Is UK business falling behind?

Adam Tavener, chairman of Clifton Asset Management and Small Business Profit Club panellist, asks what is stifling the UK's entrepreneurial spirit.

A recent FT article claimed that the UK is falling behind the rest of Europe – by as much as a half – in the number of new businesses being created. This made me wonder why, despite the number of entrepreneurs that come knocking on our door seeking funding, there is an apparent lack of hunger to stimulate the economy through business start-ups.

To be fair, the European statistics need to be set in context; it would appear that many of our counterparts in the small business sectors of France, Italy and Spain, for example, are leaning heavily on the banks and other lenders not to pull the rug on failing companies. That being said, a ‘zombie’ company is hardly a start-up, more a wind-down waiting to happen.

The UK’s entrepreneurial spirit

So, what is stifling the UK’s entrepreneurial spirit? Certainly access to funding is part of the problem and, in future blog posts, I will be exploring finance issues in more depth. But, there are other elements that are also having a direct impact.

The more I talk to small business owners, the more I discover that access to good quality business planning advice is extremely patchy and often hard to come by. For example, accountants have traditionally taken a cautious approach to business and are now having to adjust their mindset to working with an increasing number of dynamic, entrepreneurial, risk-taking individuals.

Accelerating this change requires greater recognition of specialist advisors in the SME sector, helped by more significant training and remuneration for accountancy-based advisors. There also needs to be better signposting to other specialist individuals and organisations that are equally well placed to offer advice based on an entrepreneur’s own appetite for risk and reward.

Diligence is due

Another factor is that the amount of due diligence and quality assurance checking involved in starting up a business is undoubtedly greater than ever. While regulation has played a part in this, sadly, there is also an ever-increasing need for legally admissible evidence. This applies to every aspect of the decision-making process during the establishment and financing of a new business, particularly when it comes to repayment of loans, but also in customer fulfilment.

Setting up a business in an increasingly litigious society means that, should anything go wrong, creditors including suppliers and customers are far quicker to seek to reclaim losses. Thus, a burden of evidence is required to defend these claims. The small, but unpleasant, minority that go running to claims chasers at the slightest hint of compensation make it difficult for everyone else. We have lost the freedom in business of a caveat emptor society and this makes entrepreneurs nervous. Consumer protection doesn’t always mean a better outcome for consumers – in fact, quite the opposite. If you over-protect consumers they end up losing responsibility for their own actions.

Establishing quality

Having said that, establishing quality in a business start-up is a two-way street. It never ceases to amaze me how many business owners I meet who do not have a basic business plan. This reflects badly on any business, but particularly one that is seeking funding to get it off the ground.

There is clearly a sub-set of business owners who think banks and other funders have a social obligation to lend them money, regardless of their business’ security and viability or the finance affordability. The banks’ reputations have certainly taken a kicking over the past five years and, yes, some of it may have been justifiable. But I find it astonishing that there are business owners, particularly entrepreneurs, who don’t seem to realise that banks are also commercial organisations – like their own – with measureable, deliverable objectives. They are also staffed by some very intelligent people who are capable of recognising when a new business proposition is just not good enough – even with a business plan.

More can be done to encourage entrepreneurs

And the moral of the story? Well, there is certainly more that can be done by our financial institutions and advisors to change their mindset towards greater encouragement of the UK’s entrepreneurs.

Equally, anyone looking to start a business, particularly in today’s highly regulated, consumer-rights-savvy environment, needs to do their homework and ensure their proposition is right from the outset. That doesn’t mean it won’t change in the future, but building a house on sand is doomed to failure, no matter how good the fixtures and fittings.

Finally, invest in a well-constructed business plan. In the greater scheme of things, whether it costs a few hundred or several thousand pounds, this is a small price to pay for a blueprint that could ultimately be worth many times that amount in either funding or straightforward bottom line success. As part of the process, it is always worth having the plan sense-checked by someone not directly connected with the business.

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Small Business Funding

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