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SMEs Beware - Slashing Business Investment Brings Risk, Not Relief PDF Print E-mail
Friday, 18 November 2016
BRITAIN’S vote to leave the European Union has caused much upset since June 23 – a new Prime Minister and Cabinet; heated debates in Parliament, the media, and in households across the country; plus, anxiety about where the economy is headed. But recent news that British firms have shelved more than £65 billion worth of investment due to Brexit is a real cause for concern. And it could have terrible ramifications for the UK’s – and its SMEs’ - financial health.

By Alex Littner, managing director of Boost Capital

About a third of UK businesses have put their investment plans on hold as a result of the referendum result, according to research by the Centre for Economics and Business Research (CEBR). Critics counter that the Business Growth Fund’s announcement that it has invested more than £1 billion in UK SMEs since 2011 is reason for optimism. Yet, any significant early indicators that businesses are getting cold feet about investment could indicate trouble ahead. Medium-sized firms are particularly sensitive to the Brexit fallout according to the CEBR findings, though almost a quarter of smaller companies have also said they’re freezing investment for the time being. Fears over the UK’s future in the single market, and the damage done to the value of sterling were the major reasons cited.

SMEs typically run a tight ship when it comes to managing their cashflow, and a lack of liquidity can mean growth plans are mothballed, and business opportunities are turned down. But I would suggest that some business owners are battening down the hatches at present at the suggestion of choppy seas ahead without having evidence of any real storm. Brexit has them spooked. But, being too cautious brings its own risks. Businesses starved of investment can’t keep up with their rivals.

They’re also at a greater risk of failure. This has been shown time and again during previous economic downturns when business finance has dried up, and simple survival becomes the entrepreneur’s priority. Some become so preoccupied with cutting costs, they fail to see they’re starving their companies into non-existence.

Real problems vs imagined demons
There are real and growing problems SMEs are facing at present, late payment being one of them. A new report from the Federation of Small Businesses reveals more companies are complaining of being paid late now than five years ago. Of those affected, 37 per cent say their cashflow has suffered, three out of ten have had to use their overdraft because of unpaid invoices, and one in five has seen an impact on profits. Big companies not paying small suppliers is often a major cause, but small firms can also be to blame. When small businesses are feeling the pinch, they can be forced to draw more on each other via trade credit, which itself can lead to greater levels of late payment. In the search for more working capital, some small enterprises unwittingly put their peers at risk by leaving them out of pocket for longer than usual.

This is a real issue, and one that bosses should address by developing and applying rigorous payment practices, always chasing unpaid invoices, and researching all their own funding options if they’re short of cash, rather than putting further financial burden onto their SME rivals. But, when it comes to larger matters, such as the global political landscape and how it may affect business, it is wise to take a deep breath, and adopt a reasoned response. Brexit was a shock, as has been Donald Trump’s recent election to the White House, but the results of these seismic changes are still unclear in practical terms – and may yet prove positive for UK firms.

Funding business opportunities
Some experts are already suggesting the next US president could be a good thing for Britain, paving the way for a favourable trade agreement between the UK and America. If the so-called transatlantic special relationship is reinforced by the new US regime, European countries may feel more inclined to stay on Britain’s good side, which could augur well for Brexit negotiations. SME bosses should remember that opportunities will arise from this current period of change. Those who have continued to invest in their operations, people, and infrastructure will be in the best position to grab any such chances when they do arise.

SMEs would also do well to recognise that money is out there to fund business opportunities, and it comes in many forms from a vast array of lenders. The financial landscape looks very different today than it did just a few years ago. Altfi, fintech, call it what you will, the new entrants into the business funding arena have totally altered the rules of engagement between lender and business owner. Companies have choice beyond straightforward bank lending from a range of bespoke, technology-led, and specialised types of borrowing and investment. They can also tap into detailed information about what these options are, how they work, and how much they cost thanks to finance comparison platforms, such as Funding Options and Funding XChange.

I’m not suggesting businesses should put their heads in the sand about world issues. Political upheaval affects business sentiment and investment decisions - that’s evident from the fact the CEBR found three-quarters of UK companies would resume investing if the current Brexit-related uncertainties were resolved. They want to grow, but they need confidence to act to do so. Decisive action from politicians would help - the current climate of indecision and political in-fighting does little to persuade business owners things will improve soon. But, companies should tackle the real and immediate threats to their operations. And they should be assured that fast, flexible funding does exist to build for the future, whether it’s developing new products, revamping premises, or buying up stock or equipment. Spending money now may feel reckless, but it is failing to invest that is a really risky business.
 
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