Firms are cheerful about 2016. Let’s hope they know the reasons to be fearful

Are small firms really taking account of the roadblocks that may lie ahead?

George Osborne intimated that an interest rate increase may be on the way soon (AFP/Getty)

Firms are cheerful about 2016. Let’s hope they know the reasons to be fearful

Will 2016 be a happy year for small businesses? Research published by Lloyds bank last week suggests many firms remain remarkably bullish about their prospects for the next 12 months, even if they’re not quite as confident as they were six months ago. Given the potential pitfalls facing them this year, one can only hope that sentiment doesn’t reflect complacency.

Lloyds surveys small business confidence twice a year and last summer’s research found it running at record highs – a positive balance of 53 per cent of businesses that felt confident. The latest survey shows that figure has now come down to 43 per cent, but that’s still well ahead of the long-run average recorded in the surveys.

Certainly, there are reasons to be optimistic: the UK looks set for respectable growth figures in 2016; inflation and employment are stable; consumer spending remains robust; and more businesses are exploiting export markets. The dip since last summer, Lloyds says, is down to worries over the global economy – understandable given the turbulence in China and elsewhere.

And yet, are small firms really taking account of the roadblocks that may lie ahead? In particular, three factors threaten to hit them hard.

First there is the impact of pension auto-enrolment, which far too many businesses are failing to get to grips with. Over the next three months, around 100,000 small employers must comply with the auto-enrolment rules, which require employers to set up a pension scheme of a minimum quality, automatically enrol all staff into it, except those who opt out, and begin making contributions on their behalf. This threatens to be a disruptive distraction for businesses rushing to comply with the rules at the last minute in the face of penalties from the Pensions Regulator, which is becoming increasingly strident about firms that don’t meet their deadlines.

The regulator warned last week that it expected many small firms not to comply in time – and revealed it has already taken action against more than 2,000 that have broken the rules.

The second threat is the introduction of the national living wage in April. This may have fallen short of the rates recommended by the Living Wage Foundation, but many small firms will nonetheless see a spike in their wage bills and some may find that they struggle to cope. It’s not just that salary increases that will be required for lower-paid staff, but also that employees earning more will also expect a hike in order to maintain the differential.

None of which is to suggest that either auto-enrolment or a higher minimum wage are flawed initiatives – just that there will be small businesses whose margins aren’t fat enough to absorb the higher costs comfortably.

All the more so given the third issue now coming into view. Sooner or later, the Bank of England is going to raise interest rates – sooner if you share the view of George Osborne, who was last week dropping none-too-subtle hints to that effect. A rise in the cost of borrowing poses two problems for small firms. First, many remain heavily indebted and some of these may find that higher loan servicing costs are too much to bear. Second, higher rates will have a negative impact on consumer spending and that will damage businesses in areas such as retail.

There are, in other words, reasons to be fearful about 2016. Even leaving aside the patchy global economic outlook, small firms face a number of challenges in the months to come. In that context, it’s surprising they remain so confident.

Banks raise their game for small businesses

Britain’s banks are doing a better job at keeping small business customers happy, new research suggests, but at the same time they face a higher risk of losing custom to rival providers. The Business Banking Insight survey, conducted by market research analyst ICM on behalf of the British Chambers of Commerce and the Federation of Small Businesses, found that 26 per cent of small and medium-sized enterprises would consider recommending their bank to others, up from 23 per cent a year ago.

But 10 per cent of small businesses said they would consider moving their current account in the next six months, rising to 15 per cent of enterprises launched in the past five years.

The research comes as the Competition and Markets Authority (CMA) continues to investigate the market for small business banking, amid concerns about lack of transparency. John Longworth, director of the BCC, claimed the research suggests competition is beginning to have positive effects.

“It is reassuring that there has been progress in improving customer satisfaction among businesses, but there is clearly more to be done; competition among lenders is driving this change,” Mr Longworth said.

“Businesses look to other businesses, and we would like to see the CMA promote initiatives such as Business Banking Insight, which lets SMEs learn from the experiences of their peers before choosing products and services.”

Venture cash pours into Britain’s tech scene

The technology sector attracted record levels of venture capital funding last year, new data reveals, with investment in British businesses up 70 per cent on 2014. London & Partners, the Mayor of London’s promotional company, said UK tech firms raised $3.6bn (£2.47bn) last year, including $2.28bn for companies based in the capital.

London’s financial technology (fintech) businesses attracted particular interest from venture capital investors, accounting for a quarter of all the cash picked up by tech firms in the capital. Zopa, TransferWise and WorldRemit raised more than $300m between them.

Eileen Burbidge, the Mayor’s technology ambassador, said: “[These] record investment figures offer further proof that the UK’s tech sector continues to mature – investors are increasingly attracted by the diversity of London’s tech ecosystem.”

Small Business Person of the Week: Daniel van Binsbergen, Founder, Lexoo

Our business gives entrepreneurs and small and medium-sized enterprises access to the specialist legal advice they need; we have a database of several hundred law firms that we can match against a company’s particular needs.

The business came out of my own experience practising as a lawyer for five and a half years. I was continually asked to recommend lawyers to friends and acquaintances running their own businesses, and I became acutely aware that it was hard for entrepreneurs to find the right one; the big firms operate on fat margins from fancy offices, while the high-street firms won’t necessarily have the right experience.

Our platform aims to solve that problem. We operate on an invitation-only basis as far as the lawyers are concerned and we screen them very closely to be sure they have the right experience and expertise. Businesses then post their requests for help on our platform and they’ll be provided with competitive quotes from a number of qualified lawyers.

Businesses don’t pay anything to use Lexoo. They can join the site for free and all the requests they make are free of charge too. Instead, we get paid fees by lawyers when a business accepts their quote. A company’s contract is with the lawyer rather than us, but we check very carefully that all the lawyers on our database are properly regulated.

So far we’ve helped over 4,000 businesses get access to legal advice and we’re growing at 20 per cent a month. “We intend to focus on the UK for the next 18 months or so, then take the idea to international markets.”