Business Finance: Profitability is key to real recovery, says Steve Muncey

Steve Muncey of KPMG.

Steve Muncey of KPMG. - Credit: Archant

The strongest indication of economic recovery is a return of business confidence.

From meeting clients every day, there is certainly a feeling that our local businesses are growing in confidence about their prospects over the next 12 months. Many have seen sales increase and trading boosts and an uptick in new business signposts that we are heading in the right direction.

In fact, at KPMG’s recent local technical update events across the region at the end of last year, 68% of the businesses we surveyed felt confident that they would grow their business this year, and more than half (54%) were more confident about 2014 then they were in 2013.

When it comes to delivering growth, some businesses relying on the sensible but somewhat pedestrian drivers relating to economic expansion are likely to be comprehensively overtaken by those proactively innovating, exporting and investing.

At this point in the cycle, those managing companies with ambitious growth targets stand to benefit from making a conscious shift from a protection to a growth mindset. Doing a bit of mental housekeeping and internal communication around this can mean a business is run in such a way that it’s alert to, and primed for, taking advantage of the opportunities ? around investment, liquidity and acquisitions, for example ? that will result from the improved economic environment.

Businesses with strong management teams that have navigated five years of recession and insipid growth will have considered themselves successful in surviving until now. With the prospects of better conditions returning the outlook will be brighter but there is a need to keep close control on cash, accurate cash-flow forecasting and the need for continued monitoring of the cost base.

We should be in no doubt that it will not be an entirely smooth ride to recovery. Managing rising utility prices and pent up wage inflation, whilst still trying to retain sufficient skills and talents is a very difficult balance to strike.

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Any company thinking about growth over the next year will need to undertake a detailed assessment of its working capital requirements and the profitability of each new contract, no matter how tempting the volume growth may be. Genuinely sustainable growth, rather than turnover at any cost, is what’s needed for this region to continue to prosper.

: : Steve Muncey is senior partner at KPMG in East Anglia.

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