Bri­tain’s small busi­ness suc­cess story is be­ing held back by red tape and grow­ing pains

More than a quar­ter of start-ups forgo ex­pan­sion plans be­cause of the dif­fi­cul­ties in ac­cess­ing fi­nance, Matthew Caines re­ports

The Sunday Telegraph - Money & Business - - Business -

Fast, ag­ile and lean are three words that SMES of­ten use to de­scribe them­selves. These are the se­cret in­gre­di­ents, they say, that en­able them to dis­rupt mar­kets, take on the big play­ers, and in­no­vate and ex­pand at speed. Ex­cept that they’re not, be­cause many are cur­rently suf­fer­ing from grow­ing pains.

Draw­ing on in­ter­views with 500 small and medium-sized en­ter­prise di­rec­tors in Eng­land, a study by the Bri­tish Busi­ness Bank found one in three wanted to grow their op­er­a­tion, but were un­sure how. Aware­ness or knowl­edge of al­ter­na­tive fi­nance was a key fac­tor, with only 5pc of com­pa­nies quizzed hav­ing con­sid­ered early-stage eq­uity in­vest­ment and 7pc hav­ing thought about crowd­fund­ing via web­sites such as Kick­starter.

“Many small busi­ness own­ers find it hard to iden­tify or are sim­ply un­aware of the right type of fi­nance to help realise their growth plans,” says Graeme Fisher, man­ag­ing di­rec­tor of the Govern­ment’s eco­nomic de­vel­op­ment bank, which sup­ports SMES in find­ing and ac­cess­ing fi­nance. “It’s fair to say that the fi­nan­cial land­scape can be com­plex, daunt­ing and hard to un­der­stand.”

It’s dif­fi­cult and com­pli­cated enough that even for a sec­tor with bun­dles of per­sis­tence and prob­lem­solv­ing abil­ity, some are sim­ply giv­ing up – ac­cord­ing to the study, 27pc of smaller firms that did not get the fi­nance that they wanted can­celled their growth plans.

The image of ig­no­rant SMES not sure of where to go and throw­ing in the towel is not one that chimes with the as­pi­ra­tions of govern­ment. At the Con­ser­va­tive Party con­fer­ence this week, Theresa May de­clared that the party be­lieves in busi­nesses large and small and would back them to cre­ate jobs, build pros­per­ity and drive in­no­va­tion. The idea that SMES should be seen as the “en­gine room” or “heart” of the econ­omy are reg­u­lar win­ners of buzz-phrase bingo on the busi­ness event cir­cuit.

Smaller firms are a big, beat­ing heart worth back­ing; the coun­try’s 5.7m SMES ac­count for 99.9pc of all pri­vate sec­tor com­pa­nies, ac­cord­ing to the most up-to-date fig­ures from the Depart­ment for Busi­ness, In­no­va­tion and Skills. In 2017, they em­ployed more than 16m peo­ple (a quar­ter of the pop­u­la­tion) and boasted a com­bined an­nual turnover of £1.9 tril­lion.

Yet this small com­pany colos­sus is prone to stum­bling.

Amelia Har­vey, co-founder of yo­gurt brand The Col­lec­tive UK, says most com­pa­nies be­gin to stag­ger roughly two years in, when its prod­ucts or ser­vices have taken off, but more peo­ple and money are re­quired to lift growth.

“That’s where the cross­roads start form­ing around what fund­ing to take and how to spend it,” she says. “Too lit­tle and you’re all over the place, with team mem­bers try­ing to do lots of dif­fer­ent things, but too much and you be­come stran­gled,” she ex­plains.

The re­al­ity, how­ever, is that SMES are strug­gling with staff. Only one-in­four com­pa­nies with fewer than 50 em­ploy­ees have some­one in charge of fi­nances who is qual­i­fied enough, ac­cord­ing to an­other study of 4,500 busi­ness own­ers pro­duced by BVA BDRC, a con­sul­tancy.

Mike Cherry, chair­man of the Fed­er­a­tion of Small Busi­nesses (FSB), says that skills short­ages are one of the big­gest bar­ri­ers to fu­ture growth for its mem­bers. “With em­ploy­ment at a record high and the sup­ply of tal­ent from the EU in­creas­ingly re­stricted, we need to see those fur­thest from the labour mar­ket – ex-forces per­son­nel, the long-term un­em­ployed and those with dis­abil­i­ties – brought into our work­places.”

Bring­ing in “all-rounders” who can do a com­bi­na­tion of sales, mar­ket­ing, tech, man­age­ment and op­er­a­tions will also mean that smaller firms are less sti­fled, thinks Chieu Cao, who used the ap­proach to scale his em­ployee ben­e­fits com­pany, Perk­box, to more than 250 em­ploy­ees and a turnover of £34.7m last year. Staff spe­cialised as it evolved, which avoided a sce­nario where it had too many se­nior mar­keters or prod­uct de­vel­op­ers.

But un­der­pin­ning all of these is­sues is bu­reau­cracy and red tape – the hours upon hours of ad­min­is­tra­tion and form-fill­ing that 18pc of SME own­ers ques­tioned by BVA BDRC’S Fi­nance Mon­i­tor said was a “ma­jor ob­sta­cle” to their busi­ness. Tax re­turns and re­liefs, em­ploy­ment con­tracts, pen­sions auto-en­rol­ment, and health and safety as­sess­ments are cited as headaches for smaller firms. The FSB es­ti­mates that the av­er­age small en­ter­prise spends 70 hours a month on such tasks – pre­cious time that could be spent on growth plans.

Har­vey adds busi­ness bank­ing to the list. “I re­mem­ber be­ing on hold for hours when we man­aged to lock our­selves out of our on­line ac­count,” she says, ex­plain­ing that had she been sent to the right depart­ment ini­tially, a chat would have got her back on track.

‘Many small busi­ness own­ers find it hard to iden­tify or are sim­ply un­aware of the right type of fi­nance to help realise their growth plans’

Cap­tion italic cap­tion At the Con­ser­va­tive Party con­fer­ence last week, Theresa May said the party would back busi­nesses large and small to cre­ate jobs

Sau­rav Cho­pra, left, and Chieu Cao, co-founders of em­ployee ben­e­fits com­pany Perk­box, said bring­ing in “all-rounders” who can carry out a com­bi­na­tion of jobs is help­ful for SMES

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