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SME owners confident, but reluctant to invest in 2014

A major study of the country’s SMEs, by Baker Tilly, concludes that while most small business owners are optimistic about growth in the coming year, many seem unprepared to take the risks required to help create an even economic recovery in the UK.

Confident outlook for the year ahead

The firm’s “Your Business Outlook 2014” study is based on the views of 750 SMEs, and makes interesting reading.

As with other recent surveys, this study shows that confidence is definitely on the up in small business circles – 45% of respondents were ‘extremely confident’, or merely ‘confident’ about grown opportunities in 2014. In fact, a similar percentage expected turnover to grow by over 5% over the next 12 months. Only 24% didn’t expect any rise in turnover to be achieved.

However, the big question is – how is this growth going to be achieved?

SMEs content to consolidate?

The survey shows that many SMEs remain cautious about investing in the future, as the following statistics show:

Almost all those surveyed (96%) are happy with their current levels of success, three-quarters have no plans to take on more staff (8% expect to lose workers), and just under a quarter expect to increase their marketing spend.

Most telling of all, 84% of respondents said that they were unwilling to take on any further debt to fund growth over the next year.

John Gillibrand, partner at Baker Tilly, said that the nation’s SMEs appeared to be ‘content to consolidate’, “There is a real concern that without the growth of SMEs, the economy will fail to recover as quickly as people hope. We need to encourage them to take up the opportunities for expansion, whilst keeping risk at a minimum.”

What about investment?

The credit crunch, and the recession which followed, resulted in a unwillingness by traditional lenders to lend to small businesses, and a large drop in confidence by SMEs to invest. So, how have things changed as the overall economic outlook has improved over the past year?

The study suggests that most businesses are reliant on current cash reserves to fund future investment in new products and services; only 16% plan to increase Research & Development (R&D) spending over the coming year. With capital spending too, the vast majority of respondents were happy to maintain the current status quo, with only 20% planning to buy new equipment.

The main funding options

Traditional forms of lending are still preferred by small business owners – 72% would consider approaching a bank for lending if they had no choice, but interest in ‘alternative’ types of funding is more muted, which is understandable considering that crowdfunding and peer-to-peer lending platforms have only recently become mainstream sources of finance.

Given the obvious reluctance of small firms to take on any further debt, the survey also found that an alarming number of business owners were unaware of the main Government funding schemes available, such as the Enterprise Finance Guarantee Scheme, and the tax reliefs offered by the capital allowances scheme. We looked at the main Government schemes available in a recent Company Bug update.

George Bull from Baker Tilly said that both the Government and small business owners should take joint responsibility for the lack of take-up, “Whether running ‘steady state’, expanding or contemplating other changes, businesses should be asking what existing tax reliefs are available to help them achieve their goals.”

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