UK out of recession, but what does this mean for SMEs?

The lead story in the press last week was that the economy has emerged from recession, and the UK is “on the right track” having grown by 1% in the third quarter of 2012. But the Chancellor of the Exchequer, George Osborne MP, warned that, whilst “the economy is healing,” there is still a long way to go.

So what does this all mean for small and medium sized businesses in the UK? How has the recession impacted them and the sectors in which they operate and what should they be thinking about going forward?

We hear top tips, analysis and advice from some of our business advisory experts at Beavis Morgan, the accounting and business advisory group.

Paul Ashton, Client Partner, Head of Professional Services
“Statistics reveal that firms in the professional services sector are seeing an improvement in trading conditions, and this will continue as the UK economy emerges from recession. To support this, the 2012 Accountancy Age survey showed an increase in the aggregate UK fee income of the top 50 firms of 1.5 per cent. But despite the positive economic news last week, we are not out of the woods; the tough eurozone conditions could impact negatively on the professional services sector. A changing and increasingly complex regulatory environment is also impacting business decision-making and, unless firms take advantage of outsourcing opportunities, fiscal tightening could pose a significant challenge.  Now more than ever, professional services businesses need to implement practical strategies for managing the impact of accounting changes on their organisations, and deal with the shift in focus towards emerging markets, which represents challenges, as well as huge opportunities for this sector.

Corporate Tax Partner
“Yesterday’s news again demonstrated that growing the economy is the Government’s most pressing priority, with the need to encourage more responsible and diverse ways of running a business being high on the agenda. The Chancellor’s recently announced “employee-owners” plans, will soon enable employees to sacrifice some of their key employment rights in exchange for shares in the employing company. After all, a worker with a financial and personal stake in a company is likely to take more responsibility for its success. But a good alternative to this is Enterprise Management Incentives, which allow employees to retain their employment rights and benefit if the company grows, but also to pay tax at a rate as low as 10% on the disposal of the shares. A win win for both employer and employee.”

Peter Drown, Client Partner, Head of Property
“Despite the recession, figures for the London property sector are positive. According to a recent study, almost two-thirds of towns in England and Wales have seen year-on-year increases in house sales, boosted by improvements in affordability. And London property developers are reaping the rewards. Just last week, a leading UK house builder announced an increase in turnover of 13 per cent in the year to top the £1 billion mark. According to their figures and the recent Land Registry data, the increase in property prices is driven by London which saw a 5.5% price rise, heightened by growing demand from foreign investors. To add to this, figures from a leading residential and commercial property firm have shown that the average price of London’s ‘super prime’ properties – those worth £10 million or more – rose by 9.4 per cent in the 12 months to August 2012. So, with London property prices continuing to strengthen, and with the increase in attractive investment opportunities, businesses in the property sector should capitalise on this positivity.”

Simon Belton of BM Structured Finance
“It’s good news … the UK economy has grown more than economists had expected, between July and September. But despite this growth, a recent survey by The Federation of Small Businesses (Sept 2012) found that small firms are still struggling to raise the money they need to expand, with 42% of those who applied for a loan saying they were turned down. And, with other figures showing that high street banks turned down approximately £1.3bn of overdraft/loan applications from SMEs in Q1 2012, businesses need to use alternative methods in search of working capital finance to fund their growth. With this in mind, the key for all businesses seeking funding is in choosing an adviser who understands the finance market and which banks/lenders offer what products.  At usually no cost to them, businesses can work with an independent adviser who will tap into the wide reaching network of financial providers, both in the equity and debt markets, and find the right funding solutions appropriate to their individual needs.”

Matthew Burge, Client Partner, Head of Hospitality & Leisure
“Figures show that the Olympics helped to boost the ‘distribution, hotels and restaurants’ sector, which recorded a 1.6% quarter-on-quarter growth. But, what’s even more encouraging is that, despite the recession, recent research has shown that consumers are dining out more frequently than a year ago, although we are seeing a cultural change towards eating out, with more customers still looking for a great dining experience, but on a budget. So, with this in mind, there is now a strong strategic opportunity for good business ideas in the restaurant market, as well as an increased demand for new, innovative ways to market establishments and engage with customers to drive footfall.”

Mike Solomons, Partner, BM Advisory
“You just need to pick up a newspaper to know that the recent recession has impacted almost everyone in one way or another, with the UK’s poor economic performance bringing about a slump in business growth and a high number of redundancies. But this recession is different from previous downturns. Statistics released by the Insolvency Service for the second quarter of 2012 showed a decrease in personal insolvencies of 10.2 per cent compared to the same period in 2011. And corporate insolvencies are down by 2.4 per cent from the same quarter of 2011, as well as a 3.6 per cent drop on the first quarter of 2012. Considering the double-dip recession, this may seem surprising but, unlike the 1990s, banks have not been rushing in to claim back their stake and leaving businesses to fail. This is because, amongst others, they realise that rescue may increase returns in the long run. But, that said, they cannot keep this up indefinitely and will continue to increase both charges and the margins levied on what limited debt facilities are made available through the Funding for Lending Scheme for example. To increase the chance of recovery, businesses and individuals who have concerns about their finances should seek professional advice sooner rather than later. A proactive approach now, could help them avoid insolvency later.”

In conclusion

“Reflecting on the past 12 months, sales pipeline and financing seem to have been the biggest challenges for business owners. With news of the UK economy in recovery, businesses should be thinking strategically about their plans for the next three years in order to achieve growth,” says Peter Drown. “Whilst we want to feel confident that the UK economy is turning a corner, it is possible that it may contract again in the final quarter of the year without the benefit of the Olympic effect. Even if businesses do little else, they must make sure they focus on their three key issues of the moment. This is more important now than ever, as the UK navigates its way out of recession. The Bank of England anticipates further quantitative easing, although the earlier enthusiasm for gilt purchase appears to be on the wane. The Governor has expressed concern over the length of time that it will take to sort the banks out. Speaking with your partner at Beavis Morgan will help to define these key issues, make adjustments to factors such as emphasis, focus and timing, and put in place a robust business strategy to deal with the challenges that lie ahead.”

In light of the figures announced last week, the Chancellor will deliver his Autumn Statement on 5 December against the backdrop of an economy that has returned to growth. As always, Beavis Morgan will be on standby to provide you with a summary of the key points relevant to your business. In the meantime, if you have any queries relating to this article, contact Steve Govey or your usual Beavis Morgan Partner.