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UK SMEs predict 25 per cent sales growth for next financial year

A cross-sector cohort of UK SMEs predict an average 25% sales increase for the next financial year, new industry research reveals.

The research, conducted by SME working capital specialist Skipton Business Finance (SBF), collates the perspectives of almost 1,000 business leaders from SMEs across the UK.

The businesses were also interviewed about whether they can see themselves hiring more staff with over a third of SMEs (35.39%) saying a confident ‘Yes’, and a further 43.62% replying ‘possibly’.

A cross-section of SME sectors was represented in the research including manufacturing & construction, haulage & transport, printing & media, recruitment, maintenance & repair, and food & drink. When grouped into individual sectors the data still reaches a similar 25% average for each sector.

Greg Bell, managing director for Skipton Business Finance said, “We’re shocked and surprised by these results. When we conducted the research, we were expecting to find a modest average of 5-10% but 25% is truly amazing. This is despite SMEs having to face the uncertainties of Brexit and SME confidence hitting a seven year low as recorded by the Federation of Small Businesses (FSB).

“If there is one thing that we can take away from this survey is how the UK’s SME industries continue to be persistent and resilient even in uncertain times.

“We can all agree that this will definitely be a challenging year for us all and statistics like the FSB’s confidence rating prove this. But these statistics show that business leaders can see a silver lining in these foggy times.”

Many SMEs commented in the survey on the uncertainties of Brexit affecting their business while many others commented that having a working capital solution helped to make growth easier.

Bell added,“It’s more important than ever that in times of uncertainty someone can provide SMEs with reliable solutions.

“As cash flow is the life blood of any business, we believe that focusing and improving on this can be a real-life saver for many businesses. In today’s fragile economy businesses that are still looking to expand and grow need the certainty of robust cash flow to fund their aspirations. Invoice finance provides this assurance and allows the management to focus on their business.

“At Skipton Business Finance, we try to do whatever we can to help make that growth possible. When clients have a facility with us, we never provide a traditional one-size-fits-all package but a tailored facility with their own relationship manager who can help adapt their facility through challenges or times of growth.”

A subsidiary of Skipton Building Society, SBF is a leading independent factoring and invoice discounting provider, offering a range of working capital solutions for businesses with annual sales ranging from new-start to £30m.

BY CHARLIE WATTS JOURNALIST

Source: London Loves Business

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How could Brexit affect business funding?

With Britain set to officially exit the European Union on the commencement of Brexit – 29th of March, 2019 – business owners are waiting to see how the monumental change will impact lending and other financial services in the UK.

The business funding sector is a particularly important area of interest, as the uncertainty surrounding Brexit could cause lenders to shy away from investments and loan approvals for the sake of risk aversion. On the other hand, some lenders are optimistic and ready to seize any opportunities that may arise in the changing market.

More than 40% of alternative funding providers see opportunity

Brexit has always been steeped in controversy and negative projections, but many lenders aren’t buying into the fear-mongering. In fact, a marketing survey conducted by Allen & Overy showed that 43% of investors feel that Brexit may present additional investment opportunities due to other lenders backing out of the game during a period of uncertainty.

Businesses in the UK will still need funding after Brexit, but many investors will be hesitant to approve loans. Of course, that means that alternative funding providers and online credit brokers will receive more applications than ever as other conventional banks and institutions lower their acceptance rates to mitigate risk.

Entrepreneurs that are starting up may also find business funding to be problematic with Brexit on the horizon. However, websites like iLoans are often able to provide entrepreneurs with personal loans that can keep them covered when cashflow is problematic. The maximum loan value is £5,000 which may provide a vital lifeline to many small business owners. This is a route likely to become increasingly popular to resolve short term cash flow problems as conventional banks tighten their lending criteria and accept less applications.

34% of investors are concerned that Brexit may limit their ability to provide funding

While many brokers and alternative lenders are seeing opportunity, about a third of investors are worried that Brexit may reduce their ability to approve funding. Still, 29% of investors said that Brexit will most likely have no impact on their business whatsoever. Likewise, more than 40% of borrowers stated that Brexit will have no effect on their short-term funding plans.

A fair share of business owners are concerned that Brexit could increase the difficulty of gaining access to funding. In fact, almost 20% of borrowers have temporarily postponed their business funding plans. Overall, surveys suggest that there’s more optimism in the air than unease, but a fair amount of investors and borrowers aren’t even concerned about how Brexit will affect their businesses.

More than 65% of UK borrowers believe that Brexit has hurt their ability to obtain funding

Roughly two thirds of borrowers in the UK are already blaming Brexit for their inability to adequately fund their businesses. Whether or not Britain’s impending withdrawal from the EU is the true cause of their financial woes is another story, but this stat could be an indicator that lenders are already bumping up loan rejection rates.

If borrowers are already having trouble finding funding in a pre-Brexit environment, how will they fare once the full impact on the financial services sector has been realised? Fortunately, many analysts are speculating that the panic leading up to the change will be worse than the actual long-term results of Brexit.

Rising interest rates could cause funding difficulties for SMEs

Prime Minister Theresa May is trying to gain support for a withdrawal deal that would set up an agreement between Britain and the EU to govern post-Brexit relations. However, if the MPs don’t vote to back her deal, then we’ll be seeing a ‘no-deal Brexit’. That simply means that the UK would be exiting abruptly on 29 March 2019 without any deal in place to manage the relationship between Britain and the EU going forward.

The governor of the Bank of England has suggested that a no-deal Brexit could cause a sudden interest rate rise. Obviously, higher interest rates would be bad for many small businesses that are already having funding problems. Since SMEs and micro-businesses are at the bottom of the financial food chain, they would feel the impact of higher interest rates the most.

One third of investors say that Brexit will have no impact on their business

Fortunately, there are still plenty of lenders that will continue to provide funding to businesses during the pre-Brexit build-up. Whether their lack of concern will continue after a no-deal Brexit is yet to be seen. Although Britain has allegedly missed out on £4.5 trillion in economic growth over the past two decades, the UK’s financial sector isn’t all doom and gloom.

Case in point, the alternative finance sector has grown by more than 30% in the past year alone. This shows that banks and larger institutions are stepping back to play a more reserved role while alternative lenders are still mostly optimistic and open to funding small businesses.

Funding woes could give the advantage to freelancers and contractors over salaried employees

An altered job market balance is another interesting effect that Brexit will have on the financial services sector. Many companies that are struggling to fund annual salaries will look to outsource work to freelancers and contractors on a case-by-case basis in order to save on payroll expenses.

As a result, funding difficulties could lead to tighter budgets that call for hiring labour as needed instead of paying salaried employees. While contractors and freelancers could see an uptick in business, altogether this could lead to rising unemployment rates in industries where in-house employees can easily be replaced by on-demand labour.

What about London’s status as Europe’s financial centre?

As of the third quarter of 2018, the financial services sector was bringing in approximately £187 billion, accounting for more than 10% of Britain’s economy. The UK has also histrionically been Europe’s largest financial services market, with London not only known as the financial centre of Europe but also the financial capital of the world.

However, analysts estimate that Brexit could cause London to lose up to 10,000 jobs in the banking sector and 20,000 positions in the financial services sector. Altogether, reports indicate that up to £1.5 trillion worth of assets could be moved out of the UK.

Ultimately, London may still be a larger financial hub in terms of business volume than other cities in geographical Europe, but Brexit will mean that a new city must be named the EU’s financial capital – will it be Frankfurt or Paris?

By JOHN SAUNDERS

Source: London Loves Business

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SMEs using invoice finance experience dramatic reduction in debtor days

Invoice finance firm Optimum Finance has seen a sharp increase in the last six months of new clients coming to them with an average of 90+ debtor days causing significant cash flow pressure.

Yet within three months of accessing invoice finance, Optimum Finance clients are experiencing a reduction in this ‘debtor gap’ to an average of 46 days, with some businesses seeing a drop of up to 58 per cent in the time taken to get invoices paid.

Average days sales outstanding (DSO) is a key metric in measuring the financial health of a business. The standard payment terms for UK businesses are usually 30 days. However, the actual time taken for monies to be received often goes far beyond this with some businesses waiting several months to receive cash for work already undertaken, or goods sold, three or four months previously.

This reduction in DSO is just the tip of the iceberg when it comes to the financial benefit experienced by firms choosing an enhanced invoice finance service which also effectively outsources their credit control function.

Optimum Finance has developed a cost savings calculator designed to demonstrate how its services can actually offer significant savings overall, rather than being another cost or overhead to the business.

This proprietary financial model shows SME owners how reduced DSO combined with the salary savings from not having to employ staff to chase unpaid bills, external credit check costs and interest savings on monies owed can actually make a positive impact on the bottom line in the first financial year working with Optimum Finance.

Commenting on the payment pressures faced by UK SMEs, Optimum Finance CEO Richard Pepler said, “Cash is the lifeblood of any business and not being able to get access to monies owed in a timely manner effectively paralyses commerce in this country.

“A lack of ready cash combined with no guarantee that payments will be made when they are due means strategic decisions to invest in new staff, resources, training, capital expenditure or growth plans are often put on hold or never carried out.

“It also has a knock-on effect to the time these SMEs take to pay their own suppliers and they end up locked in a vicious debt cycle, where their cash is actually sitting with the big corporations they do business with. Some SME directors also delay or don’t pay themselves in order to keep as much cash as they can inside the business.

“To combat this issue we have invested heavily in a highly experienced credit control team. This means our clients get access to specialist support and expertise in credit control and management, which in turn delivers long term cost savings.”

SMEs make up 99.9 per cent of all private sector companies in Britain, employing a total of 16.1m people and ploughing billions into the economy every year.

The UK late payments culture is more prevalent in some industries than others with construction, retail and grocery sectors often highlighted as the worst offenders.

In a bid to address this commercially crippling issue, the government issued new regulations in April 2017 forcing all large UK companies to report publicly on their payment policies, practices and performance. However, with little consequence for late paying large corporates, the situation has not improved in the last 18 months since its introduction.

In fact, the picture has deteriorated in the last 12 months. According to a recent report by UK payment experts Bacs, the UK’s smallest businesses face a bill of £6.7bn, up from £2.6bn in 2017, just to collect money they’re already owed.

The cost of recovering overdue money is now at an average of £9,000 for each business and, according to the Bacs report, “more than a third of small to medium sized enterprises (SMEs) coping with late payments are waiting two months beyond agreed terms to be paid. That’s double the number of businesses who said the same in 2017 (19 per cent).”

By Sarah Dunsby

Source: London Loves Business