The first annual “Outlook for Growth” Report*, which launches today revealed that nearly a third (31%) of English small and mid market firms are confident that their annual sales growth over the next 12 months will be well in excess of 10%.  This compares favourably with firms in Germany and France, where only 13% and 15%, respectively, expect to achieve similar growth. In addition only one in ten (12%) English firms expect to grow slower than their markets, in contrast with over a third (34%) of firms in France and nearly a quarter (23%) in Germany.

The growth prospects of firms in England are largely dependent on the fortunes of the UK economy – with over two thirds (69%) of expected growth to come from organic domestic sales. In addition the recent high level of M&A (mergers and acquisitions) shows no sign of abating, with 7% of English firms putting M&A in their top their three business priorities for the year.

John Jenkins, CEO, GE Commercial Finance, Business Finance, commented:

“In a more challenging market it is encouraging to see how many small and mid sized firms are really positive about their growth prospects compared with their European counterparts. This can only be good news for the UK economy. It is also heartening that management within these firms are also willing to contemplate alternative forms of driving growth, such as M&A. In flat markets these can be an effective ways of maintaining growth.”

Winners and Losers

Across England, London has the most optimistic growth outlook, with 37 percent more firms predicting high growth than low growth (optimism net balance)**.The North East and the West Midlands are also very optimistic with net balance scores of +32 and +27 respectively.  By contrast businesses in East Anglia and the East Midlands have the most fragile confidence with a net balance of – 8 percentage points. 

There are also marked difference across industry sectors with the relative boom in financial and professional services resulting in these business having the most optimistic outlook (optimism net balance of +55 and + 50 percentage points respectively). The more difficult conditions experienced in retail, leisure and catering means that businesses operating in these sectors are the least optimistic about the 12 months ahead (optimism net balance of 10% and 11% respectively).

SME Health Warning

Despite the optimistic outlook there are a number of business concerns around growth constraints.  Over half (57%) of English firms are worried about economic conditions in the country, followed by increased competition (56%) and the age-old problem of the burden of regulation (49%). 

With the lack of skilled employees named as a significant constraint for firms in England (27%), France (31%) and Germany (24%), it comes as no surprise that motivating and retaining existing staff and finding new employees is a key priority for companies across Europe.  In England alone, over a third (39%) of businesses put motivating staff in their top three priorities for next year with a further 30% also stating find new staff as a priority.

On a positive note, relatively low interest rates in the UK, means that only 8% of business executives see borrowing costs as a worry compared with 13% in France and 24% in Germany.  The general liquidity of the financial markets also means that availability of funding is not named as a significant issue, with only 12% putting it as a possible barrier to growth.

Financial challenges also feature highly in the list of priorities for next year. Nearly one in five business (17%) said that dealing with late payment and bad debts is an issue they need to address.  However in this relatively low interest rate market, seeking new forms of finance remains a relatively low priority for most firms, with only 6% saying they see it as a key focus over the next 12 months.  Interestingly, despite the burden of regulation being named as a worry for a significant number of firms in England, a relatively low number see reducing this burden as a top business priority (14%).

Jenkins concluded: “Maintaining growth is not easy, but our study indicates that most firms are continuing to prioritise expanding both new markets and their employees whilst keeping a prudent eye on costs - factors that will be important to success. Planning ahead in terms of finances will also be business critical. Growing sales or considering a business purchase without arranging the appropriate financial backing can derail even the best-laid plans.”

A copy of the study can be downloaded from www.businessfinance.co.uk/outlook