How To Break SME Businesses Out Of This Stagnant Cycle?

The recession is over according to economic commentators but have you really felt the benefits of an expanding economy? Are your SME businesses finally enjoying an upswing in economic activity? Well here is the interesting thing, most of the small and medium business owners I talk to are saying that business is not much better than it has been over the last 5 to 7 years, with the exception of some temporary spikes that have proved to be unsustainable. Yes, there are some exceptions and some SME businesses are doing significantly better than in previous years but the positive upswing is not widespread enough to sway significant new investment in small and medium businesses as a whole.

Many SME businesses, which have seen an increase in sales, are saying that it is largely attributable to pent-up consumer demand. Long postponed purchase decisions cannot be postponed any longer and this is pushing up sales in specific areas and consequently sales tax receipts are on the increase, giving lie to the idea of a buoyant and sustainable growing economy. However, there is still a sense of apathy and caution prevailing. There is still a mindset of survival above everything else. Fear and caution are still the predominant emotions.

Even SME business owners who see new opportunities on the horizon are still feeling that capital is not as accessible as it used to be and that banks and state agencies are slow to get behind their plans to invest capital in their businesses. Perhaps it is just too difficult to tick all the boxes for these external providers of funding. Maybe the businesses are not generating sufficient capital to self-fund new projects or initiatives without external support or contributions. It becomes a classic Catch 22 situation for some businesses. “I cannot get funding because I haven’t got enough of my own capital to put in and I cannot generate more capital because my growth capacity is limited due to insufficient financial resources”.

Business owners are also concerned about having to pledge personal assets, including family homes, as security for business expansion loans. This is very understandable as banks, and the vulture funds to whom the banks have sold large parts of their loan books, have become increasingly aggressive in selling assets and calling in personal guarantees that can put business people and their families out on the street or into involuntary bankruptcy.

Yes, large multi-nationals are doing better and exports are increasing but is this positive dynamic actually being widely felt in the SME business community? Unfortunately, the upswing is only being experienced in specific niches or pockets and geographically it would seem to be confined to large population centers.

Business confidence is still a big issue for many SME businesses and their owners. The endemic fear resulting from the prolonged (but over for now) recession makes it difficult for business owners to make investment decisions that are likely to generate a tangible, positive and sustainable return on investment. The fear simply gets in the way. Add in the depleted availability of bank funding, due to bank capital adequacy constraints and restrictive lending policies, and you have the perfect storm.

In Europe, the problem is compounded by the United Kingdom’s unexpected decision to embrace Brexit and pull out of the European Union. This is particularly important because the UK market is often an important part of the expansionary plans for many European based SME businesses. Markets don’t like uncertainty and Brexit could take years to complete. In the meantime, the slash and burn mentality persists. Cutting costs and curbing expansion plans remain strong drivers of business strategy for many small firms as they fight for survival. Making new investment decisions in an uncertain market can involve courage that many business owners simply don’t have any more. Leading stockbrokers in Ireland have reduced 2017 forecasts for economic activity due to lack of business and consumer confidence in Ireland following the Brexit decision.

So what now? An economy turns on business and consumer confidence. What is the catalyst that will change business sentiment and allow business owners to take the calculated risk of investment and expansion? Perhaps understanding the status quo in their own business is a good place to start. A root and branch review of the business, the market in which it operates, its competitors, the drivers of demand and growth, and even the evolving forms of new financing options such as crowd funding may perhaps give the business owners the courage to embrace acceptable risk and to move forward.

Remember that SME businesses are the backbone of many economies. Despite the huge volume and value of trade transacted by multi-national corporations, it is frequently the SME sector that creates large numbers of domestic jobs. Individual decisions taken by SME business owners will collectively decide the level of confidence, and consequent investment, in SME businesses and in an economy.

Business owners need to fully understand their fears and frustrations about their businesses. They need to identify the factors that are limiting their success. Then they need to examine the impact of dealing with the limiting factors or not dealing with them and paint a picture of the future reality in both scenarios. Standing still may not be an option and a lack of decisiveness might be the trigger that finally kills the business.

Consider looking beyond your business for a sounding board that you can implicitly trust. Get yourself a business coach or consultant that can offer you a different view of the future to the one you have in your head or perhaps one that confirms that you are indeed on the right track. Do a solid risk analysis of all of the options you have and choose the ones that offer the least risk, the greatest return, or the opportunity to mitigate the risk with sound business judgment. If you can find business expansion choices that embrace all 3 options just mentioned, so much the better for your business.

Feel free to comment on this blog post or to share your own thoughts on the ideas discussed herein.

Niall Strickland