Partner Article

Now we truly are ?all in this together?

Richard Coleman, director of SME at Zurich Insurance, looks at financing for UK SMEs.

There’s no doubt that it’s tough out there for British small businesses. The financing requirements of SMEs is continuing to grow, coupled with the fact that profit margins are becoming tighter, operating costs are rising and confidence in the economy is variable. But times of such uncertainty also spark new ways to overcome problems. The ‘supply chain credit’ initiative from the Government is certainly one of these examples.

At present, the resilience of UK SMEs is being put to the test on all fronts, both externally and internally, and this is having dramatic consequences on the day to day running of small businesses. Our recent quarterly SME Risk Index reveals that over half (51%) of small businesses are concerned with the current level of ‘market risk’. By this we mean those external factors and dynamics, excluding the economy, outside of direct control by the businesses themselves. This can be everything from inflation to domestic competition and the current exchange rate.

At the same time, internally, 52% are worried about working capital, 44% about reserve savings levels and 63% are worried about margin levels. These figures relate directly to high levels of financial risk for SMEs; from working capital cash flow to low reserves and saving levels in case of an unexpected major loss, event or drop in demand.

What this shows us is that businesses are being battered by factors outside of their control, facing external and internal risks as they fight to keep their businesses up and running. This combination of internal and external factors could well prove problematic for small businesses.

In terms of the impact this has had on day to day business, our Index found that over the last financial quarter nearly one in six (14%) of small businesses have undergone a comprehensive restructuring, with one in ten (13%) considering closing down. The effect on employees is also apparent with 27% of SME managers viewing employee morale and stress as one of their biggest workforce risks alongside dependency on key personnel (31%).

In light of these statistics the recently announced “supply chain finance” initiative from the Government is both timely and, we hope, beneficial to SMEs. This innovative measure enables large businesses to use their stronger credit ratings to ensure their supplier (a small business) receives 100% immediate payments on an invoice at a lower interest rate. It leads to improved cash flow and means SMEs can invest more immediately in growth areas of their businesses, expand more rapidly and ultimately increase their chances of staying afloat.

This is a positive step forward in getting small businesses moving in the right direction; something of vital importance if we plan to stay on the path towards recovery. It will also certainly go some way to restoring trust in the economy and lessen the risk small businesses perceive towards their contractors and suppliers.

Our Index highlighted that 39% of SMEs feel they have a moderate to high level of risk with key contractors, with 22% saying that working with partners and suppliers is their second biggest operational risk. The fear of losing customers is also a large threat, with one in ten saying they would need to halt operations immediately if they lost their two biggest customers.

By providing a method for the large companies to help their smaller counterparts, the Government are improving the financial outlook for British small businesses and helping to encourage economic growth from the top down. However, the challenge now is to ensure that this finance really does have an impact and that small businesses receive the backing they need and deserve. Above all, we must continue to unify the UK business

landscape in order to encourage growth amongst those SMEs whose creativity and entrepreneurial spirit are the lifeblood of our economy.

This was posted in Bdaily's Members' News section by Zurich Insurance .