David Prosser: ‘SMEs’ is a damaging piece of jargon that is stopping many firms from fulfilling their potential
Thursday 28 November 2013
Are the needs of a tiny business run part time by one person from their home the same as those of a stock market-listed company making sales of £1bn a year? Well, no doubt such firms have certain things in common, but for the most part they’re completely different. Yet both are classified as small and medium enterprises (SMEs) and treated in the same way by policymakers and other groups.
Not surprisingly, this is causing problems, especially for businesses at the larger end of the scale. Here, there is mounting evidence that the fact such firms are routinely lumped together with micro-businesses is making it more difficult for them to fulfil their potential.
A new report from Standard & Poor’s focuses on how the lack of transparency in the SME sector – specifically about the very different characteristics of the businesses in it – is making it difficult for medium-sized companies to raise money, the credit ratings agency says.
Even the banks don’t appear to be discriminating. S&P says bank lending to medium-sized companies in the UK is currently contracting 30 times more quickly than in France and five times more quickly than in Germany.
This is forcing many medium-sized companies to operate very conservatively. They maintain higher cash balances than larger businesses, S&P suggests, and operate on much tighter leverage ratios. This despite their higher profit margins.
Now, one might be tempted to say this is no bad thing and it is certainly the case that businesses should be behaving more prudently than in the days of easy credit.
But you can have too much prudence. Businesses that don’t invest for future growth, or can’t due to a lack of funding, risk stagnating as their rivals, particularly larger businesses with better access to finance, leave them behind.
Research just published by Bank of London and the Middle East, suggests mid-market firms are becoming increasingly frustrated. In short, they think that the term SME simply doesn’t work.
Half of the 318 mid-market businesses surveyed by BLME said they should be treated differently to smaller companies. Three quarters said they deserved more support from the government.
And just 13 per cent said they had found the banks more willing to lend to them since the Bank of England launched its funding for lending initiative.
More needs to be done to promote the interests of medium-sized companies, as distinct from those of smaller firms, and these businesses have suggestions of their own.
It is increasingly clear that the concept of an SME is not fit for purpose.
It’s a catch-all piece of jargon that covers such a wide variety of businesses that it has become more or less useless, to the detriment of many of the companies, smaller and larger.
Safestyle hopes housing rally will lift float
Safestyle is crossing its fingers that the UK’s housing market recovery will continue as it unveils a £77m flotation on the Alternative Investment Market, Aim’s second-biggest IPO of the year.
The company installs more replacement double-glazing windows and doors than anyone else in the country and sales have been picking up since confidence returned to the housing sector.
That is enabling Safestyle to build on its previous progress, for though sales in the industry have fallen 35 per cent since their peak in 2007, Safestyle has compensated by increasing its market share from 4.4 per cent to 7.5 per cent over the past six years. It hopes more-focused marketing spending will enable it to continue taking business from smaller regional and local operators.
Profit before tax last year came in at £7.8m with the company now promising further improvements in operating margins.
Safestyle says its strategy of focusing only on doors and windows also means it offers greater predictability on performance.
Cameron should sort out his late payers
More evidence that David Cameron may need to look closer to home as his crusade to end the injustice of late payments to small businesses continues.
While the Prime Minister has promised to consult on how large companies might be forced to pay their small suppliers more promptly, new research suggests that the public sector isn’t great at paying up on time either.
A poll by technology company Blur Group suggests that 25 per cent of small businesses think the government is the worst offender when it comes to organisations that pay their bills late. The figure isn’t as high as the 38 per cent that blame large companies, but it is a significant minority.
“It is vital that the government acts to ensure that organisations they control don’t contribute towards this huge problem,” says Blur Group boss Philip Letts. “A consultation just isn’t enough. If the government were to lead by example, and ensure they pay on time, they would be doing their part to contribute towards a swift economic recovery.”
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