SMALL BUSINESS UPDATE

Transcription

1 SMALL BUSINESS UPDATE David Stokes Matthew James Tuesday, 4 th November 2003

2 Small Business Update OVERVIEW OF PRESENTATION 1. SME trends 2. SME performance 3. London s dynamic economy 4. SME finance

3 Small Business Update SECTION 1 SME TRENDS

4 SME Trends NEW BUSINESS STARTS Q2 confirms an upward trend in start ups 108,000 in Q2, up 12% on same period last year Reflects easing of fears of recession Workspace regions: London 18,600 South East 17,700 Comprises 33.6% of all starts in Q2 Source: Barclays Small Business Survey

5 SME Trends BUSINESS CLOSURES 113,000 stopped trading in Q2 9% lower than Q1 Reflects easing of fears of recession Mainstream stock fell by 42,000 to 2.657m year-on-year fall of 1.6% Source: Barclays Small Business Survey

6 SME Trends CHANGES IN STARTS BY SECTOR 2002/2003 % change Catering & Hotels - 45 Production - 29 Retail + 3 Motor Trades + 10 Transport + 10 Wholesale + 10 Business & Professional services + 16 Leisure & Personal services + 30 Property & Finance + 32 Construction + 42 Government & Community + 47 TOTAL + 10 Source: Barclays Small Business Survey

7 SME Trends VAT BUSINESS STOCK During 2002: 175,800 registrations, up 0.7% on ,000 de-registrations, up 5.3% on 2001 largest number of registrations in London 33,500 (-0.9%) second largest in the South East 28,500 (0.0%) London was the only UK region to see a fall in registrations (Source: SBS SME Statistics 2002 )

8 SME Trends LONDON VAT REGISTRATIONS Only 7 London boroughs saw an increase in VAT registrations in Hillingdon Richmond upon Thames Enfield Waltham Forest Lambeth % change on 2001 Harrow 2.8 Croydon 1.5 (Source: SBS SME Statistics 2002 )

9 SME Trends LONDON VAT DE-REGISTRATIONS 28 of the 33 London Boroughs saw a rise in VAT de-registrations Richmond upon Thames Hounslow Hammersmith & Fulham Bromley Greenwich Southwark Westminster Lewisham Croydon Havering % change on 2001 (Source: SBS SME Statistics 2002 )

10 SME Trends BUSINESS SURVIVAL RATES Start year yr survival % London 60.3 South East 67.5 (Source: SBS SME Statistics 2002 )

11 SME Trends SME EMPLOYMENT GROWTH 2002 saw movement into Workspace target market of 1-20 employees 3,000,000 2,500,000 2,000,000 No employees 1-20 employees 1,500,000 1,000, , m - up 6% on previous year (Source: SBS SME Statistics 2002 )

12 SME Trends LIQUIDATIONS & BANKRUPTCIES Year London South East UK * 4,697 7,640 40,847 5,087 7,075 40,532 5,490 7,947 43,458 4,391 7,106 36,637 *NB* 2003 figures are based on the first three quarters only Source: Dun & Bradstreet

13 SME Trends CONCLUSIONS Pattern of Q2 & Q3 looks generally positive business survival rates on the increase increase in start-ups & decrease in closures increase in start-ups in majority of sectors minimal change in VAT registrations in London & SE increase in number of SMEs registered with employees

14 Small Business Update SECTION 2 BUSINESS PERFORMANCE

15 Business Performance TWO SPEED ECONOMY 1. Strong downturn in manufacturing worse position since Q Renaissance for services turnover at best level since Q The Q3 results are mixed the manufacturing sectors overall position remains disappointingly weak and in spite of the Q3 upturn, recovery prospects in the service sector remain highly uncertain. David Kerr, Economic Advisor to BCC Source: BCC Economic Survey Q3 2003

16 Business Performance SME SALES Balance of firms reporting an increase in sales fell in Q2 +9% from +15% in the previous quarter +13% expected sales to rise in the coming quarter By turnover: < 50,000-16% 500k - 1mn +11% 1mn > +28% Source: SBRT Quarterly Survey of Small Businesses in Britain, July 2003

17 Business Performance EMPLOYMENT Balance of year-on-year employment fell 4.7% from +2.7% in the previous quarter 61% said employment same as 1 year ago 8% expected to employ more in the coming quarter (compared with 14% in previous quarter) Source: SBRT Quarterly Survey of Small Businesses in Britain, July 2003

18 Business Performance BUSINESS OUTPUT Rise in business output across the Capital Sectors that saw a rise business performance 50% of finance firms 37% of retailers 30% service sector companies BUT, a balance of 9% in manufacturing Manufacturing is vital for maintaining a balance in an economy that might otherwise be too heavily dependent on finance and business services Colin Stanbridge, LCC Chief Exec. Source: London Chamber of Commerce (LCC), Monthly Survey, Oct 2003

19 Business Performance SME PROFIT Rise in the balance of businesses seeing profit +5% reported an increase in profits over the last 3 months Rise in the balance of businesses expecting profit Q1 + 9% Q2 + 18% Q3 + 30% Source: Institute Of Directors, Quarterly Business Opinion Survey, July 2003.

20 Business Performance INVESTMENT INTENTIONS Investment intentions remain weak: Buildings -24% Machinery -17% Training & re-training -4% Product innovation & processes +1% 63% cited uncertainty about demand as the reason for lack of investment Source: Barclays Small Business Survey

21 Business Performance PROBLEMS FACED BY SMEs The most reported problems facing SMEs in Q3: General economic climate 20% Regulation & paperwork 14% Cashflow/Debtors 9% Competition from big business 9% Source: SBRT Quarterly Survey of Small Businesses in Britain, July 2003

22 Business Performance LONDON FORECAST A year of two halves - Anthony Hilton, City Editor at ES speaking at London Enterprise A troubled first half, improvement in the second - Natwest anticipates growth of 1.6% in 2003 & 3.0% in Resources and space are the issues facing London

23 Business Performance CONCLUSIONS Q2 & Q3 have seen slow recovery characterised by: development of two speed economy increase in sales amongst large firms improvement in business performance across London increase in firms achieving and expecting profit unwillingness to invest in business decrease in concern over general economic climate

24 Small Business Update SECTION 3 LONDON ECONOMY

25 London Economy SUCCESSFUL ECONOMY GDP per capita United States Greater London United Kingdom EU Average London GDP, 28% above UK and EU average, very close to US entire workforce generates 138bn, 18% of UK total London grown faster than the UK, but is more volatile Source: Strategy Unit London Analytical Report

26 London Economy DRIVERS OF THE ECONOMY London s economy is driven by a range of modern, high value-added services Non-industrial sector in London is business services business services is largest sector at 32% most productive sector is finance public sector is smaller in London than other parts of the UK manufacturing is the principal transmission belt for shocks to the UK economy and the service-led character of London s economy serves as a stabilising influence - London s Economy Tomorrow, GLA Economics Source: Strategy Unit London Analytical Report

27 LONDON S INTERLOCKING CLUSTERS London Economy Similar firms derive a range of benefits from clustering together: access to deep labour pools interactions with similar firms intelligence sharing better customer attraction Firms also benefit from being near clusters of other business types: financial institutions require lawyers & accountants Technology benefits from academia Interdependencies between sectors are crucial to their success Source: Strategy Unit London Analytical Report

28 London Economy LONDON PROJECTIONS The key factor in London s continued economic strength is its flexibility a competitive business environment, a flexible labour market, and market optimistic financial regulation. Source: Strategy Unit London Analytical Report

29 London Economy FACTORS AFFECTING GROWTH Source: Strategy Unit London Analytical Report

30 London Economy POPULATION GROWTH At end of 2001, population of 7.17m (Census 2001) 2016 projections: High 8.1m Central 7.9m Low 7.6m Growing migrant population Over 300,000 of London s employed residents arrived within the last 5 years. Source: Strategy Unit London Analytical Report

31 London Economy POPULATION GROWTH Growth driven by a migration to the capital, attracted by a strong economy Source: Strategy Unit London Analytical Report

32 London Economy CONCLUSIONS Largely successful fast growth but volatile, characterised by: high-value added service industries sets of interdependent clusters a growing migrant population competitive business environment & flexible labour market continued economic growth depends on an effective response to both local and global factors

33 SME Finance USEFUL LINKS Barclays Small Business Survey Small Business Service British Chambers of Commerce Strategy Unit Bank of England British Venture Capital Assoc. Business Link ( ( ( ( ( ( (

34 SME Finance TCS PROGRAMME - AIM ONE To develop Workspace s knowledge of the small business sector and the various segments within it, and to develop a marketing strategy to broaden the services on offer and improve Workspace s competitive position. TWO The TCS Programme will strategically impact on the Group s performance by building a permanent infrastructure that can regularly gather market intelligence on its customer base of small businesses and develop a marketing strategy including the development of new products and services. Marketing initiatives will improve occupancy rates by tailoring products and services to owner-manager needs and preferences.

35 SME Finance INTELLIGENCE DATABASE User-friendly database of SME materials Quarterly, annual & ad hoc reports Search function by keyword Printable list of references Electronic catalogue of materials Used to identify target segments

36 WEST FOCUS Kingston, Brunel, R Holloway, TVU, Westminster, St Georges, Roehampton Knowledge & Resource Base Public funds/support Transfer mechanisms KTP/TCS NTI Incubators Seed funds Work based learning New mechanisms Private sector sponsors Micros SMEs Corporates Inventors and researchers Public and voluntary enterprises

37 Small Business Update SECTION 4 SME FINANCE

38 SME Finance SMEs & FINANCE SMEs are not a homogenous group when it comes to finance Overdraft facility Loan Commercial mortgage Leasing/HP Invoice finance % SMEs using that finance % SMEs for which it is the largest source Other Don't know Source: Bank of England, Finance For Small Firms 2003

39 SME Finance BRIDGING THE GAP More than 90% of finance accessed by SMES from banks, BUT EQUITY GAP the funding of high risk, high return propositions require small scale equity investments (but) much venture capital investments are too large and Business Angel networks are under-developed. FINANCE GAP mismatch between supply and demand (caused by) unwillingness on the part of suppliers of finance to supply it on the terms and conditions required by small business. Source: Bank of England, Finance For Small Firms 2003

40 SME Finance DEBT FINANCE Generally from High St. banks in form of overdrafts and loans Supply to SMEs is very concentrated More than 90% of SMEs financed by debt finance in 2002 In 2002: total number of overdrafts unchanged, BUT term loans now account for 75% of debt finance to SMEs Source: Bank of England, Finance For Small Firms 2003

41 SME Finance DEBT FINANCE (2) Source: Bank of England, Finance For Small Firms 2003

42 SME Finance EQUITY FINANCE usually used where degree of risk and potential reward are high equity financed businesses are small in number but contribute significantly to production distinct groups: Venture capital Business Angels UK entrepreneurs cite independence as a motive, so take up equity finance is relatively low. Source: Bank of England, Finance For Small Firms 2003

43 SME Finance EQUITY FINANCE (2) In 2002, 1500 companies financed in the UK companies financed at start-up down 13% companies financed at expansion down 17% investment in computer related, software & leisure up investment in communications and internet down 61% of total UK investment in London & South East 44% of all companies invested in. Source: BVCA Report on Investment Activity 2002

44 SME Finance VENTURE CAPITAL Fund raising only 40m in 2002/3 compared with 400m in 2000/1 difficulty raising money in the US, largest benefactor Difficulty for companies to meet fund requirements Bridges Fund made only 3 investments from 200 proposals Regional VC funds made 21 investments from 700 proposals Source: Bank of England, Finance For Small Firms 2003

45 SME Finance BUSINESS ANGELS characterised by early stage, potential capital investments often brings skills above and beyond the investment NBAN est. 18k angels invest 500m in 3.5k companies annually 75% less than 50k, 40% less than 20k NBAN 15% drop in viable investment opportunities unwilling entrepreneurs because of uncertain economic growth low interest rates make debt finance more affordable Source: Bank of England, Finance For Small Firms 2003

46 SME Finance LEASING/HP & INVOICE FINANCING leasing down in 2002, HP up again, low interest rates making debt finance more affordable Invoice financing provides source of good working capital used by larger SMEs, above Bank unsecured threshold realised immediate value of invoices by selling at discount strong growth, up 14% to 32k in 2002 Source: Bank of England, Finance For Small Firms 2003

47 SME Finance INVESTMENT READINESS means understanding the issues that affect investment, including: attitudes & interests of venture capitalists & investors valuation methodologies and impact on business the right investors for the business preparation of effective investor presentations preparation of due diligence

48 SME Finance GRANTS Government links with private investment Enterprise Fund, Phoenix Fund, Capital Fund generally aimed at regeneration in deprived areas Small Firms Loan Guarantee Scheme offers insurance against 75% of the value of the loan for those who have been refused a conventional loan Government backed initiatives New Deal, KTP, etc.

49 SME Finance CONCLUSIONS access to finance not a key concern in 2002 concerns over finance gaps current trend towards debt finance high take up of loans because of low interest rates equity finance affected by economic doubt and control BUT, bank deposits are up; suggests evidence of prudent policy stockpiling/building reserves caused by economic uncertainty