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Vivi Friedgut

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Screw Fair - Let's Treat Small Businesses Unfairly

Posted: 21/02/2013 23:24

Chuka Umunna recently set a new year's resolution to not use the phrase 'SMEs' and accurately made the point that not all small businesses are the same so lumping them into a homogenous pile is wrong.

The European Commission classifies a small business as any enterprise with less than 250 staff and annual turnover under €50 million. This categorisation means that the freelance PR guru and the firm of 200 staff generating £30million are both small businesses and thus treated the same.

While big firms get most of the press, 99% of UK businesses are classified as "small" and 97% of them have staff numbering less than 20 people. These businesses employ 13 million people and generate £500billion each year. Obviously small firms are the backbone of our economy and the engine of economic recovery. So it is important to realise they have different needs and face different threats than do larger firms.

By assisting these firms to overcome challenges, and to thrive even in these tough times, we can be a greater Britain then we were before the crisis began.

Many young people we speak with on campus and in the classroom worry about their ability to find employment after graduation. The perfect storm of high youth unemployment, uncertainty in the traditional marketplace and the democratisation of opportunity, created by technology and communication, have bred a generation, not fearful, but eager to forge their own destiny. Shows like the Apprentice and Dragons Den have brought sexy to entrepreneurship but they paint a distorted picture of success.

Entrepreneurship can be an alternative to traditional employment but the journey is fraught with challenges. Despite the efforts of organisations such as StartUp Britain and the newly established StartUp Loans 51% of businesses fail before their first birthday.

There are three great midwives of failure; insufficient research of the market and the business offering, a soft stratey and a blunt vision of revenue, expenses and other financial factors. Business owners with visions of success would be wise to clarify their offering and keep a tight grip on their numbers at all times. Both before commencing and regularly and periodically henceforth. This gives the best likelihood of success.

But while owners must actively manage all elements of their business what of the factors that fall outside the remit of the owner's control? Primarily access to funding and keeping a positive cash-flow. This is where the small business owner could benefit from an unfair advantage and the government and chambers of commerce around the country would do well to lobby for, and introduce steps to, ensure its reality.

Much time and many policy discussions have been dedicated to funding. That few institutions are willing to lend money to start-ups means that the great potential businesses may never become actualised. It also makes a mockery of the fact that many high street banks benefited from a taxpayer bailout and should be very strongly encouraged to put our money to work.

Some businesses are not sturdy enough to qualify for funding but a sufficient business plan and a solid foundation ought to ensure at least minimal funding until a track record can be developed.
It reminds me of the old joke that a bank is a place which gives you money when you don't need it and asks for it back when you need it the most.

That said for many businesses funding is a secondary issue. They are far more concerned by the cash flow challenge. Cash flow is the lifeblood of all businesses but represents an potentially existential problem for small firms who survive month to month and for whom a delayed payment can be disastrous.

I have heard variations of the same story time and time again of small players being fearful of chasing up overdue invoices in case they are seen as a difficult supplier. It would seem counter-intuitive that a small firm, especially one which has successfully competed against a much larger competitor, should find itself in dire straits while awaiting payment due to the internal processes of its much larger client.

Some of our largest companies are notorious for paying months late. Supply-chain finance initiatives are a welcome start but mustn't encourage firms to make the payment even later.

Insisting large firms pay on-time according to standard 30 day terms should be easy to implement and would make a far reaching and immediate difference to the financial well being of many firms

Why can't we require firms to treat smaller firms unfairly but paying them early?

 

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