SMEs: financial caution, fragility and risk in an uncertain world

small business financeSMEs in the UK are being super-cautious about finance according to new research on SME resilience carried out by the company Hitachi Capital Invoice Finance.

At the same time, their research has found, many are in a precarious position because they are relying too heavily on a single large client.

Some details from the research 

27% of the 500 SME respondents had put investment plans on hold and were not planning to make any investments over the next 12 months but were concentrating on survival, while 57% of them had not sought any external finance in the previous 12 months. 41% of them said they were using overdraft facilities to fund their businesses and more than half said they were worried that Brexit would not only impact on their access to finance but would make it more difficult to obtain credit in the future.

Another worrying finding from the research was the numbers of SMEs, 17%, where a single large client was responsible for more than 50% of their turnover while a majority said that their biggest client represented more than 26% of their revenue.

This combination of caution about investment and external finance and the exposure that relying to such a significant extent on a single large client does not paint a picture of a buoyant, robust and optimistic SME sector.

Are there solutions?

Clearly SMEs need to develop contingency plans to allow for the loss of clients in the coming uncertain and likely volatile months with the aim of having no more than 10% of their revenue from any one client.

A revisit to their growth strategy to reposition activity to more strenuous efforts at finding new clients to balance their income profile regardless of whether they are earning good money from a large client. While they are in this position it may be wise to revisit the sales targets and marketing budget and to invest more in their growth strategy.

It is also true that SMEs need to see some significant recognition of their difficult trading conditions from the Government.  In the last year or two they have had to contend with compulsory pensions auto-enrolment, a rate revaluation and the prospect of significant additional costs from the proposal for quarterly tax returns. More recently there has been the volatility of £Sterling on the currency markets since the Brexit decision and rising import costs and gloomy prospects for inflation.

Nevertheless, life could be made somewhat easier for SMEs if there were some significant recognition of SMEs’ importance to the UK economy and jobs and some practical commitment in tomorrow’s Autumn Statement to investing properly and quickly in improving both the UK’s physical infrastructure such as roads and rail for freight transport, and real signs of progress on getting reliable digital infrastructure, such as high speed broadband to the many SMEs that are based throughout the country in rural locations and small towns.

Let us see what tomorrow’s Autumn Statement brings us.

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