Small firms risk taking short-term view with plans to cut investment
Britain’s smallest companies have scaled back plans to invest in their businesses during the first half of this year, according to the latest Lloyds Bank Business in Britain research.
Companies with a turnover of less than £1m expect to invest an average of £21,690 in their businesses during the next six months – a sharp fall of 74% since July, when firms said they expected to invest £83,560.
Economic uncertainty was the most commonly identified threat over the next six months, cited by 31% of businesses; this was followed by weaker UK demand at 17%, and political uncertainty at 10%.
The fall in investment is in contrast with the amount of money firms invested during the latter half of 2016, with the average value of companies’ physical assets having increased by 25% to £169,870 now, compared with £135,630 last July.
The proportion of assets that businesses own outright remained broadly static during that period, with a slight dip from 88% to 87%.
Jo Harris, managing director for retail business banking at Lloyds, said: “By maintaining a high proportion of assets that they own outright, businesses build a strong capital position, providing a buffer to any economic shocks.
“Businesses need to be careful that in cutting back on investment to boost resilience they don’t put the brakes on too hard, and end up slowing their growth by not investing in new physical assets like equipment and stock.”
While businesses are capitally strong and are preparing for possible future shocks by cutting investment, many are still relatively unprepared to counter any negative impact on their working capital due to a lack of awareness of alternative forms of funding. In all, 35% of businesses are aware of invoice finance, while 23% are aware of trade finance.
Even where there is better awareness of products, many companies are not taking advantage of them. While 60% of small businesses are familiar with hire purchase and leasing, only 8% used it in the past year.
Adrian Walker, managing director of global transaction banking, added: “Businesses can protect themselves from external shocks in various ways. Using different types of funding that are more tailored to their exact needs can help businesses unlock the thousands of pounds they have tied up in physical assets which can be used to invest in growth.
“Missing out on growth opportunities, such as increasing exports to make the most of the weaker pound, might be as damaging as any negative future shocks that may occur.”