By Max Clarke
Optimism among owner-managed businesses has increased, with 59% of respondents to the 2011 Baker Tilly Owner Managed Business survey revealing ‘very’ or ‘quite’ positive sentiments about their business- up from 50% in 2010.
Confidence is also improving regarding individual sectors and regions, but at lower levels than the respondents’ opinions about their own businesses. YouGov collected the data from 276 owners and senior executives of private businesses in the spring of 2011.
Despite the increased confidence in their businesses, respondents were less optimistic when questioned in more detail. Only 44% expect an increase in sales volume compared to 61% in 2010 and only 24% expect to see an increase in gross margin, compared to half of respondents last year. Furthermore, 28% of respondents expect headcount to decrease this year, compared to 17% last year.
Ali Aneizi, M&A and Private Equity partner explains:
“Whilst there is more corporate confidence in 2011 there is also uncertainty and the economic recovery remains fragile. Rising interest rates, increasing commodity prices, sovereign debt issues and public sector austerity will continue to cause concern. As a result, OMBs should not fall into a false sense of security; maintaining cost control, keeping a close eye on cash and ensuring efficient working practices are going to be key. OMBs still need to be vigilant and careful about how they navigate their way through this ‘stop go’ recovery.”
Taking business from failing competitors is the primary opportunity for businesses, according to 41% of the survey respondents. Respondents also report that reducing costs is a key opportunity (23%). New technology growth and increased demand for emerging markets both also ranked highly (16%) as opportunities.
Downturn in demand is still the biggest threat to business with 32% of respondents indicating that it is a major threat. Other major threats include public sector cuts (30%), increased inflation and rising fuel costs (both 29%).
However, overall perceived threats seem to have decreased. When combining the figures for major and minor threats, almost all of the key business issues have received lower percentages of survey respondents indicating them as threats.
For example, access to credit has significantly decreased as a (major and minor) threat to business with only 41% of respondents indicating it as a threat compared to 77% in 2010 and 78% in 2009.
This is interesting as it may be the first statistical results showing that access to credit is declining as a business issue. However, is this because banks are ‘back in business’ or are fewer businesses looking for credit and in fact operating within their means, or are they changing their budgets to allow for funds for development.
“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. It is however, 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. None the less, 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 hav e been the subject of crash diets, let’s see if they can keep the weight off.”
“For many businesses, organic growth is going to be slow and hard to come by. Those businesses that are fortunate to be sitting on large cash balances may decide to deliver growth via acquisition and investment.” Ali Aneizi, concludes.