The UK faces a difficult winter, as the Eurozone crisis, a faltering manufacturing sector and a weak labour market undermine business confidence – according to the latest Business Trends report by accountants and business advisors BDO LLP.

In November, BDO’s Output Index dropped to 92.5, its lowest level since June 2009. The Index – which measures turnover expectations three months ahead – has remained below the crucial 95.0 mark that indicates negative growth since July 2011, suggesting that the UK economy could have already entered a period of contraction in Q4 2011.

Forecasts for the first half of 2012 are equally gloomy. BDO’s Optimism Index – which predicts business confidence in two quarters’ time – saw a considerable drop from 94.1 in October to 92.5 in November. In addition, the Optimism Index has remained below 95.0 since September 2011. Taken together, these figures paint a picture of possible economic contraction into the first half of 2012.

This lack of business confidence can be attributed to the ongoing crisis in the Eurozone, a key trading partner for the UK and accounting for around 50% of all UK goods exports. The effects of this are particularly evident in the export-reliant manufacturing sector, where the Optimism Index for the sector plummeted by 8.1 points in a month, from 94.3 in October to 86.2 in November.

Of equal concern are weakening conditions in the private sector labour market, where BDO’s Employment Index fell from 93.4 in October to 91.5 in November. The deterioration in private sector employment conditions suggests the sector will be unable to offset the increased public sector job losses, recently revised upwards from 400,000 to 710,000 by the Office for Budget Responsibility.

Peter Hemington, Partner, BDO LLP, commented: “The ongoing uncertainty in the Eurozone is evidently plaguing UK business confidence. The Government’s focus on cutting the deficit should secure the UK greater financial credibility in international markets – making it a safe haven for lenders. We believe it is imperative that the government adopt a more liberal approach to borrowing, enabling larger scale government investment in infrastructure.

“While the commitment to inject £5 billion into infrastructure projects announced by the Chancellor in his Autumn Statement is welcome, we would therefore like to see more dramatic steps taken. In particular, housing projects are crying out for government finance which would throw a lifeline to the UK’s stuttering recovery.”

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With a ‘double dip’ recession a very real possibility, the Forum of Private Business has resurrected it’s ‘Economy Watch’ member panel survey a year after the previous report showed firms were seeing an upturn in orders and turnover yet struggling to make a profit.

The new survey shows business confidence has fallen compared to a year ago, with just 1% of respondents ‘very confident’ and 27% ‘confident’ about their future prospects, compared to 43% who are ‘not very confident’, 11% ‘pessimistic’ and 6% ‘very pessimistic’.

In 2010, 36% were confident and 5% very confident about their growth potential while 39% were not very confident, 5% pessimistic and 7% very pessimistic.

The last Economy Watch survey, which tracked the health of the economy through the experiences of small businesses, was published in December 2010.

Amid instability in the Eurozone, calls for more quantitative easing and slowing manufacturing in the UK, the Forum has resurrected the survey in order to highlight the barriers to small firms’ ability to drive growth and job creation.

Despite improved trading conditions for almost half of all panel members, and an upturn in profitability for over a third, a weak economy and increasing business costs mean many firms are still struggling to win business and make a profit.

The Forum’s Chief Executive Phil Orford said:

“The confidence of businesses in their future prospects and ability to drive growth and job creation is falling – that’s extremely worrying. Partly, it reflects real fears of a double dip recession but there is more to it than that.

“While some small businesses have seen improved profitability, and despite many experiencing an upturn in trading conditions during the past year, too often profits are being decimated by a rising tide of costs.

“Finance is also scarce and expensive, so business owners’ ability to maintain any kind of reasonable cash flow is being undermined.

“What is frustrating is that there are small businesses in some sectors that would otherwise be doing ok were it not for these cash flow issues, low consumer confidence and the economic turmoil they are facing.”

Mr Orford added:

“While the Economy Watch survey took place before the autumn statement, the Government’s economic policies come out quite well.

“We welcome measures to boost the provision of affordable funding, free firms from red tape, give them greater control over their staffing and training needs and ease slightly some of the impending tax increases they are facing.

“However, the message that emerges from the issues identified in the research is that small businesses need more support in these areas, much more.”

A year ago, 29% of Forum members surveyed had seen recent increases in order books and 31% in turnover, compared to 15% and 17% of members reporting a fall in both.

However, almost as many – 27% – reported a month-on-month decline in profitability, with just 14% indicating an increase and 46% pointing to spiralling business costs as a major factor.

The latest survey shows even stronger growth in orders and turnover for many compared to a year ago – with respective increases reported by 44% and 47% of respondents.

While 34% of Forum members indicated increased profitability recently the same number reported a decline. Further, significantly more saw a fall in both orders (27%) and turnover (26%) compared to the same time last year.

In all, 64% of members surveyed report an increase in the cost of doing business, and none that business costs have eased.

Factors such as increasing taxation (45%), mounting late payments (31%), rising finance costs (19%) and increasing training costs (19%) show that cash flow issues are the major barrier to small business growth, combined with a weak economy.

A total of 20% of respondents said that improving or stabilising the economy would help their businesses to grow.

Almost a quarter (24%) cited as growth priorities improved consumer and business confidence, 22% internal business development and 14% industry-specific incentives.

The field work for the Forum’s latest economy Watch survey took place in November, before the Chancellor’s autumn statement. Members were asked to rate the coalition Government’s handling of the economy.

Just 4% said it has been ‘excellent’, but 36% said ‘good’ and 39% ‘fair’. A total of 16% of respondents said it has been ‘poor’ or ‘very poor’.

Other significant economic indicators uncovered by the Forum’s Economy Watch survey of small business owners are:

Business investment

In addition to staff training, almost a quarter (23%) of members increased investment in sales and marketing, while 13% reduced spending on this. While just under a fifth (19%) spent more on machinery and equipment almost as many (17%) spent less. Overall, business investment is down compared to a year ago.

With fewer fears of another recession being discussed in 2010, the number of business owners anticipating investing in sales and marketing was higher than it is now, at 70% compared to 56%.

The same is true of anticipated investment in product and process development (33% in 2010 and 21% now), training (34% and 22%), and upgrading property (18% and 17%).

However, the number of business owners expecting to invest in machinery and equipment in the coming months has increased from 36% to 42%.

Access to finance

Access to finance has deteriorated for 16% of panel members – more than in November 2010 – but 5% have seen an improvement. The majority (57%) reported no change. The cost of finance is virtually identical to the November 2010 figures.

Business support

Compared to this time last year, opinion about the impact of Local Enterprise Partnerships (LEPs) has changed, with businesses feeling that the introduction of LEPs is less likely to impact on the availability of business support, for better or worse. In all, 26% think LEPs will make no difference, up from 21% in 2010.

Employment

But for 309 employees who lost their jobs as a result of firms going into administration, there would have been an increase in employment of 79 staff over the past year – approximately half the number anticipated in November 2010.

The not-for-profit Forum is raising awareness of the importance of small businesses to the UK’s economy in order address the barriers to growth they face in its Get Britain Trading campaign.

To support the campaign go to www.getbritaintrading.co.uk For more information about the Forum call on 0845 616 6266 or visit www.fpb.org

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Latest figures from the Insolvency Service have revealed that the number of personal bankruptcies in England and Wales has fallen slightly in the third quarter of 2011.

Personal insolvencies dropped by 1% from the second quarter to 30,219, while in the same period company insolvencies increased by 2% to 1,253.

Although the number of firms entering an insolvency procedure is now 10% up on a year ago, personal insolvencies are down by 11%.

In the past year the number of bankruptcies has been falling and is now down 31% on a year ago, members of the UK200Group of independent quality assured accountancy and lawyer firms have pointed to the rise in IVAs and Debt Relief Orders for the decrease.

Lawrence King, Business Recovery and Insolvency Manager at UK200Group member firm Critchleys Chartered Accountants, points to a more flexible approach from creditors.

He said: “The main voting group in consumer credit IVAs are the high street banks and credit card companies. Over the course of the last year they have collectively adopted a more flexible approach upon their receipt of IVA proposals, to the extent that they are now prepared to accept a lesser return than previously had been the case.

“The increased use of protocol compliant IVAs has no doubt facilitated this process, whereby the institutions are able to handle numerous similarly drafted IVAs, rather than a disparate group of IVAs without any apparent similarity.

“IVA approvals have increased quarter on quarter this calendar year.”

Lawrence argues that the issuing of bankruptcy petitions by creditors has slowed down as compared to the level people may have anticipated.

The number of Debt Relief Orders has also increased, owing in part to the Government removing pension funds from the maximum allowable asset criteria.

“It is argued that the main generators of creditor’s petitions (banks and HM Revenue & Customs) are adopting a slower approach to the issuance of bankruptcy petitions which has led to a decrease in the number of bankruptcies,” he said.

“In any event some c85% of bankruptcy petitions are the debtors own rather than creditors and we have seen an increase in the number of Debt Relief Orders (“DRO”) quarter on quarter this year, as the Government has removed pension funds from the allowable assets of £300 in a DRO.

“Prior to this, many debtors were prohibited from entering the DRO process if they had contributed to a personal pension scheme.”

Some experts say that company insolvencies are expected to rise further, with Christmas spending unlikely to come to the rescue of many beleaguered companies.

Lawrence says that whilst banks are unlikely to withdraw funding before Christmas, poor sales could see them reconsider their positions.

He said: “In the run up to Christmas we shall most likely see a decrease in corporate insolvency with the banks unwilling to “pull the plug” prior to the Christmas spending period and the January sales.

“However the banks will no doubt consider the Christmas sales figures when deciding whether to continue to support the high street.

“The next rent quarter day falls during the Christmas period and with the decision in Re: Goldacre it is highly likely that directors and Insolvency Practitioners alike would hold off commencing insolvency procedures until we are into the new quarter cycle so as to make the next quarter’s rent an unsecured claim rather than an expense of the insolvency procedure.”

A change in interest rates could also see corporate insolvencies rocket, he warned.

“Whether or not the Bank of England alters rates in the New Year will clearly impact markedly on the rate of corporate insolvencies with many borrowers at present merely discharging interest payments rather than chipping away at the capital element of their borrowings,” he added.

“Whether all borrowers could sustain even a negligible rise in rates is questionable.”

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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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