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Hilton-Baird Financial Solutions
   SME Trends Index – October 2011
Introduction
“As the UK’s leading commercial finance broker,          “In addition to the usual questions regarding
Hilton-Baird Financial Solutions’ biannual SME Trends    performance, confidence, funding and trends, we also
Index gauges how UK businesses are faring in the         look at what owners perceive to be their greatest
wake of the evolving challenges they face.               challenges over the next six months and what steps
                                                         respondents believe the Government could take to
“Though the recession is behind us, conditions remain    help facilitate SME growth.
tough with the UK economy growing by only 0.5%
during the first two quarters of 2011. This, combined    “I hope that you find this report to be an interesting
with increases in corporate insolvencies, rising         read and insightful, and look forward to receiving any
inflation and the well-documented difficulties           feedback you may have.
businesses are facing with regards to accessing
traditional bank finance, has placed increased           “Finally, thank you to all of you who have taken the
pressure on the UK’s SMEs and corporates – so much       time to participate in our research so far and for being
so that the Governor of the Bank of England recently     so honest in your assessments of the key challenges in
declared that that the UK is facing “the most serious    today’s economic climate.”
financial crisis we’ve seen”.
                                                                              Evette Orams, Managing Director
“Our report explores how businesses have performed                             Hilton-Baird Financial Solutions
over the six months to October 2011 in contrast to the
six months to April 2011, with the key focus on an
overall score that reflects each individual business’
financial health.



                                                                                                                    2
Background to research
Our respondents consist of 1,710 owners and finance
directors from businesses across a wide variety of
business sectors, providing a representative sample
of the UK’s SMEs.

To date, we have conducted three waves of research:

- Wave 1: November 2010 (717 respondents)
- Wave 2: March and April 2011 (576 respondents)
- Wave 3: October 2011 (417 respondents)

The results provide a snapshot of the evolving and
current business sentiment and a fascinating
opportunity to establish a graphic picture of business
trends.




                                                         3
Key findings
After a sharp decline in business health between        The survey indicates that widespread tax cuts would
November 2010 and April 2011, this latest survey        best facilitate business growth, with 21% suggesting a
found that UK businesses have seen an encouraging       reduction in Corporation Tax and 19% a cut in VAT as
improvement in their financial health during the six    the most beneficial steps the government could take
months to October 2011.                                 to help their business.

This is reflected in the Business Health Index, which   Once again, existing cash flow was most used by
rose to 0.46 in October 2011 from the 0.35 recorded     respondents to fund their business (51%), but their
last April.                                             over-reliance on business credit cards (49%) and bank
                                                        overdrafts (48%) remains a concern, given the high
Despite this, business confidence continued to fall     levels of interest rates associated with the former and
amid rumours of a double-dip recession and the          the relative availability and limitations of the latter.
sustained cash flow pressures SMEs are facing, with
just 31% now expecting their business to expand over    Once again, businesses using asset finance (23%) and
the next six months.                                    invoice finance (17%) excelled over the past six
                                                        months, particularly in terms of turnover, profitability,
Our respondents’ primary concern for this period is     confidence and financial health.
generating and winning new business, as reported by
34%, which is 6% higher than what was reported last
April. A further 17% stated managing cash flow as
their biggest worry, closely followed by 16%
concerned about rising material and fuel costs.



                                                                                                                    4
Business Health Index
The Business Health Index1, which uses a range of                        ing bank overdraft users (0.05) and those using loans
factors such as turnover, profitability, operating costs                 from family and friends in particular (-0.41).
and bad debts to calculate a true reflection of the
financial health of UK businesses, demonstrates that                     Recruitment firms (1.47) were the strongest of any
business health has improved over the past six                           industry, followed by the wholesale (1.05) and
months.                                                                  printing/publishing/packaging sectors (0.96).

This is encouraging following the sharp fall recorded                    Firms with a turnover of over £3m (1.85) were
between November 2010 and April 2011, with                               significantly stronger than their smaller counterparts.
invoice finance users (2.24) significantly outperform-

     4

     3

     2

     1                     0.49                                      0.35                                  0.46
     0
                  November 2010 (640)                          April 2011 (516)                    October 2011 (401)
    -1

    -2

    -3
1   See Appendix for an explanation of how the Business Health Index is calculated         Base: (1,557) all answering questions 1 and 2

                                                                                                                                           5
Business confidence
Despite the improvement in business                                 50% expecting their business to expand over the next
health, respondents are concerned about what lies                   six months compared to 32% of bank overdraft users.
ahead, with fewer respondents expecting their
business to expand over the next six months in                      Businesses in the recruitment sector were also
October 2011 than in April.                                         positive about the future (53%), as were those turning
                                                                    over £1-3m (38%) and those turning over in excess of
Invoice finance users were the most optimistic, with                £3m (36%).

Over the next 6 months do you believe your business is going to... (%)
                          Expand                  Remain the same              Contract                 Don't know

            Total (880)                 32                                39                            18             10




      April 2011 (495)                  33                                    41                           17           9




  October 2011 (385)                    31                              37                            20               12


                          0        10        20        30      40        50        60         70        80        90        100

                                                                                          Base: (880) all answering the question

                                                                                                                                   6
Business concerns
   Generating and winning new business remains our                      Managing cash flow became the second largest
   respondents’ primary concern for the coming six                      concern in October (17%), though the rising cost of
   months, as reported by 34% of firms in October 2011                  materials and fuel remains the second highest
   – 6% higher than in April (28%).                                     concern over the past 12 months.

                                                                                               April ‘11       Oct ‘11
% biggest concern for next six months                                                           (498)           (391)
                                                                                                                             Difference

     Generating & winning new business                                         31                 28              34

              Rising material / fuel costs                         17                             17              16

                    Managing cash flow                             16                             15              17

       Customers taking too long to pay                       11                                  11              10

              Inability to access funding                     10                                  10              11

                          Rising inflation           3                                             3              4

                     Rising interest rates           2                                             3              2

                                   Other                 6                                         7              4

                            No concerns              3                                             3              3

                             Don't know          0                                                 1              0

                                             0           10        20     30        40   50
                                                                                          Base: (889) all answering the question

                                                                                                                                          7
Government action
Tax cuts dominated our respondents’ wish-list for            the single most important action the Government
Government action, with more than one in five                could take to help their business to grow, closely
suggesting a reduction in Corporation Tax would be           followed by a reduction in VAT.

     % believe the following to be the single most important action the government could take to
     help their business to grow

                          Reduce Corporation Tax                                                21
                                       Reduce VAT                                          19
                       Further Quantitative Easing                               9
                               Reduce Income Tax                             8
                    Extend Time to Pay legislation                           8
              Withdraw from the European Union                           7
         Extend the Enterprise Finance Guarantee                     5
         More training schemes / apprenticeships         2
                                            Other                                    16
                                             None            3
                                       Don't know                4

                                                     0                       10           20            30             40
                                                                                          Base: (387) all answering the question

                                                                                                                                   8
Routes to finance

                                                                                                   April ‘11    Oct ‘11
% types of Finance currently used by business                                                       (502)        (395)
                                                                                                                           Difference

                            Existing cash flow                               50                       49          51
                    Business credit cards **                                49                       N/A          49
                                  Bank overdraft                           46                         44          48
                                      Bank loans                   24                                 24          24
   Asset finance (including HP & Leasing)                          24                                 25          23
                Loans from family & friends                      20                                   20          20
           Invoice finance (Factoring & ID)                      19                                   21          17
                    Personal credit cards **                     18                                  N/A          18
                                 Credit insurance           6                                         5            7
                       Government schemes               4                                             4            3
                     Venture capital funding            1                                             1            2
                                  Export finance        1                                             1            0
                                           Other        3                                             3            3
                           None of the above                 8                                        9            7
                                     Don't know         1                                             1            0

                                                    0       10 20 30 40 50 60 70 80 90 100
 ** Introduced in October 2011                                                          Base: (897) all answering the question

                                                                                                                                        9
About Hilton-Baird Financial Solutions
As the UK’s leading independent commercial finance        risk management across a wide range of industries
broker, Hilton-Baird Financial Solutions specialises in   and sectors.
identifying the exact funding needs of businesses and
matching them with suitable funding providers in the      The emphasis Hilton-Baird places on delivery of a
UK and overseas.                                          tailored service that meets all of our clients’ needs is
                                                          central to its business proposition and has played a
Hilton-Baird’s independent status has enabled the         large role in the company’s growing success. As a
company to foster strong relationships with more than     member of the Asset Based Finance Association
70 dedicated lenders, ranging from major banking          (ABFA), Finance and Leasing Association (FLA) and the
groups through to smaller boutique funders. This          National Association of Commercial Finance Brokers
objective approach and market expertise delivers real     (NACFB), the company maintains the highest service
benefits for clients, enabling the right business         standards at all times.
solution to be sourced and ensuring that Hilton-Baird
always delivers positive and innovative financial         Hilton-Baird also recognises that its highly trained
solutions allied to exact business requirements.          team is its true strength and is fully committed to
                                                          supporting them, creating a vibrant working
Established in 1997, Hilton-Baird Financial Solutions     environment with a team that is dedicated to
has helped in excess of 3,000 businesses during its 14-   delivering beyond expectations.
year history. It is part of the Hilton-Baird Group, one
of the UK’s leading independent business finance
groups consisting of a team of 50 professionals with
expertise in all aspects of commercial fundraising and



                                                                                                                     10
Appendix
1 The   Business Health Index incorporates the answers from two questions for each respondent:

               Q1 Over the last 6 months, what shift have you seen in the following...
                                                             Increased        Decreased   Other
               Bounced cheques from your debtors                 -1              +1         0
               Level of bad debts                                -1              +1         0
               VAT arrears                                       -1              +1         0
               PAYE arrears                                      -1              +1         0
               Profitability of your business                    +1               -1        0
               Turnover of your business                         +1               -1        0
               Q2 In the last 6 months, what activities has your business undertaken...
                                                                Yes              No
               Won new contracts                                 +1                0
               Entered new markets                               +1                0
               Launched new products                             +1                0
               Increased number of employees                     +1                0
               Reduced number of employees                       -1                0
               Closed or contracted premises                     -1                0


Best score: +10
(e.g. a company has grown and increased its profitability whilst reducing debt and/or VAT/PAYE arrears)

Worst score: -8
(e.g. a company has contracted in size and its profits decreased but debt and/or VAT/PAYE arrears increased)


                                                                                                               11
Contact details

                       Evette Orams
                    Managing Director
              Hilton-Baird Financial Solutions

                          By post:
              Hilton-Baird Financial Solutions
                      Ashwood House
                     Ashwood Gardens
                       Southampton
                         SO16 7LF

                        Telephone:
                       023 8070 7390

                          Email:
                  evette@hiltonbaird.co.uk

                         Website:
                  www.hiltonbaird.co.uk/fs



                                                 12

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Hilton-Baird Financial Solutions SME Trends Index Cctober 2011 report

  • 1. Hilton-Baird Financial Solutions SME Trends Index – October 2011
  • 2. Introduction “As the UK’s leading commercial finance broker, “In addition to the usual questions regarding Hilton-Baird Financial Solutions’ biannual SME Trends performance, confidence, funding and trends, we also Index gauges how UK businesses are faring in the look at what owners perceive to be their greatest wake of the evolving challenges they face. challenges over the next six months and what steps respondents believe the Government could take to “Though the recession is behind us, conditions remain help facilitate SME growth. tough with the UK economy growing by only 0.5% during the first two quarters of 2011. This, combined “I hope that you find this report to be an interesting with increases in corporate insolvencies, rising read and insightful, and look forward to receiving any inflation and the well-documented difficulties feedback you may have. businesses are facing with regards to accessing traditional bank finance, has placed increased “Finally, thank you to all of you who have taken the pressure on the UK’s SMEs and corporates – so much time to participate in our research so far and for being so that the Governor of the Bank of England recently so honest in your assessments of the key challenges in declared that that the UK is facing “the most serious today’s economic climate.” financial crisis we’ve seen”. Evette Orams, Managing Director “Our report explores how businesses have performed Hilton-Baird Financial Solutions over the six months to October 2011 in contrast to the six months to April 2011, with the key focus on an overall score that reflects each individual business’ financial health. 2
  • 3. Background to research Our respondents consist of 1,710 owners and finance directors from businesses across a wide variety of business sectors, providing a representative sample of the UK’s SMEs. To date, we have conducted three waves of research: - Wave 1: November 2010 (717 respondents) - Wave 2: March and April 2011 (576 respondents) - Wave 3: October 2011 (417 respondents) The results provide a snapshot of the evolving and current business sentiment and a fascinating opportunity to establish a graphic picture of business trends. 3
  • 4. Key findings After a sharp decline in business health between The survey indicates that widespread tax cuts would November 2010 and April 2011, this latest survey best facilitate business growth, with 21% suggesting a found that UK businesses have seen an encouraging reduction in Corporation Tax and 19% a cut in VAT as improvement in their financial health during the six the most beneficial steps the government could take months to October 2011. to help their business. This is reflected in the Business Health Index, which Once again, existing cash flow was most used by rose to 0.46 in October 2011 from the 0.35 recorded respondents to fund their business (51%), but their last April. over-reliance on business credit cards (49%) and bank overdrafts (48%) remains a concern, given the high Despite this, business confidence continued to fall levels of interest rates associated with the former and amid rumours of a double-dip recession and the the relative availability and limitations of the latter. sustained cash flow pressures SMEs are facing, with just 31% now expecting their business to expand over Once again, businesses using asset finance (23%) and the next six months. invoice finance (17%) excelled over the past six months, particularly in terms of turnover, profitability, Our respondents’ primary concern for this period is confidence and financial health. generating and winning new business, as reported by 34%, which is 6% higher than what was reported last April. A further 17% stated managing cash flow as their biggest worry, closely followed by 16% concerned about rising material and fuel costs. 4
  • 5. Business Health Index The Business Health Index1, which uses a range of ing bank overdraft users (0.05) and those using loans factors such as turnover, profitability, operating costs from family and friends in particular (-0.41). and bad debts to calculate a true reflection of the financial health of UK businesses, demonstrates that Recruitment firms (1.47) were the strongest of any business health has improved over the past six industry, followed by the wholesale (1.05) and months. printing/publishing/packaging sectors (0.96). This is encouraging following the sharp fall recorded Firms with a turnover of over £3m (1.85) were between November 2010 and April 2011, with significantly stronger than their smaller counterparts. invoice finance users (2.24) significantly outperform- 4 3 2 1 0.49 0.35 0.46 0 November 2010 (640) April 2011 (516) October 2011 (401) -1 -2 -3 1 See Appendix for an explanation of how the Business Health Index is calculated Base: (1,557) all answering questions 1 and 2 5
  • 6. Business confidence Despite the improvement in business 50% expecting their business to expand over the next health, respondents are concerned about what lies six months compared to 32% of bank overdraft users. ahead, with fewer respondents expecting their business to expand over the next six months in Businesses in the recruitment sector were also October 2011 than in April. positive about the future (53%), as were those turning over £1-3m (38%) and those turning over in excess of Invoice finance users were the most optimistic, with £3m (36%). Over the next 6 months do you believe your business is going to... (%) Expand Remain the same Contract Don't know Total (880) 32 39 18 10 April 2011 (495) 33 41 17 9 October 2011 (385) 31 37 20 12 0 10 20 30 40 50 60 70 80 90 100 Base: (880) all answering the question 6
  • 7. Business concerns Generating and winning new business remains our Managing cash flow became the second largest respondents’ primary concern for the coming six concern in October (17%), though the rising cost of months, as reported by 34% of firms in October 2011 materials and fuel remains the second highest – 6% higher than in April (28%). concern over the past 12 months. April ‘11 Oct ‘11 % biggest concern for next six months (498) (391) Difference Generating & winning new business 31 28 34 Rising material / fuel costs 17 17 16 Managing cash flow 16 15 17 Customers taking too long to pay 11 11 10 Inability to access funding 10 10 11 Rising inflation 3 3 4 Rising interest rates 2 3 2 Other 6 7 4 No concerns 3 3 3 Don't know 0 1 0 0 10 20 30 40 50 Base: (889) all answering the question 7
  • 8. Government action Tax cuts dominated our respondents’ wish-list for the single most important action the Government Government action, with more than one in five could take to help their business to grow, closely suggesting a reduction in Corporation Tax would be followed by a reduction in VAT. % believe the following to be the single most important action the government could take to help their business to grow Reduce Corporation Tax 21 Reduce VAT 19 Further Quantitative Easing 9 Reduce Income Tax 8 Extend Time to Pay legislation 8 Withdraw from the European Union 7 Extend the Enterprise Finance Guarantee 5 More training schemes / apprenticeships 2 Other 16 None 3 Don't know 4 0 10 20 30 40 Base: (387) all answering the question 8
  • 9. Routes to finance April ‘11 Oct ‘11 % types of Finance currently used by business (502) (395) Difference Existing cash flow 50 49 51 Business credit cards ** 49 N/A 49 Bank overdraft 46 44 48 Bank loans 24 24 24 Asset finance (including HP & Leasing) 24 25 23 Loans from family & friends 20 20 20 Invoice finance (Factoring & ID) 19 21 17 Personal credit cards ** 18 N/A 18 Credit insurance 6 5 7 Government schemes 4 4 3 Venture capital funding 1 1 2 Export finance 1 1 0 Other 3 3 3 None of the above 8 9 7 Don't know 1 1 0 0 10 20 30 40 50 60 70 80 90 100 ** Introduced in October 2011 Base: (897) all answering the question 9
  • 10. About Hilton-Baird Financial Solutions As the UK’s leading independent commercial finance risk management across a wide range of industries broker, Hilton-Baird Financial Solutions specialises in and sectors. identifying the exact funding needs of businesses and matching them with suitable funding providers in the The emphasis Hilton-Baird places on delivery of a UK and overseas. tailored service that meets all of our clients’ needs is central to its business proposition and has played a Hilton-Baird’s independent status has enabled the large role in the company’s growing success. As a company to foster strong relationships with more than member of the Asset Based Finance Association 70 dedicated lenders, ranging from major banking (ABFA), Finance and Leasing Association (FLA) and the groups through to smaller boutique funders. This National Association of Commercial Finance Brokers objective approach and market expertise delivers real (NACFB), the company maintains the highest service benefits for clients, enabling the right business standards at all times. solution to be sourced and ensuring that Hilton-Baird always delivers positive and innovative financial Hilton-Baird also recognises that its highly trained solutions allied to exact business requirements. team is its true strength and is fully committed to supporting them, creating a vibrant working Established in 1997, Hilton-Baird Financial Solutions environment with a team that is dedicated to has helped in excess of 3,000 businesses during its 14- delivering beyond expectations. year history. It is part of the Hilton-Baird Group, one of the UK’s leading independent business finance groups consisting of a team of 50 professionals with expertise in all aspects of commercial fundraising and 10
  • 11. Appendix 1 The Business Health Index incorporates the answers from two questions for each respondent: Q1 Over the last 6 months, what shift have you seen in the following... Increased Decreased Other Bounced cheques from your debtors -1 +1 0 Level of bad debts -1 +1 0 VAT arrears -1 +1 0 PAYE arrears -1 +1 0 Profitability of your business +1 -1 0 Turnover of your business +1 -1 0 Q2 In the last 6 months, what activities has your business undertaken... Yes No Won new contracts +1 0 Entered new markets +1 0 Launched new products +1 0 Increased number of employees +1 0 Reduced number of employees -1 0 Closed or contracted premises -1 0 Best score: +10 (e.g. a company has grown and increased its profitability whilst reducing debt and/or VAT/PAYE arrears) Worst score: -8 (e.g. a company has contracted in size and its profits decreased but debt and/or VAT/PAYE arrears increased) 11
  • 12. Contact details Evette Orams Managing Director Hilton-Baird Financial Solutions By post: Hilton-Baird Financial Solutions Ashwood House Ashwood Gardens Southampton SO16 7LF Telephone: 023 8070 7390 Email: evette@hiltonbaird.co.uk Website: www.hiltonbaird.co.uk/fs 12