By Marcus Leach
Small businesses may be enjoying a tentative recovery in spite of broader economic uncertainty, according to a new quarterly report from Venture Finance.
Average turnover for small businesses increased by 16.2 per cent between the end of 2009 and the second quarter of 2011, signalling a return to growth for the small business sector.
The recovery comes after a deep decline in turnover during the recession of 10.5 per cent between 2007 and the end of 2009.
“This is just what the economy needs. While tentative in some respects, small businesses have worked very hard since 2009 and have enjoyed increasing success as a result,” Peter Ewen, Managing Director of Venture Finance and Chairman of the International Factors Group, said.
Further data shows that small businesses are also issuing more invoices now than in 2010, after seeing a fall of 9 per cent to the end of 2009 and a recovery of 16 per cent to quarter two of 2011.
The average number of customers per business has also almost returned to pre-recession levels. Despite having fallen by 6.6 per cent from 2007 to a 2009 low, they have rallied by 5.8 per cent to quarter two of 2011, to a healthy 25.6 customers on average. The time taken to pay invoices has also fallen, an encouraging sign for recovering businesses.
“Small firms look to be bringing in new customers and billing them for increasing amounts of business, which is great news. Such statistics are encouraging because they point to increasingly healthy cashflow — the lifeblood of business and growth potential," Ewen said.
Sectors vital to the economy have also experienced a significant recovery.
The manufacturing and engineering sectors have enjoyed turnover growth of 32 per cent and 19.1 per cent respectively between 2009 and quarter two of 2011.
Surprisingly in the current employment environment, recruitment turnover also rose by 27.9 per cent since 2009 and services by 17.5 per cent in the same period, bringing both back to parity with 2007 levels.
However manufacturing customer numbers decreased by 35.4 per cent since 2007 and by a further 6.1 per cent between 2010 and 2011, suggesting firms may be relying on a core of stable customers.
“The current government is hoping desperately for a manufacturing and engineering resurgence and it looks like these small, dynamic businesses are already doing their bit for economic recovery," said Ewen.
“However, it’s important that manufacturers act to halt their apparent decline in customer numbers in order to assure a continued recovery.”
Export growth has also been promising, another area being encouraged by the government.
Average small business export turnover has returned almost to pre-recession levels after a severe 33.5 per cent fall to the end of 2010. A rapid recovery saw a 46 per cent rise between 2010 and quarter two of 2011 and export turnover is now down by just 2.2 per cent on the 2008 high.
Average days outstanding for payment from export customers have also improved from a high of almost 72 in 2007 to just over 64 in quarter two of 20111, a fall of 10.2 per cent. Export customer numbers have enjoyed a similar boost since their height in 2008, rising from a low of 4.6 by 30 per cent to an average of six.
Average invoices issued to overseas customers have risen significantly from a 2009 low of just under nine invoices to 18.4 per month at the end of quarter two of 2011, a sizeable 104 per cent rise.
“Export growth holds great potential for small businesses and it’s highly encouraging to see them capitalising on the opportunity. On the current trajectory, exports could become a vital revenue stream for small firms," said Ewen.
“To build on these strong growth foundations, small businesses need to put the tools in place to secure working capital for growth. This will be especially important for those exploring export markets, where payment terms and operating styles can differ significantly."
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