Small and medium enterprises have experienced a difficult trading period of late but as the dust of recession begins to settle it appears the worst is over. Deloitte Senior Partner Glenn Roberts assess the outlook for the local SME sector and offers some salient advice.
The past few weeks have provided some relatively good news for SMEs.
In last month’s budget, Alastair Darling announced an agreement with Lloyds Banking Group and Royal Bank of Scotland to lend £105 billion to homebuyers and businesses over the next 12 months. This has been quickly followed up with confirmation from the Ulster Bank (an RBS subsidiary in Northern Ireland) that they are part of the agreement. In addition the Irish Finance Minister has tasked AIB and Bank of Ireland with lending €3 bn to SMEs. I trust this will contribute to improved credit conditions for Northern Ireland’s SME businesses.
It is also important to note that the growth figure for the UK economy for the last quarter of 2009 has been revised from 0.3% to 0.4%. Regardless of whether it’s 0.3% or 0.4%, it is growth and so the recession technically ended. We await the figure for the first quarter of 2010 which may consolidate the emergence from recession or, as some speculate, indicate a double dip recession.
One of the questions I get asked most often is “are you seeing a recovery?” At a micro level, does it matter if there’s a recovery under way? Perhaps from an emotional standpoint it does – so if we are in a recovery then we can all feel more positive.
But at a practical level I think the SME should be more concerned with learning from its experiences over the last couple of years and applying them now rather than worrying about a technical definition of a recession. Regardless of the state of the national economy, the SME should continue to focus on those priorities that have enabled it to survive and be successful thus far.
Looking at my own business and reflecting the experience of our clients across all sectors, I would say the following are the attributes of the successful businesses:
• An absolute determination to succeed. If you have been working twice as hard as you’ve ever worked for half the reward or for little or no reward then you’ll understand this point
• A relentless focus on cashflow, balancing the demands of creditors with the pursuit of debtors
• An ongoing open and transparent communication with staff so that they understand the challenges, difficulties and opportunities
• Access to timely, accurate financial information so that you know where the business stands on a day by day, week by week basis
• Continual questioning of costs. Why is money being spent on that item and what business benefit do you get from it?
• The business remains visible in its market and to its customers and suppliers
• Intense customer focus – stay very close to your customers
• Innovation. This isn’t necessarily about a technical innovation where you make a new discovery but rather more about is there a smarter way of doing what you currently do or can you expand what you currently do.
I think another major lesson from the current situation is around forecasting. Consider any forecast over the last two years e.g. forecasts of Government borrowing between the 2008 and 2010 budgets were out by around £100bn per annum. Similarly, forecasts on the future of the property market, on company sales and so on quickly went out of date. In many instances, they were badly wrong. We should accept that the only thing we know is what just happened – any future forecasts should carry a health warning and the SME should have a sensitivity analysis and a plan B.
The final lesson I take from the current situation is that within the next number of years there will be another bubble that will burst and a lot of us could be caught up in it. I say this because it’s barely 10 years since the dotcom bubble where there were inflated asset prices based on heroic revenue, profitability and behavioural forecasts.
Therefore in summary:
• Stay focussed on the priorities that have got you this far;
• Look critically at forecasts and options for your business; and
• Trust you are still around to avoid the next crisis.