38 roundtable: funding for SMEs
equity, perhaps some small debt. It’s an area that has been lost but it’s the lifeblood of so many businesses and you ignore it at your peril.”
McKeown: ”The deals market is pretty flat at the moment. Well over two-thirds of the people I see are looking to grow organically, not through M&A or bolt-ons. People want to do it themselves through funding gained either through their current shareholders, or off the back of a very aggressive sales strategy, or on favourable terms from the banks.
For some technology and manufacturing companies R&D funding is the first thing on the agenda, and funders need to understand that long-term importance to the business, said Donaldson. ”For me it is all about the quality of the management team and understanding their objectives, and recognising the long-term nature of R&D.”
Julian Winfield
Vaughan saw a vibrant business angel community helping SMEs. The Enterprise Investment Scheme tax relief makes investing in qualifying companies potentially very attractive. ”If you have a million or two to spare what are you going to do it with it? Banks are not going to give high rates of interest, and what is a blue-chip share today?”
New ’mezzanine’ funding for growing SMEs
Fuller explained that banks are being more cautious and no longer funding in the same way that they did pre-recession, so the difference between debt and equity funding opportunities was now more obvious. ”At Santander we are looking towards alternative forms of finance such as mezzanine funding, asset-based lending and invoice finance, as well as concentrating on assisting SMEs through ’good old-fashioned banking’ methods.”
Mike Donaldson ... continued from previous page
Vaughan: ”Collaboration is definitely the way to go.”
Murray mentioned that Finance South East recently ran a Dragon’s Den based purely on relationship building rather than funding.
Haley: ”A skills Dragon’s Den would be far more focused and beneficial for us. There are a lot of skills and innovation in this area that we don’t tap into because of cash factor fears etc, but many would be willing to work with companies on perhaps a sweat-equity basis, to develop their work. There’s not a lot of cash about, but there are some great ideas. Sadly, too many are withering on the vine.”
Donaldson agreed, linking the ’withering’ with the lack of R&D funding since the recession. ”For established business this can be more difficult to obtain; for new products and start- ups it is almost impossible. Such funding today needs to be a mix of shareholder input, some
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Murray asked about the lack of funding for new companies with proven management teams, but no commercial track record for their products or services.
Vaughan: ”That’s where we need more angels to come in, and write their cheques to support such businesses. It’s not just monetary support, of course, because angels can bring their expertise to the table too.”
Waiting for payday
Denyer said cashflow was her company’s and many SME’s biggest issue, exacerbated largely by 30-day credit terms and some larger businesses pushing invoice payment out to 90 or even 120 days. ”We have had periods where we’ve been waiting months for a combined total of around £100,000 cash to come in, and that’s a very big and scary situation for a business of our size. We have orders coming in so that’s healthy and we are often dealing with a major company so we are fairly confident of payment, but payment delay does make every day more difficult.”
Heathcock: ”It is bad news that big companies are starting to play that game.”
Cole said supermarket chains, with a host of suppliers, also regularly changed their supply days or adjusted payment terms. ”It’s damaging for SMEs and for the UK economy overall.”
Ironically, said Denyer, the healthy sales of a business could be its downfall, if the owners were not able to maintain cashflow.
Are SMEs meeting the demands of today’s consumers?
Winfield said Haskins had taken a strategic decision to focus on being a regional retailer rather than a national player with online e-tailing. ”The fact that we do not have an online e-tailing presence does not mean that we can’t be successful retailers. We take the view that we offer a retailing experience that is something of a leisure and entertainment activity for our customers to enjoy. You can’t get that experience online. We also know companies who have gone down the e-tailing route and don’t make any profit from it.”
Heathcock said Internet e-tailing had taken a lot longer than many expected to affect the high street and retailing in general, but it was now beginning to happen.
Vaughan admitted he bought everything that he could online. ”I won’t set foot in a shop if I can avoid it.”
Winfield noted the irony that retail garden centres began to be set up after the demise of the gardening mail-order business in the 1970s, arguably very similar to today’s e-tailing process. ”Like many SMEs, we believe we have to concentrate on what we do best, which is retailing. It works for us. We turnover £28m, employ 600 staff, and we are probably the most profitable business in our sector.”
Denyer said she had considered a joint retail and online business. ”But, now we are the complete opposite to Haskins. Chewbz is 100% online, but then I have worked in online marketing for 15 years so that is what I know and where my skillset is. Also, for Chewbz it doesn’t matter where our customers live. Personally, I would hate to be at the mercy of how many shoppers walk down my street, but then Haskins is a destination retailer offering a different shopping experience.”
Vaughan had noticed a positive trend with businesses (particularly manufacturing) returning from offshoring within the emerging countries, having realised that they didn’t have the resources or operational skills to manage the supply chain properly. It’s a double benefit: to the company, which gains more control, and to our UK economy overall.”
Manufacturing is our biggest export earner, said Vaughan. ”Our industrial estates are now thriving. The best manufacturing companies in the UK are truly phenomenal. Yet their performance is largely unsung.”
Murray highlighted that the south-east has the highest number of manufacturing
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2011
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