Business News

SMEs Put Best Foot Forward in Wake of Credit Crunch

While it will come as no surprise that the UK’s business community is still feeling the squeeze of the credit crunch, new research from Bibby Financial Services has found that small businesses are keeping Britain’s entrepreneurial spirit alive by driving forward new business and diversifying their product and service offer.

Rather than burying their heads in the sand, 37% of owners and managers have undertaken a new business drive, a fifth (23%) have diversified their core product and service offering and a further 29% have started working longer hours, including evenings and weekends, in an effort to stay ahead of the competition and ensure the ongoing success of their business.

Despite a tough start to the year, Britain’s small business community remains optimistic and is confident that better times are on the horizon. Nearly half (48%) of small and medium-sized enterprises (SMEs) expect trading conditions to be better in the second half of 2008 than during the same period last year. While a further 29% anticipate an improved economy and are confident that their businesses will prosper in future months.

The report highlighted significant regional variations. While 97% of those in the north of England reported that the credit crunch had impacted their business, this compared with just 56% of Scottish firms and 54% of those in Greater London. Businesses in the south east (39%) and Greater London (36%) were most likely to anticipate good times ahead in 2008.

Businesses based in the West Midlands (55%) and Scotland (44%) were the least likely to have made any changes to their business model in order to mitigate the impact of the credit crunch. In contrast, East Midlanders (88%) were the most likely to have taken proactive steps.

The tightening credit environment has seen 14% of business owners and managers report an increase in the cost of borrowing, while one in 10 are currently reviewing their finance options. When asked how they would finance their business if the credit crunch continues, the favoured route amongst SMEs was to dip into personal savings (22%). A further 16% would consider invoice financing, with only 6% saying that they would resort to re-mortgaging their home.

The industries most affected by the tough financial climate are the hotel and catering sector and the retail sector, where 90% and 84% respectively reported a tougher operating environment. Perhaps unsurprising, retailers were also the group most likely to have seen a drop in sales (46%) and experience difficulties raising cash (22%), reflecting falling consumer confidence on the high street.

The transport sector was the most pessimistic about the future with 54% expecting to do worse this year than last – perhaps reflecting the rise in petrol prices and the increasing cost of motoring.

David Robertson, chief executive of Bibby Financial Services, said: “This research highlights the fact that the global credit crunch is impacting all sectors of British business regardless of size or industry sector. While it is heartening to see that many small firms have a positive attitude and are taking proactive steps to reduce risk and ensure they are well-equipped to deal with the market conditions; this is no time to be complacent.

“With business failures up 8.5% in the first quarter of 2008, it is essential that business owners and managers ensure they have a strong cashflow and robust funding arrangements that will see their business through these tough times.”