Issue 10
Building towards
solid growth
Export investment falls despite Q3 growth
Small and medium-sized enterprises (SMEs) using invoice finance in the UK have continued to build on economic growth achieved in the first half of 2014.
Our Business Factors Index, which measures the turnover performance of 4,000 SMEs across a range of business sectors, shows a steady rise into
the third quarter of 2014, taking it to the highest level since the measurement began in 2007.
These figures echo the upward economic trend in the UK, where we have seen GDP growth of 0.7 per cent in the third quarter compared with Q2 2014.
There is some caution in the wind, however, with an apparent slump in exports causing concern. According to the CBI’s quarterly figures, new export orders declined by seven per cent
Business Factors Index: Five years to Q3 2014
A changing environment
and export deliveries by five per cent during the three months to October.
Our SME Tracker survey of 1,000 small and medium-sized companies, while revealing a positive attitude towards the future, also indicates that businesses may not see exporting as a route for growth.
In the three months to September 2014, 11 per cent of companies said they had invested in trading overseas, but when looking to the following three months (October to December 2014), just five per cent said they would invest in export sales.
Export sales are a weighty issue that many think could tip the scales in favour of growth and the Government is ambitiously targeting a doubling in export sales to £1 trillion by 2020.
We have strong expertise in trading overseas, and have helped a number of businesses to target foreign markets. There is an opportunity there, and with the right information and advice many businesses could find success by looking further afield.
While our Q3 results do reflect signs of encouragement, stagnation may be on the horizon for the UK. Instability in the global economy may cause UK growth to slow in the final quarter of the year and into 2015, so while I welcome the latest findings, I would urge that they are viewed with a healthy dose of caution for the months ahead.
David Postings
UK CEO, Bibby Financial Services
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2007 2008 2009 2010 2011 2012 2013 2014
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Q2 Q3 Q4
SME Tracker:
Track record
Our business barometer, the SME Tracker
The SME Tracker provides a unique window into the views of 1,000 businesses in the UK. In the form of an independent survey, it draws together key insights into current performance and future plans.
Businesses are asked to reflect on sales performance, recent investment, attitudes to external finance and customer trends, in addition to sharing their aspirations for the months ahead.
The latest results of the SME Tracker reveal that small businesses in the UK are expecting to finish 2014 on a high, with more than half (54 per cent) expecting to see an increase in sales during the final quarter of the year. Looking back over the third quarter’s results, covering July to September, 61 per cent of SMEs reported a rise in sales.
At a regional level, the East of England performed the strongest in Q3, with 60 per cent of businesses reporting a rise in sales, followed closely by the West Midlands (59 per cent), where Bibby Financial Services has recently opened its West Midlands Business Centre. Looking ahead, the North East is expecting to lead in Q4, with 69 per cent of businesses predicting an increase in sales, followed by Greater London (67 per cent).
In relation to sectors, service industries reported the strongest performance in the third quarter, with 57 per cent of businesses reporting sales growth, followed closely by construction businesses (56 per cent). Over the coming three months, SMEs in the manufacturing sector expect to have the strongest quarter, with 67 per cent anticipating rising sales, followed by the service sector (61 per cent).
“Many businesses see a real peak in their trading during the final quarter of the year, as they capitalise on the festive season – in particular the manufacturing and wholesale sectors can be strongly seasonal. With January, however, typically comes a post-Christmas lull, potentially putting cashflow at risk. SMEs need to ensure they have appropriate funding in place, in addition to a robust business plan for the year ahead.”
Sectors: sales in last 3 months
Regions: sales expectations for next 3 months
20%
40%
60%
80%
100%
East
Midlands Greater London North
West Scotland South
East South
West Wales West
Midlands Yorks &
Humberside East of
England North East 0%
Increase Same Decrease
Increase Same Decrease Manufacturing
Construction Business Services Transport & Haulage Wholesale
Edward Winterton, Executive director, Bibby Financial Services
SME Tracker: People make the world go round
Above: SME Tracker data for Q3 2014
SME concerns over skills shortages lead to investment in training
Many who work in or with SMEs will testify that people are at the heart of their success. Whether it’s fulfilling orders, helping customers or sourcing new business, people are vital when it comes to making or breaking a business’s future. A growing number of SMEs have this in mind and many have been quick to capitalise on the strengthening economy in 2014 by investing their people.
Between July and September 2014, nearly half (44 per cent) of smaller firms we spoke to invested in new staff, a rise of 20 per cent on the first quarter of this year, when nearly a quarter (24 per cent) said they had taken on new employees.
According to the Office for National Statistics, the rate of unemployment fell to 6 per cent during this period - the
lowest since late 2008 - and the burgeoning SME sector in the UK has undoubtedly contributed to this job creation.
Upskilling staff is also a key area for SMEs and our research shows that in the third quarter, 39 per cent invested in existing employees through training and development programmes. Despite this investment, it is clear that there is still more to be done.
Some 13 per cent of smaller firms said a lack of skilled employees was the biggest challenge to their business, up from 7.5 per cent in Q1 and 9 per cent in Q2. And this is not only of concern for smaller businesses.
Recently the British Chambers of Commerce raised a rallying call for all businesses to invest in workforce training, while research from the Centre for Economics and Business Research shows that the UK economy is losing out on £18 billion as there are to 520,000 job vacancies that small businesses are unable to fill due to a lack of relevant skills.
All sectors: sales in last 3 months
Increase 54%
Same 35%
Decrease 11%
All sectors: cashflow position over last 3 months
Excellent 19%
Good 35%
OK 37%
Poor 9%
All sectors: investment plans for next three months
Recruitment of new staff 24%
Staff training 24%
Technology and new equipment 31%
Paul Nelson, director, Nelson Recruitment
“I work with a lot of SMEs, helping them to recruit the staff they need, and we are definitely seeing a rise in demand in the sector.
Everybody is busy, across the whole spectrum of our clients – from printing to driving, packing to engineering.
“In terms of expertise, we are finding it more and more difficult to find the necessary skillset to match vacancies – so we are having to look further afield, in some cases even abroad. In particular, the number of HGV drivers available is at an all-time low, as are specialists in certain fields of engineering.”
Case study: Manufacturing firm races to success with F1 tie-up
While many business owners are bracing themselves for a post-Christmas lull, Kevin Doherty, director of Codem Composites is doing just the opposite.
For him, January signals the start of his busiest quarter.
Doherty’s Cambridgeshire business manufactures the light-weight carbon fibre parts needed for Formula One racing cars, supplying the likes of Mercedes and Force India.
Between Christmas and Easter each year, his team usually grows from 18 to 24 as they support the racing teams with building their new cars for the season ahead.
“With Hamilton becoming World Champion for a second time, Mercedes has had an amazing season and I like to think we all play our part in their success,” Kevin said.
Kevin set up Codem Composites in 2009, when he spotted a gap in the market: to offer the high technical ability of larger composite manufacturing firms, but with the nimble agility of an SME. He has since grown his business to achieve a £1.3 million turnover and has landed other significant contracts in the motorsport and aerospace industries.
“Our industry has been quite well insulated from the recession because the demand for products made from lightweight, strong materials is growing exponentially,”
Kevin said. “We stood out from our competitors because of our highly skilled workforce, who could do it slicker and quicker.”
In 2012, Doherty set up the sister company CC Patterns, which carries out machining work for the composite parts.
The two companies combined were then able to offer a complete turnkey solution to its customer base, a move which has resulted in an accelerated growth for both businesses.
Kevin turned to Bibby Financial Services upon starting the second business, opting for its Flexidraft product, which provides a steady flow of working capital. “We had the funds to set up CC Patterns,” he explained, “but what we needed was a safety net. We didn’t want to go down the loan route;
we needed an overdraft just in case the growth profile was different to that which we’d planned.”
Two years on, this flexible form of finance is at its most useful during the F1 pre-season peak period, when employees work overtime and extra temporary labour is pulled in. The company’s weekly wage bill can almost double, said Kevin.
“People need to be paid. You can’t expect them to wait because your customers’ invoices aren’t due for payment.”
Looking ahead, Kevin expects to continue growing the business at 20 per cent a year, meaning that turnover will have doubled by 2018. He plans to continue using Flexidraft to help support any spikes in demand.
“Flexidraft is what the banks should be doing,” he said. “I didn’t even consider going down the bank lending route. I knew with Bibby Financial Services that I’d get a conversation with a real person and a straight yes or no. It’s not about running it through a computer or ticking a box.
It’s about a real person understanding the potential of your business.”
Kevin Doherty, owner and director, Codem Composites
Case study: Student support outlet achieves grade ‘A’ growth
School leavers today face difficult
choices. Whether it’s the university track or on-the-job training, the decisions young people make have long lasting consequences. To help them find the right path, Alan Hunter set up student support outlet Oncourse.
Based in Glasgow, the student magazine and website helps students with the transition between school and starting a career. Whether students are considering further education, an apprenticeship or taking a gap year, Oncourse is a one- stop-shop for impartial information and guidance for 16-24 year olds.
Alan Hunter, owner and director, Oncourse
When he set up the business in 2011, Alan also had some tough decisions to make, which is where Bibby Financial Services was able to help. “When I started Oncourse,” he explained, “I needed a way to cover my overheads before I generated revenue through advertising, which this was not an instant process.”
As the only magazine sent directly to secondary schools in Scotland, and distributed straight to students via guidance and support staff within each school, Oncourse had bags of potential. However, without cashflow to kick-start the business, Alan had no way to cover the cost of printing the magazine before he received payment from advertisers.
He researched invoice finance providers online and decided to choose Forward Finance from Bibby Financial Services. He was impressed with the 28-day rolling contract and product terms, particularly as he had no existing credit history – a common problem for new start-ups. “Using Forward Finance means that I can pay my overheads up-front, accelerate my cashflow and grow my business,” said Alan.
Over the next three years, Oncourse is now aiming to double its turnover to £360,000. From a one-man business it has grown to employ five members of staff to help with sales and accounting. Initially only a magazine, it has also expanded to include an online hub, which Alan hopes to develop further.
Client services manager at Bibby Financial Services, Louise Ross said: “Oncourse is a fast growing business that offers a vital service to young people that could ultimately affect their future. Without the funding support it has received, it may not have been able to help as many people as it has.
“Entrepreneurs and new business owners can find it difficult to secure funding through traditional routes if they have no previous credit history. But flexible forms of funding, such as Forward Finance, are available and we’d encourage anyone looking for funding to shop around and seek advice.
“We take a different approach to some other funders because we visit the business, meet the owner and
understand the potential for growth rather than focusing on its past history, which is often non-existent – particularly when it comes to new-start businesses.”
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Alternatively, you can call us on 0800 91 95 92
their growth potential.
We provide cashflow funding solutions for 7,000 businesses, handling an annual client turnover of £4.9 billion and advancing in the region of £415 million.
