SMEs predict tough times ahead

Nearly one in five SMEs in the UK expect their businesses to fall behind the overall growth in the market in 2008, with fuel costs a key concern according to a survey by GE Commercial Finance. However, over a quarter of respondents predicted strong growth, down just a few percent from the 31 percent which foresaw strong growth at the outset of 2007.

Firms that can add value in new geographies should pay attention to the findings, with over 1 in 10 SMEs looking to expand overseas to pursue growth in the coming year. However, for a number of firms the credit crunch, higher interest rates and commodity prices have caused them to turn inward and focus on organic sales in the UK over the coming year, with 81% predicting this avenue as the best source of sales growth, up from 69% last year.

24% of respondents cited fuel costs as the biggest constraint on growth in the coming year, in marked contrast to the 2007 survey where no one was concerned with the price of fuel.

Interestingly, SMEs placed reducing bad debts further down their list of priorities than last year. This may reflect the fact that SMEs have largely avoided the worst effects of the credit market issues, or it may be a more ominous sign. They are less focused on reducing bad debt because the opportunities to do so do not exist, whereas last year credit was abundant and refinancings commonplace.

Crisis? What Crisis?

Industry executives are predicting that the number of deals and the value of deals will fall precipitously over the next 12 months according to the Grant Thornton Private Equity Barometer. The survey, which questioned 100 private equity executives, found that 85 percent believed deal values would fall in the coming year, up from 69 percent in Q1 2008. 64 percent of respondents predicted volumes would fall, nearly double the 33 percent who responded the same way in the first quarter of the year. These are hardly revolutionary findings, yet they confirm the feeling of uncertainty prevalent in the industry.

The survey also revealed how quickly sentiment has shifted among private equity pro’s. At the same time last year a mere 13 percent foresaw deal values falling and just 10 percent predicted a drop-off in deal-doing.

However, when questioned about the prospects for their own portfolio companies, private equity players were remarkably upbeat, with 84 percent expecting growth over the next 12 months. This response seems to support the view that at present the lack of activity is a credit market problem and the real economy will remain largely unaffected.

This confidence in growth prospects will lead 59 percent of respondents to increase staff levels, with only 2 percent planning lay-offs. This looks like largely good news, yet one should remember that the optimism of one year ago turned out to be misplaced and in any case private equity executives are not inclined to predict negative growth whatever the prevailing economic climate.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Portfolio management
• UK / Ireland