Growth among the capital’s SME’s is under threat as research shows businesses are not investing because of the economic climate.
According to new research by Venture Finance, companies are sitting on investable cash while they wait to see how the economy will fair. Over half of those surveyed in the report admitted to safe-guarding money not needed for day-to-day operations.
“In the aftermath of economic crisis, business owners appear to be building up their war chests and waiting for clearer economic skies,” said Rick Owens, regional director at Venture Finance. “But this could become a vicious cycle, sending everyone back into the doldrums.
“If SMEs can shake off this cautious mood and grasp the increasing growth opportunities available, it could be a great boost for them and for the UK economy.”
Those holding on to investable cash are keeping an average of £190,000 in the bank. Fifty-six per cent of SMEs are holding on to cash as a buffer in case of future financial difficulty, rather than investing in growth.
“Prudence is obviously important in uncertain times,” said Owens. “But SMEs could be taking this too far. Businesses have to ensure they aren’t watching prime business opportunities to expand or even acquire pass them by.
“While we’ve seen tentative organic growth amongst our customers, it’s important that SMEs ready themselves to seek-out and grab hold of growth when it comes knocking.”
Despite signs of recovery, SMEs have been cowed by the recession and remain stuck in a cautious mindset, not considering growth.
Almost two thirds admitted a lack of confidence in the economy and 41 per cent in the current business environment.
Forty one per cent feel that the economy is too uncertain to invest in growth with many putting off growth and waiting for a change in the economic picture.
As a result of reduced confidence, almost a third are not planning to invest in growth within the next 12 months.
In an ominous precursor less than a quarter of SME businesses have made an investment in growth in the last six months and sixty three percent are not currently recruiting.
“Many SMEs appear to be sitting back and waiting for a brighter economic outlook which might not come if they don’t take decisive action.
“The credit crisis has been a big knock to the British entrepreneurial spirit. A shift out of the recession mindset and an investment gear change could be just what’s needed for SMEs to steal a march on their competition and look towards growth.”