This winter will see the strongest SME growth since the financial crisis began, according to a new report from the Centre for Economic and Business Research
This winter will see the strongest SME growth since the financial crisis began, according to a new report from the Centre for Economic and Business Research (Cebr), commissioned by British Gas Business.
The Importance of Winter for SMEspredicts £400bn of revenue for the UK’s small businesses during winter 2013/14, representing a 7% increase on the same period last year, and 12% up since winter 2010/11.Wholesalers have the largest opportunity, with an estimated £130 billion of potential revenue available, whilst retail and manufacturing businesses are looking to share a slice of £24bn and £42bn respectively.
The winter growth opportunity varies by SME sector. Educational businesses have the largest proportion (27.2%) of turnover in winter, as the long school and university summer break pushes work into other parts of the year. Winter is quietest for construction firms, who only generate around 22% of their annual turnover between December and February.
Yet the winter months also present a number of significant challenges for SMEs. The lead up to Christmas brings bumper sales for many retailers and other businesses, but this is typically followed by lower revenues in January and February.
Severe weather can compound the pressures on small businesses. Cebr have forecast that a repeat of the kind of supply chain disruption caused by snow and colder weather in 2010 would cost the economy more than £1.9bn this winter, wiping 0.5% off UK economic growth.
Angela Needle, Head of Propositions at British Gas Business, said: “This research reveals a positive outlook for small businesses this winter. As growth returns, the businesses we work with up and down the country are looking to capitalise on this opportunity.”
Colin Edwards, Senior Economist at the Centre for Economic and Business Research, who authored the report, said: “Our research has shown that winter isn’t just an important period for retailers, but is also make or break for education businesses which see well over 27% of turnover fall in the period.
The unique peaks and troughs resulting from Christmas create both opportunities and risks for all small businesses, with many more liquidations and bankruptcies falling in Q1 compared with any other time of year”.
The report highlighted several key trends facing SMEs this winter:
Sickness costs £200 a day per employee
As cases of flu peak during December and January, illness poses a major human resources risk, particularly to the 75% of SMEs in which the owner is the only employee. In businesses where the owner is the only employee, the business could stand to lose as much as £200 for every day that they are absent from work.
A Key Period for Retail and Manufacturing
Winter is ‘make or break’ for smaller retailers, who typically see around 10% of annual sales in December alone. This winter, SME’s retail sales in the same period look set to push over £24bn.
The research also reveals that online shopping will play a major role in SME growth this year. Retailers without an effective digital sales channel stand to lose out on a share of the £1 billion due to be spent online every week in December alone.
Whilst retail dominates the headlines, manufacturers also rely heavily on the winter season, with around 24% of annual turnover falling in December, January and February.
Improved Borrowing Landscape
Many SMEs continue to face significant difficulties in accessing the finance necessary to realise the growth opportunity. Over the past three years, small and medium-sized businesses have borrowed more than they have paid back in only three given months, indicative of an unfavourable credit market.
However, research shows that credit conditions are on track to have made their most significant improvement in two years in Q4 2013. With new Funding for Lending measures coming into force in January 2014, the Centre for Economic and Business Research forecast that credit conditions will continue to improve.
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Freddie Williams
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Colin Edwards