Mood of cautious optimism in owner-managed business sector

April 26, 2010

David Rankin is managing director of business advisory, tax and assurance at Vantis. The opinions expressed are his own.-

There is no doubt that the economy is one of the most contentious issues in the run up to the election. While politicians argue over who would be able to handle the economy in the best manner going forward, we thought it would be far more telling to ask smaller businesses, those at the hardest end of the coal-face, just what they thought would happen to the economy.

We were pleasantly surprised.

More than half of the leading owner-managed businesses in the UK surveyed believe that the economy will improve over the next 12 months, according to the latest Vantis Market inSight survey.

Latest findings have shown that 58 percent of respondents are confident in the UK’s economic prospects, despite the uncertainty caused by a general election. Just one in five believe the economy will decline.

The Vantis Market inSight survey is a bi-annual survey among some of the leading owner-managed businesses based in the UK and is a barometer of sentiment in this key sector.

To support this positive business environment, over a quarter (28 percent) of businesses surveyed have said that they are also expecting to increase staff numbers over the next year, with less than one in ten considering decreasing staff numbers.

It is encouraging that owner-managed businesses, the backbone of the British economy, are putting their money where their mouths are. Whatever the outcome of the forthcoming election, they believe the market environment is becoming more favourable for business.

Cashflow continues to be the most important issue for owner-managed businesses. For 39 percent it is the most important, with pricing of products being second (with 13 percent), and cost reduction declining in importance. For most businesses the cuts have now been made – they are now focusing on re-building their balance sheets.

The majority of businesses expect to see their customer base increase over the next year. This could partially be because the previous year, which they are now working up from, was lower than expected due to the effect of the economy.

Increasing the customer base is a trusted route to improving a business’ profitability in the long run, as well as spreading the potential risks that come with being tied to a smaller number of clients.

There are a significant number of businesses who expect to see their margins decreasing in the year ahead, with the majority hoping to maintain them for the year. And most businesses surveyed expect to increase or maintain their level of products and services.

Less than half of all businesses we surveyed do not currently have any plans for an exit strategy. The broadening of entrepreneurs’ relief announced in the March Budget means that many business owners have a greater incentive to develop their businesses.

The tax relief now available is doubled, permitting a lifetime limit of 2 million pounds to be taxed at 10 percent for relevant disposals. Given the general predicted trend for tax rates to rise, it is even more vital that relevant taxpayers ensure they qualify for this valuable relief.

Most owner-managed businesses surveyed are sticking to what they know. Considering the economic climate, 81 percent of firms are hoping to remain as they are, 12 percent are looking to acquire or merge and 7 percent are looking to expand internationally.

These last two activities typically involve taking on further debt and, with cashflow being the principal issue for owner-managed businesses at the moment, it makes absolute sense for businesses to be primarily focusing on keeping their own houses in order.

This survey is a reassuring sign that most owner-managed businesses now feel in a more confident position; that they might have weathered the worst of any storm, and are holding tight for an expected upturn in the economy.

The Vantis Market inSight survey shows that many anticipate margins to be pressured, but businesses are considering expanding their client bases and services. Nobody is over-optimistic, or thinks we are out of the woods yet, however, this round of our survey shows there is definitely a current air of cautious optimism amongst owner-managed businesses in the UK.

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