Profit still elude SMEs
May 04 2010
Small businesses: still making small change.
Talk of recovery is premature for the majority of small business owners, many of whom are yet to post profits.
Some 58 per cent of small businesses say they are not yet profitable, according to a poll from SmallBusiness.co.uk. Nick Hood, partner at insolvency practitioners Begbies Traynor, says: ‘It is undoubtedly the case that although profits are recovering for some SMEs, for the majority they are well below pre-recession levels. The problem is that many small businesses don’t carry any fat so making cuts is often hard.’
Hood says SMEs are under extra strain at the moment, with margins being squeezed by bigger companies pressuring them to cut prices, consumers expecting discounts and the banks having increased the cost of funding.
Of the 362 surveyed, 30 per cent say they are a long way off profitability, 18 per cent expect they will be by next year and 10 per cent say they are concentrating on turnover. However, 42 per cent of respondents stated they were making good margins.
‘Small businesses need to realise that if they begin to see an upturn in sales they will also need more working capital to support their growth. Otherwise, they run the risk of going bust, as they won’t be able to meet their overheads and pay suppliers. Historically, business failures spike roughly one year after coming out of recession,’ adds Hood.
Mike Clough, owner of gardening business Japanese Knotweed Solutions, says the key to remaining profitable has been to turn away low-margin contracts. ‘We recently turned down work for the Olympics development as the payment terms were 120 days after completion and the margins were minimal. It’s definitely true that chasing turnover is vanity and profits is sanity.’
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