The Government should avoid chasing start-up numbers and nurture aspiring businesses

Posted on Posted in Bibby Financial Services, David Postings, SMEs, Start-ups

According to the Department for Business Innovation and Skills there were 5.2 million private sector businesses at the start of 2014. This reflected a record annual increase of 330,000 businesses and the first time the business population exceeded 5 million.

The political and business landscape is awash with calls of support for aspiring entrepreneurs and StartUpBritain – a Government backed initiative to “accelerate enterprise in the UK” – aims to create 600,000 new start-ups this year.

Of course, it’s important that we encourage and support entrepreneurship, but boosting the number of start-ups seems more of a crowd-pleaser than good policy. It is an arbitrary target predicated on perceived wisdom dictating that the UK will be a better place if there are more start-ups.

It’s a fact of life that many start-ups are unsuccessful, with insurer RSA estimating that as many as half of UK start-ups fail within the first five years. Would it, therefore, not be better for the Government to back initiatives that nurture existing firms and prevent more from failing further down the line?

I’m not suggesting that we redirect Government support from start-ups to more established businesses. My point is that we need to do more to develop initiatives that support not only the ‘new’ but also those looking to take the next step on the way to growth.

This means taking a hard look at the processes and practices that help firms transition from fledgling start-up to small business, examining the milestones along this journey and helping them to avoid potential stumbling blocks.

Identifying issues

To support these businesses, we must first identify the most pressing issues they face. A lack of research and preparation is the most common stumbling block for aspiring SMEs but owners can also fall foul of hiring the wrong staff, failing to seek advice or underestimating the importance of access to sustainable finance to help facilitate their growth. The decision to employ staff or buy more stock is a huge step and often such decisions can bring about a new company’s demise.

Many firms assume that getting customers through the door is the most important thing, but what happens when their largest customer consistently pays late? Or an important supplier goes into administration? Or the insolvency of a key customer means they’re unable to recover a substantial debt?

Businesses are often tempted to put their eggs in one basket by relying on a single customer, but this can be disastrous. Findings of our latest SME Confidence Tracker reveal that one in four businesses has suffered a bad debt over the past 12 months, with many unable to recover from such losses.

To counter this chronic issue, businesses should stabilise their finances and take measures to protect the enterprises they have worked so hard to create. As a sector, we talk often about the negative effects of late payment but we can do more to educate businesses on how to protect themselves against bad debt.

Guidance

Just as start-ups need backing to set-up and launch, businesses that have overcome these initial obstacles need guidance to grow and succeed. Guidance can come in the form of advice from local or central business groups, Citizen’s Advice Bureau or friends and family. This guidance can also come in the form of the business finance community and independent invoice finance providers that offer additional support services such as sales ledger management, credit control, multi-currency services and multilingual support for those trading overseas.

By all means, we should continue to promote entrepreneurship and educate our future leaders on the opportunities available in business. We must ensure that we do not neglect established businesses of the future.

It is these SMEs that will boost GDP output, create jobs and wealth, and ultimately return the UK to economic prosperity.

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