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Small Businesses to get in Shape for the Months Ahead

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Small business leaders are putting their enterprises through a financial workout to get fit for growth in the months ahead.

New research from Hitachi Capital Business Finance reveals a big rise in the proportion of small businesses that plan to keep costs down (61%), improve cash flow (32%) and get stricter on late payment (27%) in order to achieve growth in the final months of the year.

Following the unprecedented challenges of home isolation, the last month has seen small business confidence bounce back with speed. The proportion of business owners predicting growth in the three months to 30 September doubled on the last quarter (14% to 27%) and – overall – more than four in five small businesses (83%) are putting in place specific action plans to try to secure growth as lockdown is eased.

Whilst 22% of respondents were looking to expand into new markets, the majority of growth plans related to getting the financials in shape for a new era of uncertainty – and the research points to a wholesale financial makeover for many enterprises.

With many businesses having adapted to home and remote working, the Hitachi Capital data reveals a significant rise in the proportion of businesses placing priority on keeping their fixed costs down – soaring from 39% at the start of 2020 to 61% this quarter.

Cutting fixed costs was a particular issue for older businesses.

  • Improving cashflow jumped from 22% to 32% in six months as a top priority – as did a resolution to get much stricter on late payments – up from 18% to 27%.
  • Reviewing borrowing commitments has doubled in importance since lockdown – up from 11% to 21% in just six months. The review of financial commitments correlated with 15% of business owners saying they needed to invest in new equipment.
  • The position on staff was mixed – with 16% of business owners looking to reduce headcount but 14% planning to hire new people. By sector, small businesses in construction (23%), finance (18%) and IT (24%) were more likely to be hiring people than reducing headcount.

Interestingly, sectors where small businesses were most likely to perceive barriers to growth last quarter – hospitality and leisure (96%), manufacturing (94%) and retail (91%) – now emerge as the sectors where small businesses are working the hardest to bounce back. More than four in five smaller companies in manufacturing (88%), hospitality and leisure (88%) and retail (87%) said they have put plans in place to grow their businesses over the next three months – and in all these sectors reviewing costs and financial commitments is key.

Not only are these sectors regaining their confidence from last quarter – they also view their financial agility as a bedrock from which to secure growth.

The top three growth plans for hospitality and leisure: 

  • Keeping fixed costs down (75%)
  • Reassessing finance commitments (46%)
  • Improving cash flow (41%).

The top three growth plans for retail:

  • Keeping fixed costs down (63%)
  • Improving cash flow (38%)
  • Reassessing finance commitments (21%)

The top three growth plans for manufacturing:

  • Keeping fixed costs down (62%)
  • Being stricter on getting paid on time (30%)
  • Investing in new equipment (28%)

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance commented:

“The speed with which small business confidence has bounced back is impressive for both its speed and scale. In recent months we have heard many stories about smaller businesses adapting or reinventing their businesses to survive. As enterprises adjust to the post-lockdown world, attention returns to core financial factors – costs, late payment and cashflow. What has changed is more business owners are treating these issues as top priorities, and many are making important – sometimes difficult – decisions on reshaping their business so they can compete and grow in the new economic climate. At Hitachi Capital Business Finance, we have been busy this summer helping small businesses to grow and, for many, a financial workout will help many enterprises get through the uncertain months ahead.”