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UK — Reduced customer spending is biggest hurdle for London's SMEs

19 March 2010

New research shows that access to credit and funding does not rank as one of the top problems faced by London’s small-to-medium sized enterprises (SMEs).

According to Business Link in London's Business Confidence Index (BCI), the single biggest hurdle is customers spending less (20%), followed by winning new business, although this has become easier since the last Index in October 2009 (16% vs. 18%). As a result, since October 2009 an increasing number of businesses are seeing a decline in profits and sales.

The quarterly Business Confidence Index measures business sentiment of over 3,000 SMEs during this year’s first quarter (January — March). This comprehensive survey takes into account variations such as industry sector, sub-regional location and business size. In addition, the Index also considers business ownership (gender, Black, Asian & Minority Ethnic (BAME), Deaf and disabled).

As the economy slowly recovers, the research shows small businesses still face many challenges with an increased number affected by the recession compared to 12 months ago (72% vs. 63%). However, the determination to survive and thrive remains high on the agenda with almost six in ten still planning to grow and 70 per cent optimistic about their future business success.

According to Patrick Elliott, chief executive of Business Link in London: "A recovering economy does not mean that small businesses are out of the woods — recovery on the business front generally takes longer to manifest itself and entrepreneurs need to remain on their toes in the months ahead to ensure they’re on track."

The number of small businesses planning to grow has remained constant since February 2009 (58%), with larger SMEs more likely to do so than sole traders and smaller businesses.

Since October 2009, an increasing number of businesses are planning to stay the same rather than grow or shrink (36% vs. 28%). "These results show that an increasing number of SMEs may be focusing on maintaining a firm commercial footing rather than adopting more bullish growth tactics. Whatever the business strategy, it is wise for business owners to take stock and review their position and business practices - lessen the impact of a fragile economy before attempting anything else," Elliott added.

To counter the challenges of the current business climate, London's entrepreneurs are predominantly refocusing on their core products and services (59%) and cutting costs (50%). Encouragingly, fewer businesses are reducing prices since October 2009 (36% vs. 38%) and fewer entrepreneurs are considering drastic measures such as laying-off staff. The number of businesses considering this last option has dropped significantly in the last 12 months (13% vs. 19%). There are however, 4 in 10 entrepreneurs who believe it is unnecessary to take any action to deal with the recession. In particular, larger businesses are more likely to feel this way compared to smaller SMEs (49% vs. 39%).

For businesses looking to grow, increasing marketing activity remains the most popular method for facilitating expansion. Increasing online marketing and sales is another favoured tactic, most predominately adopted by sole traders and smaller businesses.

To read the BCI Executive Summary please click here



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