to the Icaew Uk Enterprise Survey Report 2013

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1 UK Enterprise Survey Report 2013 A unique annual insight into business growth and competitiveness business with confidence icaew.com/sme

2 WELCOME to the Icaew Uk Enterprise Survey Report 2013 This study represents the voice of ICAEW members in business who are an excellent barometer of the UK economy. While showing improving confidence in the economy, it also highlights a number of areas where businesses need government support. We are offering our policy recommendations to government to address these issues. ICAEW Chartered Accountants advise over 1.5m UK businesses, and many run businesses themselves. Based on views from 1,000 chief executives, chief financial officers, finance directors and senior management in business, our annual Enterprise Survey indicates optimism about growth by all types of business in every sector of the UK economy. Our survey suggests that the majority of UK businesses are expecting moderate growth into Despite these positive findings, British enterprise still faces many challenges. This is why it is important that the government provides the best possible policy environment in which businesses of any size can continue to grow. SMEs and new businesses are showing the most confidence, with the greater numbers projecting moderate growth for 2014, compared to large businesses, suggesting that they are responding fastest to the improving economic climate. Although optimism surrounding growth is spread across all sectors, the construction industry s emphasis on the need to pay down debt indicates that this sector still has some way to go. It is imperative that government helps the construction industry get back on its feet. Competition in the marketplace remains the biggest challenge that businesses face, followed by customer demand. Regulation remains a substantive concern, with many feeling the burden of regulatory requirements. This is not to say that businesses see all regulation as bad, but they are yet to feel the benefit of changes made by government. The green shoots of growth need nurturing and our policy recommendations are aimed at building on current government efforts to achieve this. ICAEW Policy Recommendations Help SMEs and new businesses to grow SMEs and new businesses are the driving force behind current growth projections. Government should foster the growth of SMEs and new businesses by offering a guarantee on loans provided by banks, to businesses which have been trading between two and five years. The Department for Business Innovation and Skills should create a team dedicated to help the increased survival rates of new businesses. Get construction back on its feet Although construction has shown substantial progress, its recovery is still challenged by late payments. The government should encourage supply chain finance, and help develop the flexible lending foundation of peer-to-peer lending for the construction industry, as two potential measures to get this sector back on its feet. Redouble efforts on deregulation While we welcome government efforts to decrease regulation, most businesses are yet to see any benefits, with many feeling that the situation has got worse. Most businesses are unaware of, or do not fully understand the deregulation efforts by government. For this reason we want government to redouble its efforts on deregulation so business feels an impact. Michael D M Izza, Chief Executive, ICAEW UK Enterprise Survey Report

3 GROWTH Businesses in all sectors project moderate growth for 2014 More businesses projecting turnover growth The number of businesses projecting growth in turnover for the next 12 months has increased significantly since last year. Nearly 7 in 10 businesses project growth in the coming year (69%), up from around half of businesses in 2012 (54%). But many are adopting a cautious approach, with the majority of respondents projecting only moderate growth. The proportion projecting 10% growth or more has remained broadly the same as 2012 (18% in 2013, 16% in 2012) and these figures are down on previous years. 100 % 0 TURNOVER GROWTH 69 % 54 % 18 % 16 % projecting growth projecting 10% growth or more Spotlight on SMEs 1 Turnover growth SMEs are much less cautious than large businesses when it comes to projecting growth. A quarter of SMEs (25%) are projecting turnover growth of 10% or more. This may be because their entrepreneurial spirit allows them to explore new business opportunities more easily than large businesses. Microbusinesses are particularly divided when it comes to turnover growth expectations in the next 12 months perhaps because they are less established and less certain about future trading. Microbusinesses are twice as likely as large businesses to project growth of 10% or more, (22% project 10%+ growth compared with large businesses at 11%). Over a third of microbusinesses do not expect any growth in the next 12 months (35%). 1 in 7 microbusinesses actually expect a decrease in turnover growth in the next 12 months (15%). 1in 4 SMEs project turnover growth of 10% or more 1 businesses with less than 250 employees Spotlight on new businesses 2 Turnover growth New businesses are the most optimistic about growth. They are helping to drive the increase in numbers of businesses projecting growth in the next 12 months, and as such, are key players in the economic recovery. Around half of new businesses project turnover growth of 10% or more (52%). At the other end of the spectrum, just 7% of old established companies (60 years or more) project the same levels of growth. Many of those businesses have survived by managing risks, and their modest growth aspirations reflect that approach. 1 in 2 new businesses project 10%+ turnover growth 1 in 14 established companies project 10%+ turnover growth 2 businesses trading for three years or less UK Enterprise Survey Report

4 Spotlight on construction Turnover growth Last year, construction lagged behind the production and service sectors in turnover growth projection, but it has caught up this year. Looking at those three broad sectors, there are no significant differences in the numbers projecting growth. in those projecting gross profits growth Businesses projecting growth in gross profits have also increased significantly since Nearly two thirds are projecting growth in gross profits this year (63%), up from half of businesses in 2012 (50%). It is good news that businesses are anticipating both turnover growth and gross profits growth. This suggests that growth is occurring within tight financial control. 100 % GROSS PROFITS 63 % 50 % 7in 10 project turnover growth projecting growth Only modest export growth projected Despite many businesses expecting to grow turnover and gross profits, fewer businesses are expecting to grow their exports. They are projecting only modest growth in exports over the next 12 months. Of those businesses that export, around 6 in 10 expect to grow their exports in that period. This suggests that government ambitions to rebalance the UK economy away from consumption towards export might take some time. UK exports are unlikely to grow until our traditional export markets recover, so recent news of early economic recovery in Europe is particularly welcomed. 100 % 0 EXPORTS 57 % 53 % exporters projecting growth UK Enterprise Survey Report

5 Business objectives over the next 12 months The top three concerns for businesses of all sizes are the same as last year increasing turnover, profitability and cash balances. But smaller businesses put more emphasis on increasing turnover, while large businesses are more concerned about increasing profitability. This suggests that SMEs see greater opportunities for growth, and are less focussed on cutting costs. SMEs BUSINESS PRIORITIES LARGE Spotlight on construction Business objectives While the construction sector cites increasing profitability as a top objective, its next priority is increasing cash balances by paying down debt. This suggests that while construction has caught up with other sectors in growth projections, it is behind in terms of the process of recovering from the economic downturn; businesses are still focussed on paying down debt while other sectors have moved beyond this. CONSTRUCTION 1 turnover 2 profit 3 cash balances 1 profit 2 turnover 3 cash balances 1 profit 2 cash balances 3 turnover UK Enterprise Survey Report

6 Business challenges over the next 12 months 4 % 42 % 2 % 34 % COMPETITION IN THE MARKETPLACE Over 4 in 10 businesses say that competition in the marketplace will be a greater challenge in the next 12 months (42%). Regulatory requirements The burden of regulation is cited as a top concern for a third of businesses (34%). This suggests that businesses are not yet feeling the benefit of a number of deregulation policies (see Regulation section). Spotlight on banking, finance and insurance Business objectives For the banking, finance and insurance sector, regulation is the biggest concern by quite some way. Three quarters of businesses in this sector expect regulatory requirements to be a greater challenge next year (75%). This reflects the ongoing nature of the regulatory response to the financial crisis. 3 in 4 expect regulatory requirements to be a greater challenge next year 17 % 30 % Customer demand Although customer demand is high on the list of challenges, 1 in 6 businesses (17%) believe this will be less of a challenge in the next 12 months, suggesting an improvement in customer spending. The construction sector (35%) and IT and communications sectors (31%) are particularly optimistic on this front. UK Enterprise Survey Report

7 3 % 17 % Late payment Late payment is becoming a more significant challenge than access to capital for businesses trying to manage their cash flow. 9% of businesses cite access to finance as a challenge in the next 12 months, but nearly twice as many (17%) cited late payment. Spotlight on construction Business challenges The construction sector is particularly concerned about late payment by customers, more so than any other industry, with a quarter (25%) saying that this will be a greater challenge in the next 12 months. 8 % 9 % Access to capital While access to capital has been an important issue for businesses for some time, fewer than 1 in 10 businesses expect access to capital to be a greater challenge in the next 12 months (9%), with almost the same number believing it will be a lesser challenge (8%). This suggests that businesses are getting used to a business climate where access to finance is limited. 7in10 say late payments will be a greater challenge in the next 12 months. 10 % 10 % Tax burden Businesses are divided on whether or not the tax burden will be a greater or lesser challenge in the next 12 months. While 1 in 10 businesses expect it to be a greater challenge, the same proportion expect it to be a lesser challenge and most don t have a view either way. UK Enterprise Survey Report

8 REGULATION Businesses are yet to feel the benefit of government deregulation efforts Reducing the regulatory burden 9 out of 10 businesses think the UK regulatory environment has not improved in the last 12 months. REDUCING THE REGULATORY BURDEN 9 in10 businesses think the UK regulatory environment has not improved in the last 12 months One in Two Out Policy Businesses are also broadly unaware of the efforts the government is making to reduce regulation. 7 in 10 of businesses are not familiar with the one in, two out policy, under which the government pledges to remove two rules for every new rule introduced. This was boosted from the earlier one in, one out policy. ONE IN TWO OUT POLICY Of those that are familiar with this policy, only 13% believe that this approach will help reduce the regulatory burden for their business, suggesting that the majority are sceptical it will result in a reduction in the regulatory burden. 7 in10 not familiar with policy 3 in10 familiar with policy only13 % believe policy will reduce regulatory burden UK Enterprise Survey Report

9 Good and bad regulation Our survey suggests that businesses do not consider all regulation to be bad. Some regulation is clearly far less of a challenge than other kinds of red tape. Topping the list of good regulation are business tax changes, possibly reflecting recent cuts in corporation tax and the hike in annual investment allowances. Just over a third of businesses believe this is helping the operation and development of their business (36%). Also listed is company law, which follows in second place, cited by 1 in 5 businesses (20%); and equal opportunities legislation, cited by 1 in 6 businesses (16%). But some regulations are causing businesses significant problems. Half of businesses see pensions regulation as a challenge to the operation and development of their business (50%), with 1 in 7 businesses citing it as a major hindrance (14%). This may well be driven by the introduction of auto-enrolment for employees. Just under half of businesses (46% and 44% respectively) cite employment tax and employment legislation as challenges. GOOD REGULATION Help to business Business tax changes 36% Company law 20% Equal opportunities legislation 16% BAD REGULATION Hindrance to business Pensions regulation 50% Employment tax 46% Spotlight on construction Bad regulation Construction businesses are particularly concerned about the regulatory burden. Planning regulation is at the top of their bad regulation list, with over half citing it as a hindrance (55%). The construction sector is also more concerned about environmental regulation, ranking it second on the list (48%). In light of the confidence returning in this sector, tackling these regulatory barriers could help nurture growth. 55% cite planning regulation as a hindrance Spotlight on SMEs Bad regulation SMEs are more concerned about employment tax than large businesses. These smaller businesses put it in joint first place on their bad regulation list, together with pensions regulation (49%). Employment legislation 44% 49% cite employment tax and pensions regulation as a hindrance UK Enterprise Survey Report

10 About the survey 1,000 telephone interviews were conducted between 29 April and 25 July 2013, among a cross-section of ICAEW members working in industry and commerce in the UK. The type of businesses contacted was controlled for company size (number of employees), regional location and industry sector to ensure statistically reliable data in key sub groups. Data has been weighted so the profile of the survey sample accurately represents the UK economy (by value) for size, region and sector. ICAEW is a world leading professional membership organisation that promotes, develops and supports over 140,000 chartered accountants worldwide. We provide qualifications and professional development, share our knowledge, insight and technical expertise, and protect the quality and integrity of the accountancy and finance profession. As leaders in accountancy, finance and business our members have the knowledge, skills and commitment to maintain the highest professional standards and integrity. Together we contribute to the success of individuals, organisations, communities and economies around the world. Because of us, people can do business with confidence. ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance. ICAEW Chartered Accountants Hall Moorgate Place London EC2R 6EA UK T +44 (0) E enterprise@icaew.com icaew.com/sme linkedin.com find ICAEW twitter.com/icaew facebook.com/icaew ICAEW /2013