Confidence is still fragile

FENELLA MARTIN-REDMAN, tax partner at Baker Tilly in Bury St Edmunds, examined whether owner-managed businesses are yet ‘turning the corner’

OPTIMISM among owner-managed businesses (OMBs) has increased nationally, with 59% of respondents to the 2011 Baker Tilly Owner Managed Business survey revealing “very” or “quite” positive sentiments about their business, compared with 50% in 2010.

However, respondents from the East of England are not quite as confident with only 46% giving these responses.

And despite an increase in confidence overall, respondents from the region were less optimistic when questioned in more detail.

Only 40% expect an increase in sales volume and just 10% expect to see an increase in gross margin. Furthermore, 28% of respondents expect headcount to decrease this year.

Whilst there is more corporate confidence in 2011 there is also uncertainty and the economic recovery remains fragile. Rising interest rates, increasing commodity prices, sovereign debt issues and public sector austerity measures will continue to cause concern.

As a result, OMBs should not fall into a false sense of security; maintaining cost control, keeping a close eye on cash and ensuring efficient working practices are going to be key. OMBs still need to be vigilant and careful about how they navigate their way through this “stop go” recovery.

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Taking business from failing competitors is the primary opportunity for businesses, while downturn in demand still seems to be the biggest threat to business according to respondents.

Access to credit has significantly decreased as a threat, major or minor, to business with only 41% of respondents indicating it currently as a threat compared to 77% in 2010 and 78% in 2009. This is even more evident in the East of England, where fewer of respondents indicate it is a threat.

This may be the first statistical result showing that access to credit is declining as a business issue. However, is this because banks are “back in business” or are fewer businesses looking for credit and, in fact, operating within their means or changing their budgets to allow for funds for development.

OMBs are getting smarter about managing cash flow and running on lower levels of working capital – a fortunate by product of the recession. Those businesses that allowed themselves to develop some fat have been the subject of crash diets, but let’s see if they can keep the weight off.

For many businesses, organic growth is going to be slow and hard to come by. Those businesses that are fortunate to be sitting on large cash balances may decide to deliver growth via acquisition and investment.