Small business growth forecasts hit 18-month high

Two in five small business leaders (39%) predict growth by 31 March – the highest level for 18 months, according to new research from Hitachi Capital Business Finance. By industry sector, this quarter sees a rise in growth outlook registered across the board in all but two sectors, with a significant upturn of growth projections in real estate (49%), IT and telecoms (49%), legal (47%) and media (46%).

In recent weeks, there has been widespread speculation on the likely impact of Brexit on the UK business community. The new data suggests smaller businesses are more likely to see uncertainty as an opportunity. Seasonal businesses, those that live with change and the need to adapt on a regular basis, are more likely to predict growth for the months ahead (40%). Also, small firms that invest in their technology assets are more likely to foresee opportunities to adapt and grow (47%).

Regionally, small businesses in the East (43%) join London (47%) and the North West (45%) as having the most businesses with a positive outlook for the months ahead. Over the last 12-months, there has been a significant upturn in growth predictions in London (rising from 36% to 47%), the South West (from 29% to 38%) East (28% to 43%). In contrast, small enterprises in Wales and Scotland were the least likely to predict growth.

Interestingly, older businesses (those that have been trading the longest) demonstrate the biggest surge in growth outlook, suggesting a willingness to adapt to change. The ‘confidence gap’ between younger and mature businesses shows clear signs of closing.

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance said: “As the UK economy enters a new chapter, the latest findings from our quarterly tracking research suggest that UK small businesses are starting a new year, a new decade and a new economic era with a positive outlook. What is heartening is the diversity of this confidence, which spans regions, sectors and older businesses modernising.

“At Hitachi Capital Business Finance we are producing a new series of training and support guides to help small business manage their enterprises through the Brexit transition period. In addition, our smart funding solutions give small businesses greater flexibility in the way they manage their cashflow and help their enterprises through seasonal highs and lows. The UK economy is going through a period of uncertainty – at Hitachi Capital Business Finance we are helping small businesses to live with uncertainty and to see it as an opportunity to innovate and grow.”

Comment: Why Healthy Teams Deliver Better Returns

Sports and business breed fiercely competitive environments where success is determined by dedication, discipline and heart. In my experience, the thrill of a rain-lashed rugby pitch in West London is similar to an oak-panelled boardroom above Manhattan. Both attract competitors who are committed to being best-in-class.

You may think victory in sports and business are determined primarily by individual talent. I disagree. As with sports, entrepreneurs and companies succeed only when they have the right people and culture. Even a talented player cannot deliver wins on a dysfunctional team.

Healthy Cultures Yield Better Client Outcomes

Over time, any group of people will develop a set of behavioural norms that dictate how they interact, set priorities, make decisions, share feedback and process information. Peter Drucker, the father of modern management theory, calls the residual of these collective norms and interactions “firm culture”.

Firm culture in the finance industry is often caricatured by the media. Financial firms are presented as profit-driven boiler rooms where financial success is everything. Its employees are usually portrayed as driven go getters, ruthlessly pursuing money and power; or sometimes they’re brilliant but eccentric number-crunchers using mathematical wizardry to divine investing secrets. If you entered finance with Hollywood cinema as your guide, you would prepare by taking self-defence and pre-booking a monthly hilltop retreat.

This view is clearly an exaggeration. However, like most caricatures, it contains a kernel of truth. While other industries have steadily adopted progressive practices that emphasize firm culture and employee engagement, investment managers have clung doggedly to outdated norms. This is beginning to change – but why has it taken so long for investment managers to move forward?

It is partly because investors have been slow to hold their managers accountable for firm culture. A common client refrain is, “All we care about are returns!”. Perhaps more troubling is that some clients even correlate a negative culture with a quality manager. These clients believe the outdated Hollywood caricature of a star manager – the ruthless, big-spending, pin-striped egomaniac – will deliver better results.

They are wrong.

The truth is that investment managers with unhealthy cultures deliver demonstrably worse client outcomes. This is supported by the research. In 2015, the Journal of Portfolio Management published a paper by Jason Hsu, the CIO of Rayliant Global Advisors, demonstrating that investment firms with unhealthy cultures deliver worse results for their clients. Stated differently, firms with good cultures put more money in clients’ pockets (and they also present less investment operations risk). This is why the Financial Conduct Authority has taken such an interest in firm culture, including by publishing the FCA Culture and Governance Handbook in late 2015.

So, do you care about investment performance? I might safely assume the answer is “yes”. If so, then you should also care about the culture of the firm managing your investment.

Why Unhealthy Cultures Can’t Win

Why do firms with healthy cultures outperform for their clients? It is because unhealthy cultures are a breeding ground for misaligned incentives, ill-informed decisions, and rash actions. These cultures undermine collaboration and feedback; they stifle diversity and meritocracy; they reward money and power; and they promote fear and blame. As Hsu writes, “Blame has many brothers, including fear, defensiveness and self-righteousness. When the four horsemen are present, personal accountability, creativity, openness and learning go into exile.” Managers working in this environment are poorly positioned to act in the best interests of their clients.

Over time, these managers will lose.

Today, UK managers with unhealthy cultures are struggling with asset outflows. They try to staunch the bleeding by poaching “star managers” from other firms – but this strategy is misguided. In both business and sports, a star’s talent will never manifest if it is undermined by a culture of blame. This is well-understood in the academic literature, but retail managers have been slow to adapt. They continue spending millions on star talent only to see it flame out.

By way of analogy, the most winning team in major international sports is the New Zealand All Blacks. Despite having star players, they attribute their sustained, century-long success to team culture. This talented team eschews arrogance and blame. Instead, they adopt 15 clear principles that include “Create a Learning Environment”, “Follow the Whanau (Family)”, and “Know Thyself”. Talented players who cannot adapt to the culture do not remain on the team. For the All Blacks, healthy culture is deliberate and fundamental – and as a result, they are universally recognized as the most creative, dynamic and effective rugby team that has ever played the game.


There is robust academic research on the importance of firm culture and its impact on performance. But my views are also based on my personal experience at Henderson Rowe.

I have the unique privilege of having spent most of my entire career in finance working for the same firm. Over its 20-year history, Henderson Rowe has been the rare boutique investment manager in a ruthlessly competitive UK market. Its in-house investment research has always been strong – it was an early innovator in smart beta, ETFs, and other low-cost investment products. I remain proud of the work we did and continue to do at Henderson Rowe.

But prior to Henderson Rowe’s acquisition by Rayliant Global Advisors in 2018, firm culture was a secondary consideration. Collaboration was limited and there was little appreciation for how broader firm culture meaningful impacts performance. Learning about the relationship between culture and performance – and seeing the positive effect on our business – has been a revelation. Jason Hsu’s vision for a new kind of investment manager has transformed my professional experience and reinvigorated our purpose at Henderson Rowe.

Like the New Zealand All Blacks, Henderson Rowe today is a principles-driven organization that puts the team before the individual. Our culture is both deliberate and fundamental, which means that talented employees who cannot adapt do not stay on the team. I’m pleased to report that, as with the All Blacks, our unrelenting focus on culture is delivering results: better performance for our clients and a happier workplace for our team.

The results of Henderson Rowe’s focus on culture are not abstract. In addition to a year of excellent investment performance, over the past year we have delivered:

  • global, institutional-quality investment strategies that are based on robust, institutional-quality research;
  • a new pricing model that is among the most transparent in the industry;
  • increased diversity at both the management and governance levels (four of our Directors are racial or ethnic minorities in the UK (with two women and two men), as are its Head of Research, Head of Investment Operations, Head of Compliance, and Finance Manager;
  • new culture-related practices that are advocated by industry regulators and activists;
  • improved culture and employee engagement through automated pulse surveys and human resources data analytics;
  • strengthened compliance and investment operations infrastructure to reduce transaction costs and improve operational controls;
  • transparent, institutional quality strategies that are delivering better net-of-fee performance for its clients;
  • a robust communications program built around client education and financial literacy;
  • regular team-building, conflict resolution, and other culture-related trainings; and
  • an active role in the community through several charitable initiatives, including direct volunteering, as well as promoting key charities at client and investor events.

Although I was a seasoned finance professional with well-established working norms, the cultural transformation at Henderson Rowe has given me renewed energy and purpose. As clients and others see the results of this transformation, I am convinced it will ultimately extend to the broader finance industry.’

By John Whick, Senior Investment Manager at Henderson Rowe

Banks risk losing access to major talent pool

Against a backdrop of intense skill shortages, the financial services sector risks losing access to a major talent pool because of a knee-jerk reaction to IR35 legislation. That is according to specialist insurer, Kingsbridge.

From April this year, businesses engaging independent workers will become responsible for setting the tax status of these individuals. As part of this reform, the tax liability will also transfer from the contractor to the fee-paying party in the supply chain, which is typically the recruiter or the company that directly engages the worker.

In response to these changes, a number of high-profile banks – including HSBC, Morgan Stanley, Barclays and Lloyds – have revealed that they will no longer engage with contractors who work through personal services companies, instead employing individuals on pay-as-you-earn (PAYE) terms or via an umbrella company.

“While at first sight this may seem like a risk mitigation exercise, it’s actually a wholly unnecessary knee jerk reaction” says Nicola Hayman, Legal Manager at Kingsbridge. “Even by HMRC’s own calculations, the vast majority of PSC contractors are genuinely self-employed – and by placing blanket bans on professionals who choose to work in this way, banks are missing out on access to a valuable pool of talent.”

“According to data released last month by the Office for National Statistics, the number of self-employed workers in the UK has now reached a record five million people, representing 15.2% of Britain’s workforce. It is clear that highly skilled workers increasingly crave autonomy. Any business which presumes that PSC contractors will automatically move across to PAYE – rather than looking for opportunities elsewhere – may be in for an unwelcome surprise. However, with the right processes in place to protect against risk, there is no reason why organisations should not continue to engage genuine PSC contractors.”

The Money Stats – January 2020 – UK 2019 Household Debt Closely Parallels Government’s

In the year up to November 2019, UK households borrowed almost as much as the Government, demonstrating that debt remains both a private and public sector issue, according to the January 2020 Money Statistics, produced by The Money Charity.

The latest data available from the Bank of England and ONS shows that UK households borrowed almost as much as the UK Government in the year to November 2019. In that period, households borrowed an additional £46.2 billion, taking total household debt to £1,669 billion. Over the same time, the UK Government increased its net debt by £48 billion, putting the country’s total net debt at £1,644 billion.

The similarity in these figures helps give an important reminder that, in looking at the wider issue of debt for the economy, and indeed across society, private sector debt can be as important, or even more important, than public sector debt. Prior to the 2008 crash, public sector debt grew gradually to around £500 billion, while household debt increased rapidly from £600 billion in 1999 up to £1,400 billion in 2008, according to Bank of England data.

The majority of this additional household debt went into the housing market, which in turn raised house prices. Similarly, in the year to November 2019, most additional household debt, £39.6 billion, went into the housing market. Overall consumer debt increased by £6.5 billion, while within this total, credit card debt shrank by £359 million, continuing the trend we reported on previously in last month’s report.

With the Office for Budget Responsibility’s March 2019 forecast projecting that, by 2023-24, household debt will reach £2.425 trillion, an average household debt of £86,388 (assuming household numbers track ONS population projections), there appears to be no immediate likelihood of this upward trend stopping.

Paul Frost, Interim Chief Executive of The Money Charity says: “At The Money Charity, we fully accept that debt is the necessary reality for nearly all of us. When taken on from a well-planned-out and considered position, it can be an effective means of achieving our financial goals and increasing our financial wellbeing. However, when debt is taken on in an unmanageable or unsustainable way, it becomes a pressing problem.

“Clearly like any ‘average’ figure, these headline numbers are inclusive of a wide range of sustainable and unsustainable debts, but the concern remains that the ever-increasing debt levels are indicative of more and more people taking on debt which they simply cannot manage. We would urge anyone facing this sort of situation to urgently seek out one of the many sources of available support.”

Other striking numbers from the January Money Statistics:

  • The number of UK mortgages with arrears of over 2.5% of the remaining balance fell by 20 a day. (P13.)
  • On average, a UK household spends £3.92 a day on water, electricity and gas. (P14.)
  • 14 properties were repossessed every day in Q2 2019 in England and Wales, or one every 1 hour and 40 minutes. (P13.)

Just Mortgages expands onsite New Build proposition

Just Mortgages has given the green light to further expansion of its specialist New Build division. The team is set to reach 23 brokers by the end of Q1 2020 – up from eight at the start of 2019. On the back of a successful year, there are now plans for the broker force to more than double in size over the next two years.

The Just Mortgages New Build division works directly with developers to ensure prospective purchasers have access to face-to-face advice from a fully-qualified broker. This differs from other leading broker firms, whose offering is predominantly telephone-based.

A Just Mortgages broker will meet with buyers to discuss their circumstances, help them identify their mortgage and protection needs, and work with them to find the most suitable financial solution on an individual basis.

This ensures that customers are getting the advice they need. Through brokers’ relationships with developers, it also gives them peace of mind that purchases are moving to completion as quickly as possible.

There is no contract and no obligation to use Just Mortgages brokers. Liability remains with Just Mortgages and an introduction fee is available.

The further growth of its New Build division will enable Just Mortgages to offer this service to a wider range of developers and prospective purchasers.

Alongside the growth in broker numbers, the division has also taken on new business development and managerial staff. Most recently, Rebecca Ferguson has joined the team and will be supporting developers in the north-west of England, working closely with divisional sales director Ciaran Wilkinson.

John Doughty, financial services director for Just Mortgages New Build, commented: “There is strong demand for new housing but it’s important that would-be buyers get the right mortgage deal.

“We’re committed to working with developers to help purchasers access the finance they need.

“It’s important that Just Mortgages brokers deliver our service in person. This enables us to build a strong relationship with developers, estate agents and with potential purchasers.”

FCA money laundering prosecutions – comment

Commenting on the news that the FCA has so far brought no criminal prosecutions under the 2017 Money Laundering Regulations, John Dobson, chief executive of SmartSearch, said:

“It’s vital that firms comply with money laundering regulations – not just for compliance reasons but to help stop dangerous criminals in their tracks. But regulators need to show they’ve got teeth and are taking their responsibilities seriously too.

“Where there have been serious breaches, the FCA needs to act fast to make it crystal-clear that this will not be tolerated.

“Further changes to anti-money-laundering rules are due to come into force at the end of the year that will widen the definition of money laundering, and increase jail terms for those found guilty of criminal offences. The FCA needs to up its game or risk lulling firms into a false sense of security.”

FSB: Post-Brexit immigration system must address Scotland’s needs

The Federation of Small Businesses (FSB) in Scotland has broadly welcomed the publication today of the Scottish Government’s report, “Migration: Helping Scotland Prosper”.

The report follows a series of recent announcements from the UK Government about the immigration system – notably that businesses will have less than a year to prepare for a new points-based system.

FSB Scotland has previously highlighted the importance of workers from the EU to the success of small businesses, with one in four employers relying on staff from the EU.

Andrew McRae, FSB’s Scotland policy chair, said: “The immigration system is about to undergo its most dramatic transformation in decades at breakneck speed – with the new system due to be up and running in a little over eleven months’ time. This self-imposed timescale should not preclude the possibility of a UK system working for the needs of Scotland’s small business community.

“The new paper from the Scottish Government is a timely and evidence-based intervention. It sets out a pathway towards a UK system that can flex for Scotland’s distinct demographic and economic needs, without creating additional burdens for smaller businesses.

“The UK Government should acknowledge that it is possible and desirable to enable its immigration system to respond to different regions and nations, as well as maintain strict border controls and a user-friendly system.”

The Migration Advisory Committee (MAC) is likely to publish its report later this week on salary thresholds, including the proposed £30,000, and how an “Australian-style points-based system” could work in the UK.

New FSB research is arguing for a £20,100 salary threshold because:

  • No small employers in Scotland pay their “lower-skilled” staff £30,000 or more – e.g. care workers and childcare workers
  • Around one in five small employers (16%) pay salaries of £30,000 or more in mid-skilled jobs – e.g. hotel managers and plumbers

Andrew McRae added: “Given pay levels in Scotland are lower than London and the South East, setting a salary threshold at £30,000 is completely unworkable for the small business community.

“At a time when many employers are planning for an uncertain post-Brexit future, it would exclude the vast majority of employers that currently rely on EU workers and cause serious disruption to the economy. If a threshold has to be set, it should be at more sensible level of £20,100 for overseas workers.”

How to beat the blues this Blue Monday

Blue Monday is widely regarded as the most depressing day of the year; as the dire weather, limited finances and the guilt from uncompleted New Year’s resolutions becomes overwhelming.

Last year, CABA launched its ‘Drop the Pressure’ campaign, which aimed to open the conversation around stress at work, and the importance of letting off steam before we reach boiling point. During the campaign, research commissioned by CABA found that:

  • 22% of men lose more than 10 hours of sleep each week thinking about work, compared to 10% of women
  • Men are most likely to experience stress at work on a Monday (36%)
  • Men are more likely to feel stressed when taking holiday from work, (54.13%) compared to women (45%)

Kelly Feehan, Services Director at CABA explains: “After the Christmas festivities and merriment of December, January is usually associated with cold, bleak weather, a tightening of finances after the festive overspend, and healthy living after a period of overindulgence. It can sometimes feel like a long and difficult month to get through, with these pressures said to peak on Blue Monday; leading to feelings of depression, sadness and general low motivation or productivity – particularly in the workplace.

“We know from our research that four in 10 British employees are close to breaking point, meaning that now more than ever, we as a nation need to begin working to look at the causes of stress and to improve our lines of communication and coping mechanisms. Therefore, it’s important to see positive initiatives such as days like Blue Monday, which have enabled people to speak more openly about how they’re feeling.”

The SME lending landscape in 2020

This time last year, I only made one prediction with any degree of confidence – that at some point, the UK’s future trading relationship with the rest of the world will be settled, and confidence and stable growth would return.

And I still stand by this a year later!

2019 was a tough year – for business and lenders alike. Although final quarter figures are not yet available, annual UK growth to September was just 1%, and both August and September showed a contraction in the economy.

Atradius are predicting 2019 to have had a 10% increase in business insolvencies – the highest rate in Western Europe – with a further 5% increase next year.

Meanwhile the Bank of England have revised downward their forecast for growth for next year to just 1% – and that is dependent on the end of Brexit uncertainty, an orderly transition from the EU, and businesses being properly prepared.

In this context, it is hardly surprising that the EY ITEM Club outlook on business investment shows lending growing by just 2.1% in 2020, the lowest level since 2015.

Away from these dry statistics and speaking to our customers in the Invoice Finance community, I pick up a sense of what these numbers actually mean.

The last 12 months of uncertainty has squeezed SMEs even further. Some of the very limited growth we have seen has come about only because of businesses increasing stock levels to protect themselves against potential Brexit related supply chain issues.

This has been a cause of cash flow issues for some, but in a shrinking economy, for others the increasing cost of materials, and the ever-worsening risk of bad debts, create particularly difficult trading conditions.

Amongst SMEs who use invoice finance, some of the cash flow bottlenecks can be smoothed out with the flexibility a receivables-backed facility can offer. But a bad debt or a drop in turnover can quickly lead to a crisis.

From the lender perspective too, increased competition in a market where lending growth is slowing means some challenging strategic decisions need to be made.

We have seen lenders responding by scaling back their risk profile, some withdrawing from whole sectors. But others have taken up the slack, flexing their risk appetite to take market share.

This has led to healthy competition in the market – and not just for the better-quality invoice finance deals. Higher risk, less “traditional” deals are also being chased, and across the board we are seeing some downward pressure on fees.

As a result, everyone is looking to improve their efficiency and safely manage more accounts with the same or reduced headcount. Consequently, we are seeing increased demand for Equiniti Riskfactor services – for our core risk management products from new lenders and for our additional modules from existing customers.

Equiniti Riskfactor products are built to support invoice lenders in these uncertain times. Client failure and fraud are increasing risks, while cost pressures and the need to maintain market share are key strategic drivers.

Having the tools at your disposal to safely support increased lending to the SME sector in 2020, with greater efficiency, will ensure those strategic goals are met, which will in turn help SME’s navigate potentially choppy and uncharted waters ahead.

By Aaron Hughes, Managing Director of Equiniti Riskfactor

January Blues are Real: 1 in 5 Brits report regularly cancelling social plans due to mounting social anxiety

As Christmas and New Year celebrations come to an end and people head back to work, the January Blues have come forward in full force. Stress of increased financial pressure from Christmas debts and emotions running low from failed New Year’s resolutions, it is no surprise that many Britons are struggling with their mental health.

This has been characterised by reports of increased isolation, social anxiety and indulgence in destructive vices over the Christmas period and into January.

The failure rate of most New Year’s resolutions is shocking; recent studies give a failure rate of between 75% and 85% before the end of January, while mid-February sees a drop-out rate of between 90-95%. Those who have a history of drug and alcohol addiction are at particular risk during the January Blues, as temptation to imbibe increases due to the inevitable emotional crash people feel after the festive season. Mental health treatment specialists Smart TMS now reveal the extent of the effect of January Blues on people across the country:

  • 1 in 3 Brits (32%) report a significant decline in enjoyment and satisfaction at work
  • 1 in 4 Brits (25%) said they find themselves regularly cancelling plans more often so they don’t have to interact with other people
  • Almost 1 in 4 (24%) find even basic functions (e.g. sleeping, showering) more difficult
  • Over half (58%) have witnessed a friend, family member or acquaintance experience a significant deterioration in mental and physical health as a result of alcohol, smoking or drug use
  • 1 in 5 (25%) of Brits say they are too busy to see a medical professional regarding their mental health

Gerard Barnes is the CEO of Smart TMS, the UK and Ireland’s leading provider of TMS therapy to treat a range of mental health problems including depression, anxiety, OCD and PTSD. Here, Gerard discusses the impact of January Blues and gives an insight into how people can manage during this difficult time of year.

“This time of year is difficult for so many people, and it is so important for people to be able to combat their mental health in their own way. Failed resolutions are not the end of the world; slow and steady really does win the race – some setbacks are okay. Making small but consistent improvements is both more realistic and more sustainable than attempting a total personal revolution.

“As we see increased cases of depression and mental health ailments during the January Blues, another tip would to be to try and not fall back to trusted vices. This hinders the attempts of millions to start their new health regimes in the New Year. Furthermore, we find that addiction overpowers people during this period as people look to relieve the stress that the winter months, and particularly the New Year, bring.

“We ask that people keep a watchful eye on their mental health, and encourage everyone to take an active role in improving their own health and happiness. However, if you have significant concerns over your mental health no matter what you do, we strongly encourage you to seek help and speak up. At Smart TMS, we use technology to treat a range of mental health problems, but regardless of the issues you are experiencing, there are services available and specialists ready to listen to you and find you the help you deserve.”