To make some sporting comparisons with the economic environment, in the year of the Winter Olympics are we going to continue to struggle on the slippery slopes or fan the flame of recovery? In another World Cup year are our expectations going to be lifted but ultimately turn to disappointment? And as our cricket team starts to re-build are we going to see some green shoots?
Certainly it would appear that business confidence is growing. According to the latest Business Distress Index reported by R3, the insolvency trade body, a record 68% of businesses are showing at least one key indicator of growth. Larger businesses show the most positive signs but it is also encouraging that 66% of smaller SME businesses with turnover between £50k and £1m reported at least one growth indicator, an increase from 51% in the summer.
A key area is that 44% of businesses are planning to expand in 2014 with 39% expecting to consolidate. This would suggest a level of business confidence that has previously been missing and will hopefully lead to much needed business investment.
Further encouraging signs are that the number of so called Zombie Businesses – those only able to pay interest on their debts and not reduce the outstanding capital – has reduced from a peak of 160,000 in November 2012 down to 103,000. However 103,000 equates to 6% of businesses with a turnover in excess of £50,000 so indicates a significant number of businesses still at risk.
Thankfully the number of British adults considering taking out a Pay Day Loan in the next 6 months is also reducing with R3 reporting a reduction from 11% in October 2012, 7% in June 2013 down to 6% currently.
Given the long period of economic distress that we have experienced I would anticipate that whilst business and individuals may have increased confidence I would expect there still to be a cautionary approach. There are still many businesses that are having to negotiate payment terms with their creditors, particularly HMRC. There are indications that HMRC are requiring shorter timescales for repayment and are also more frequently attending premises and levying distraint on goods.
There is also the danger of ‘over trading’ and other factors to be wary of as we move into a period of recovery. Increased demand and the desire to take advantage of improving conditions puts pressure on cash flow which will need to be managed carefully. The current goodwill being afforded by creditors may disappear as they become more confident in pursuing debts and the consequences of a long period of under investment may be exposed. Whilst any interest rate rise is not imminent it is moving closer on the horizon and businesses should plan for such an increase.
As ever the key in exploiting the potential for growth and to safe guard against its potential threats is to seek professional advice so that your business can move forward in 2014.
