Small and medium sized businesses (SMEs) are most worried about broader economic issues such as the global economy (84%), cheaper competition (70%), and currency volatility (65%), according to the latest data from the Travelex Confidence Index.

The findings also revealed that 59% of SMEs had little to no confidence in the current economic climate, representing a 32% drop from June and the lowest level of confidence since the TCI began in March 2010.

Top 10 concerns for SMEs

1.  Overall health of the economy (84%)
2. Cheaper overseas competition (70%)
3. Currency volatility (65%)
4. Reduced budgets (64%)
5. International regulation/compliance (44%)
6. Credit availability (43%)
7. Efficiency of international payments (39%)
8. Political influence (36%)
9. Reduced sales (30%)
10. Customer loss (27%)

Although credit availability came in at no. 6, SME awareness of Project Merlin is extremely low; 62% had not heard of Project Merlin and of those who had, only one in 20 believed it has helped them obtain credit.

Equally worrying ahead of the Autumn Statement is the fact that 66% of SMEs don’t believe the government’s efforts to drive an export-led recovery have affected their business, with 48% thinking an export-led recovery unlikely despite policy-makers’
sustained campaign to depreciate the pound. With sterling fluctuating amidst an uncertain global outlook, external risks seem to have reduced the efficacy of the Coalition’s current policies.

Paddy Earnshaw, Customer Director of Travelex Global Business Payments, comments on the recent data:

“The results of this survey are not reassuring. Survival is paramount in the current climate; British businesses are worried about the basics of simply staying afloat.

“Access to credit is certainly important, and it is worrying that nearly two thirds of SMEs don’t know what Project Merlin is. It is not, however, the only concern for SMEs trying to navigate a hostile economy. If the government is serious about leading an export-driven recovery, then it should not focus solely on credit availability when there are other pressing issues to consider.”

As well as the lowest confidence level on record, the data showed that 68% of SMEs now think a ‘double-dip’ recession is likely, an increase of 80% compared to last November.

Earnshaw continued: “It is not surprising SMEs are pessimistic about the health of the global economy given Eurozone woes. What is surprising is how little we have heard to date about solutions that address the real concerns of British SMEs. The Chancellor needs to set out clear plans in his Autumn Statement that tackle their fears over growth and economic volatility.

We have to question whether or not the government’s policies are actually addressing the needs of the SMEs they are meant to support.”

Question: Which of the following issues do you think are most likely to affect the growth and development of your business?

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• One in ten plan to acquire competitors
• A majority (78%) are ‘first time buyers’
• A third are unsure of how buy or sell a business

One in ten small and medium-sized businesses are actively considering acquiring a competing business, according to a new study by an independent Invoice and Asset Based Lender.

The transaction increase looks set to start in 2012 as appetite returns, with a quarter of those planning acquisitions in the next six months but deals may be stymied as business owners admit to a lack of experience in the acquisition process.  The study is based on research amongst 500 SME business owners and directors.

Opportunity knocks

The appetite for acquisition looks set to increase quickly as SMEs explore their options. Over a quarter (29%) of those hoping to acquire a business plan to do so in a year or less. the research finds.

Over a quarter (27%) of businesses also said they had the resources to acquire a competitor’s business now. These businesses estimate they are sitting on an average of £190k each of investable funds.

First time buyers

However there is a distinct lack of past experience amongst SMEs, with potential to create deal-making difficulties, the research uncovers.

Over three quarters (78%) of SMEs have never acquired a company before. As a result, many lack the knowledge of the financial or operational side of carrying out an acquisition or business sale.

A third of SMEs said they have no idea of how to engage in an acquisition or merger. More than a third (35%) said they would not know how to position for an acquisition.

A similar proportion (36%) say they would not know how to structure the financial side of an acquisition.

Nearly two thirds (61%) confirmed they would need external advice when looking to acquire a business.

About the research

The study is based on research amongst 500 owners and directors of SME businesses. The sample is representative of the broader SME population of the UK as defined by the Department for Business Innovation & Skills.

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More than seven out of ten entrepreneurs believe that a lack of bank funding is the major problem preventing entrepreneurial growth in the UK – despite the Government’s pledge to make £76bn available for lending to smaller companies.

The results come from the first of three specially commissioned reports by RSM Tenon looking at the current state of entrepreneurial Britain and the key challenges facing the sector. The results reveal:

• 72% of entrepreneurs saying that a lack of UK bank funding is the major problem preventing entrepreneurial growth
•  Nearly half of all UK entrepreneurs want banks to spend more time understanding the goals and objectives of their company
•  34% of respondents say the Government should increase pressure on banks to lend to small and medium sized businesses

However, the report also showed there were signs that new entrants and funding models were coming into the marketplace. The highest number of entrepreneurs surveyed (28%) said there had been an increase in the willingness from private equity firms to provide finance, and 23% saying that they thought that equity investors were more willing to offer funding than twelve months ago.

The report also highlighted the role of funding by ‘angel investors’ to entrepreneurs, with 23% of those surveyed saying that they had seen an increase in this form of funding over the past twelve months. These investors are usually affluent individuals who provide capital for business start-ups, usually in exchange for convertible debt or ownership equity.

Although some of the entrepreneurs surveyed said that angels were increasingly active in financing SMEs, over one in five said that they didn’t know how this form of funding had changed, suggesting a potential lack of awareness about the availability of this opportunity.

Andy Raynor, Chief Executive Officer of RSM Tenon, said, ‘If you want entrepreneurs to create jobs they have to have access to funding. If they struggle to get backing from their banks then they will look elsewhere, but clearly more needs to be done. To hear about new funding sources including business angels is fantastic, but they will not be able to replace banks that have turned out the lights due to capital constraints and market fear.’

Julie Meyer, Founder and Chief Executive of venture capital firm Ariadne Capital, said, ‘Challenger brands like Santander, Handelsbanken and Silicon Valley bank are moving into the market. There are new funding models, such as Zopa and Funding Circle, and the private debt market has opened where wealthy individuals are giving loans to companies.’

The report has been published to coincide with RSM Tenon’s online petition demanding that the Government “relax tax” for the UK’s entrepreneurs by providing them with tax breaks if their firms provide much-needed jobs. The petition can be found at http://epetitions.direct.gov.uk/petitions/20692

To view the report, Lonely at the Top, The Entrepreneurial Challenge, please visit:

http://www.rsmtenon.com/Markets/Clients/Entrepreneurs-and-growing-businesses/Lonely-at-the-top.aspx

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The CBI has released a new business survey that reveals a big drop in business confidence amongst the UK’s most influential business leaders ahead of the CBI’s annual conference that begins tomorrow.

The report reveals that business confidence has collapsed and that a third of the 122 top business people interviewed admitting that they are looking to cut staff numbers. Seventy per cent of those interviewed said that they felt the economic outlook had worsened since August.

Unemployment figures released last week showed that there were 305,000 fewer people employed during the period July to September. Three out of five of the leaders surveyed said that they planned to revise their business strategy and 38 per cent admitted that they were going to change their staffing plans.

The director general of the CBI, John Cridland believes that the corrosive effect of the ongoing euro debt crisis has stymied the ability of firms to build confidence.

Mr Cridland said: “The survey shows that business confidence has been hit by the Eurozone crisis and fears of a second banking crisis in 2012, so firms are revising their investment and employment plans. Business leaders believe the Government is right to stick to its deficit reduction strategy, but that it must go hand-in-hand with some fresh thinking and a more creative growth strategy.”

Mr Cridland’s comments are designed to put some pressure on the Chancellor, George Osborne to announce some tangible measures in his autumn statement later this month to encourage growth and restore business confidence.

Mr Cridland added: “The chancellor needs to use his autumn statement to boost business confidence with game-changing new ideas.”

Measures that could be announced by Mr Osborne include increasing the use of credit easing to help increase lending to small businesses, a national infrastructure plan and a government-backed mortgage guarantee scheme to help first-time buyers.

The Treasury has stated that the deficit reduction policy followed by the coalition government has placed the UK “ahead of the curve” in dealing with the debt.

A Treasury spokesman said: “Other countries have not taken these difficult decisions and are now feeling the effect of weakened market confidence.”

This view appears to be shared by the majority of business leaders. John Cridland said: “Despite the sharp fall in confidence and the increase in economic uncertainty, 82% of business leaders are firmly behind the Coalition Government’s deficit reduction strategy and do not believe that it should be scaled back.”

However, Chuka Umunna, the shadow business secretary said: “The government’s decision to cut spending and raise taxes too far and too fast has undermined business confidence, held back growth, stalled job creation and left Britain’s economy dangerously exposed.”

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The release of the Government’s latest insolvency figures for Q3 reveal a slight fall in the number of people formally struggling with their debt when compared to the last quarter.

The Insolvency Service statistics also show that the number of individuals facing debt problems has actually fallen by 11 per cent year-on-year.
The most significant decrease was in the number of people declaring themselves bankrupt – the figure was 31 per cent less than the previous year.

The amount of people relying on Debt Relief Orders, however, has risen again, whilst the IVA rate stayed at around the same figure as last year.
One possible reason for the slight fall in those with personal debt problems may be due to the banks’ unwillingness to lend since the economic crisis, which means that there is less chance for people to build up debt problems.

Furthermore, the continued low interest rates have eased pressure on households paying off mortgages with a monthly repayment rate. Once interest rates start to rise, a lot more people are expected to struggle to repay their debts.

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Latest insolvency figures and falling confidence among SMEs suggest the UK is in an L-shaped recession, report K2 Business Rescue.

Recently released insolvency figures show relatively little change year on year, suggesting that the debate about whether the recession would be a V-, U-, W-, or an L-shape is now over.

Business doctor Tony Groom argues that four years after the economy collapsed the evidence is piling up that it is flatlining having not risen off the bottom of the decline.

Whatever the technical definition for coming out of recession may be (ie two successive quarters of growth), he says, a growth of 0.2% for the UK economy means it continues to bump along the bottom of an L-shaped economic decline, whether it is called a recession or not.

Had the recent decline followed the pattern of previous ones we should have seen a fairly sharp three-year V-shape, and the numbers of insolvent companies would by now be climbing noticeably, as they are generally held to do when an economy is on the road to recovery.

An increase in compulsory liquidations and Creditors’ Voluntary Liquidations of 0.1% on the previous quarter and of 6.5% on the same period last year is a relatively small jump, not the dramatic rise that would be expected at the start of a recovery.

Add to this the evidence in the latest CBI quarterly survey showing a sharp decline in confidence among small and medium sized businesses.

They reported that domestic orders remained flat over the third quarter and that export orders had dropped by 8%. They expected domestic orders to fall by another 4% in the final quarter and no growth in exports and were indicating intentions of reducing their stock holdings.

As in the previous CBI quarterly survey firms were still planning to spend 20% less on buildings and 9% less on plant and machinery relative to the previous twelve months.

Investment intentions for plant and machinery particularly have remained negative for the second consecutive quarter – hardly suggestive of any optimism there.

Groom points out what he sees as possibly the most interesting feature of the just released quarterly insolvency figures, which is the noticeable increase in the number of Company Voluntary Arrangements (CVAs) relative to the numbers of companies in Administration as going concern formal insolvency procedures.

Compared to the same quarter last year, the statistics show that CVAs rose by 29.6%, while Administrations rose by only 6.3%. This may reflect the adverse publicity and concern over the use of Pre-Pack Administrations that in turn has promoted the use of CVAs for rescuing a business.

There may still be a question mark about whether the current situation really is the bottom of a traditional economic cycle. This would be supported by those commentators who are predicting that there are a lot of insolvencies lining up for the end of Q4.

Since a rise in insolvencies traditionally indicates the emergence from recession, perversely, this suggests that they are being optimistic rather than pessimistic.

But, says Groom, if the economy doesn’t recover and there is a rise in corporate insolvencies, this will be truly damaging for the UK economy.

There is a huge difference between insolvency to restructure a business to prepare it for growth and insolvency to close it down. The latter will remove jobs from the economy.

Continuing low interest rates and no discernible evidence of banks or other creditors really piling on the pressure, nor any sign of the restructuring that normally indicates the bottom of a recession, coupled with the plummeting confidence of the country’s so-called “engine of growth”, the SMEs, suggest that the economy will bump along the bottom Japanese-style for the foreseeable future at best or will decline further at worst.

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he price and accuracy of credit ratings would improve with greater competition among providers, the U.K.’s Financial Services Authority said in a report today.

The industry has “high fixed costs, large economies of scale, network externalities” and it has taken a long time for companies to establish their reputations, the FSA said in the report on its website. Increased competition “should ideally improve ratings accuracy.”

The European Commission proposed tougher regulations today to rein in credit-ratings companies amid concerns their assessments of government bonds may escalate the region’s sovereign-debt crisis. The draft would empower investors who lose money to sue ratings firms and includes measures to boost competition in the markets for ratings.

“Policy interventions that facilitate competition, take ratings shopping into account, and avoid imposing further barriers to entry would be desirable,” the FSA said in its report.

Global equity, bond, currency and commodity markets were roiled last week when Standard & Poor’s sent, and then corrected, an erroneous message to subscribers suggesting France’s top credit rating had been downgraded. French 10-year bond yields rose as much as 28 basis points after the mistaken announcement. S&P affirmed France’s AAA rating in a later statement

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