislate banks to refer business customers they re unable to support to other lenders is a welcome measure to address this awareness gap. Additionally, the Small Business, Enterprise and Employment Bill proposes measures to remove barriers 14

10 References About Bibby Financial Services BBC (2013). Scotland in Numbers. Available: Last accessed 7 July Visit Scotland (2013). Visit Scotland Corporate Plan 2013 / Available: Last accessed 7 July Construction Scotland (2013). Building for the Future, The Scottish Construction Industry s Strategy Available: Last accessed 8 June Enterprising Scotland (2014). Growing Scotland s manufacturing sector. Available: Last accessed 7 July Business Gateway (2014). Annual Review 2014/2014. Available: Last accessed 7 July Bibby Financial Services is the UK s leading independent invoice finance specialist and a trusted provider of cashflow funding solutions to 7,000 businesses, handling annual client turnover of 4.9 billion and advancing in the region of 388 million. With a network of 18 local offices throughout the UK including Glasgow and Edinburgh - Bibby Financial Services has the commercial agility to make informed funding decisions quickly and efficiently. Bibby Financial Services is a member of the Asset Based Finance Association and supports businesses in both the UK and overseas, utilising expert knowledge from more than 29 years experience, helping companies regardless of size in over 300 industry sectors. In 2011, 2012 and 2014 the company was awarded a place in The Sunday Times 100 Best Companies to Work For and in 2013 it was awarded the Best Factor and Invoice Discounter award for the sixth consecutive year and ninth in total by the National Association of Commercial Finance Brokers. To find out more about Bibby Financial Services visit: Fit for the Future: Join us at our events in Glasgow and Aberdeen Key-note speeches from World-record breaking cyclist, Mark Beaumont and journalist and broadcaster, Andrew Neil Meet the Bibby Financial Services Scotland team to discuss business funding requirements Network with the country s leading business professionals Glasgow 16 September 2014 The Radisson Blu Hotel 8am to 11:30am Aberdeen 17 September 2014 Copthorne Hotel 8am to 11:30am Mark Beaumont 16 For more information and to register visit: bibbyfinancialservices.com/scotland or call Andrew Neil

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