Optimism of London Businesses Remains Cautious

The Business Link in London (BLiL) Business Confidence Index (BCI) is an insightful study into the London SME community. The survey aims to understand business’ concerns around the current economic environment, the challenges encountered, insight into confidence in respect of growth and measures they have taken to counter challenges caused by recession. It also aims to gauge optimism from business owners going into 2011.

Carried out by B2B International, the BCI gathered economic insights from London-based businesses, with a focus on growth. The Wave 4 research was carried out by surveying a robust sample of 2,962 London-based businesses using a mixed methodology combining both telephone and e-survey. This was mostly structured to allow for clear quantitative comparisons across all sectors. The research was carried out between October and November 2010.

To paint a more detailed picture of the BCI’s respondents, established businesses make up 75% of the sample, with start-ups comprising 9%. The research sample showed that pre-starts are more likely to be BAME, younger and female owned while established businesses are more likely to be older, non-BAME males. Thirty six per cent of businesses surveyed are run from home.

The Wave 4 sample is primarily made up of sole traders (41%), and those employing 2-4 people (36%). The proportion of ‘growth’ businesses employing 5-49 is 22%. In terms of industry sector, retail, business services, construction/architecture and food and drink lead this sample.

The main finding from the Wave 4 research is that while businesses remain overwhelmingly cautious, overall, the impact of the recession is levelling out across the Capital. The new BCI report shows that the impact of the recession is levelling out for London based businesses with 72% stating a direct impact, consistent with February 2010. However, 1 in 10 businesses state they are still extremely affected by the recession, with the logistics, media, property & construction sectors most affected by the current environment.

However, in Wave 4, a more positive picture is emerging for newer businesses since established businesses (79%) have been more affected than start-ups (55%). Additionally, 55% of younger business owners (under 34) said they have been affected by the recession compared to 78% of older entrepreneurs (45-54 years).

Business Link in London has also seen that business confidence is growing as owners plan fewer changes to their business models. The key indicators for this are that fewer businesses are delaying capital expenditure and putting investment plans on hold (32% compared to 46% in February 2010). This suggests that businesses are gaining confidence in planning for investment or are offsetting the impact of VAT increases. For example, in February 2010, 36% of businesses were looking at price cutting strategies to deal with the recession, compared to 30% (just under a third) are now currently considering this option.

Which of the following strategic responses has your organisation already taken as a means of dealing with recessionary pressures?

Response to recession

A degree of confidence is also suggested in the levelling out of staff cuts and more focus on training and development; 4% less businesses have laid off staff in the last year. Medium sized (5-49) and larger companies (50+) are more likely to have laid staff off (25% and 24% respectively), however, larger companies (50+) are more likely to have taken on new staff also (44%). Looking at specific sectors, companies in the food & drink sector and the property sector are more likely to have laid staff off whilst companies in recruitment and music, entertainment & events are more likely to have taken on new staff.

Aligned with this change, since Wave 3 there has been a small increase (3%) in people spending on their staff training & development. Furthermore, where businesses have grown in the last year, 17% state the main contributing reason is due to their investment in people. This is especially so in companies employing over 50 people, with over a third (38%) citing this as the main contributing factor.

The BCI also aimed to identify the key concerns that London’s businesses have around growth. Reduced customer spending was very much the front runner here, with 26% of business owners surveyed highlighting this as a concern. Generating revenue was very much cited as the main barrier for business growth; 16% of those surveyed said that generating business and winning new business was a key issue. It is food & drink and retail businesses that we see really struggling from the impact of reduced spending the most (46% and 37% respectively.) This is well above capital’s average of 26% of businesses saying reduced customer spending is a key concern for them.

Which one issue is the major problem you face in running your business at the moment?

Problem In Running Your Business

Further confidence emerges with the pace of business growth remaining steady over the last 12 months for London’s businesses, with nearly half (49%) of businesses saying growth remains the same. Nearly a quarter (23%) of businesses have grown while 28% have downsized. For businesses that grew over the last quarter of 2010, new product development is cited as the main driver (37%), followed by focusing on existing customers (32%) and developing a more effective sales strategy (29%).

What do you think are the main contributing reasons to why your business has grown over the last 12 months?

Business Growth Over The Last 12 Months

The report unveils good news for the capital’s female business owners with 28% of female entrepreneurs claiming growth compared to 21% of their male counterparts. Similarly, 33% of owners under 34 have seen growth compared to just 16% of their older counterparts aged 55+.

There’s no shortage of ambition within London’s SME marketplace as 57% of the businesses surveyed are looking for growth in 2011 and conversely only 5% predicting downsizing with 37% expecting their business to stay the same.

As we explore the operational challenges for London’s SMEs, the lack of a marketing strategy emerges very strongly as a real gap in the way business are run; over half our respondents (54%) currently have no marketing plan in place. Of those with no marketing plan; 37% do not see the benefits of having one, 30% cite budget constraints as the key reason for this, whilst 40% are unsure how to develop a marketing plan, or need help in developing one.

What are the main reasons that you do not have a marketing plan in place at present?

Why Marketing Isn't In Place

Despite this surprise finding – and the long tail of the recession- 41% of businesses plan to increase marketing budgets in 2011. The BCI shows that in the main, London’s business owners recognise the need for a greater focus on marketing, with over a third (35%) believing their company would benefit from the development of an effective marketing strategy over the next 12 months. A further 35% saw the value of developing a sales strategy and 31% felt that focusing on existing customers more would benefit their business.

To read the full report please click on this link: The Business Link in London: Business Confidence Index

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