Do SMEs reflect the state of the economic recovery?

It is widely reported that SMEs are the lifeblood of the UK economy and given the fact there are more than five million of them, such a statement is hardly surprising.


The economy has now passed pre-crisis peaks according to official data but conditions are not entirely suitable for SMEs, according to new research.


Some 21% of Britain’s smaller firms feel that conditions are tougher than ever before in research from Close Brothers Invoice Finance, while 53% are not expecting growth in the next 12 months.


This would suggest that the economic recovery is yet to have an effect on many of these businesses and that they feel opportunities are limited as a result.


In the worst cases, the tough conditions can impact on the bottom line of these businesses, placing them under considerable financial difficulty.


Considering available restructuring methods could remove some of the pressure, by reducing unnecessary expenditure or by improving the management structure.


Increased potential for acquisitions and restructuring


Cutting unnecessary losses would mean more finances are available for other parts of the business and then a greater focus could be placed on growth potential.


However, these methods are best employed upon the first signs of financial difficulty, as a greater amount of time provides more opportunities for practitioners to act.


Alternatively, some larger businesses could choose to acquire the smaller ones for their own benefit, especially for those willing to take a risk on struggling firms.


For those who trust their own forecasts – and who have the required funding – the opportunities exist for them to grow.


However, late payments and cash flow issues could prevent this type of growth as finances are simply not available for acquisitions.


SMEs in healthier positions are well placed to take advantage should they want to, but the overall picture for smaller firms would suggest the economic recovery still has some way to go.


Given predictions for future growth the situation could be set to improve but risks will remain for as long as there is doubt in the recovery.


By Phil Smith


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