Robb Hilson, Small Business Executive at Bank of America
Small business owners in the US are feeling buoyant about the national economy, with many feeling positive about health of the economy and their potential for economic growth, according to the latest Bank of America/CFI Group Small Business Forecast.
Small business owners rated the health of their local economy 20% higher than they did in August 2014. In addition, they are 14% more optimistic about their potential for economic growth over the next six months. Overall, the small business owners’ satisfaction/optimism index moved from a 69 to a 70, on a scale of 1-100.
“Entrepreneurs are feeling the effects of an improving economy and they believe 2015 will be a strong year for small businesses,” said Robb Hilson, Small Business Executive at Bank of America. “Economic optimism is running high, and we’re excited to see how small business owners’ enthusiasm and increased confidence will shape their plans for long-term business growth.”
When asked to assess the health of their small businesses, 37% of respondents said small businesses are doing ‘well’ or ‘very well’, up from 27% in August 2014. On the flip side, just 15% feel the health of their small business is ‘poor’ or ‘very poor’, compared to 21% who shared those responses six months ago. Similar to previous findings though, entrepreneurs aren’t making immediate changes to their business just yet and are still taking a relatively cautious approach to growing in terms of hiring and investment.
The financial environment is also primed to support small business growth, with small business owners rating their access to credit up 7% from six months ago. Small business owners also reported a better cash flow position for their business, with research indicating a 4% improvement from the previous study.
Millennials tend to be the most positive about the future of their business, scoring 80 out of 100 in the Optimism category, with Gen-Xers scoring 73 and boomers 67. They are also the most confident about the state of the economy (58 out of 100), while boomers are more negative (49). This was similar to findings in the fall 2014 Bank of America Small Business Owner Report. In addition, millennials are also most likely to plan to grow their business (65 out of 100), followed closely by Gen-Xers (61).
David Postings, CEO of Bibby Financial Services, considers the risk of forgetting SMEs in this year’s UK Budget and looks at how the Small Business Bill’s accession into law later this year could affect funding for SMEs and their general operating environment
At the start of last year, 99% of all private sector businesses in the UK were SMEs, accounting for 47% of private sector employment and 33% of private sector turnover.
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For many SMEs, business rates are a significant proportion of their monthly expenditure, while suppliers delaying their deliveries or customers paying later than agreed can tip the financial scales into the red. Against this finely balanced operating environment, political manoeuvrings are often watched closely by many SMEs and on the run up to the general election in May many will pay close attention to see how the winning party’s manifesto will affect them.
During an election year, however, it is easy to forget about the Budget and before this year’s electioneering fully takes hold, it is important that our gaze remains firmly on the Chancellor of the Exchequer’s announcement later this month.
The Budget
From the Autumn Statement in December, we know there will be some key changes for business. Measures proposed to make it cheaper to hire apprentices, and doubling small business rate relief for another year, will surely see operating costs reduce for many businesses.
A £45 million (€61 million) boost to help SMEs to export goods and services beyond the crisis-ridden Eurozone was announced, encouraging businesses to target fast-growing economies in Asia, Africa and South America. Though a welcome move, whether this will be enough for the Government to stay on track to meet its export target of £1 trillion by 2020, remains to be seen.
An extension to the Funding for Lending scheme – which will see the scheme continue until January 2016 – and additional support for the British Business Bank have both been proposed and these measures aim to provide greater access to funding for many SMEs.
But is this a case of too little too late for the current government?...
Read the full feature in the March 2015 edition of Finance Monthly Magazine
Simon Michaels, Managing Partner at BDO
Mid-sized businesses in the UK have weathered the global downturn better than those in the renowned German Mittelstand, according to new figures released by business advisory and accountancy firm BDO.
BDO’s snapshot of the European mid-market shows that the turnover of the UK's mid-sized firms (€1.92 trillion) now exceeds that of the German Mittelstand (€1.78 trillion). BDO defined the mid-market as firms with turnover between £10 million - £300 million (€14 million - €414 million) annually.
Since 2009, the Mittelstand has grown by 12% compared to the mid-market by 33%. The UK has also overtaken Germany in terms of the number of people employed in their respective mid-markets – the UK employing 9.3million people compared to Germany's 9.2million.
The Mittelstand forms the backbone of the Germany economy with approximately 43,500 companies and has traditionally led the way for mid-sized businesses in Europe.
However, despite faring better through the global recession than other European financial centres, the Mittelstand is facing fierce competition from elsewhere on the continent. Mid-market growth in Italy and France has surpassed that of Germany at 16% and 20%, respectively. Although their markets may be smaller, BDO's results give a clear indication that the potential for mid-market businesses is on the up across Europe.
Simon Michaels, Managing Partner at BDO, said: "The UK mid-market is leading Europe. This is a massive achievement – one that we should be proud of, but not complacent about.
"Germany has always invested in its mid-market; it has policies directly aimed at the Mittelstand and culturally the Mittelstand stands as the economic backbone of the nation. While the UK's mid-sized businesses are worth more than the Mittelstand for the time being, there is so much more we can do to cement our position as Europe's mid-market leader."
BDO has introduced its Mid-Market Manifesto, a set of policies that could unlock the potential of the UK's mid-market, adding over £1.3 billion (€1.8 billion) to mid-sized companies' GDP contribution and creating thousands of jobs.
Some of BDO's specific policy recommendations include:
- Temporarily reducing employers' National Insurance for manufacturing companies
- Awarding government contracts on the basis of the employment and training benefits to the supply chain, not cost alone
- VAT zero rating of supplies to companies that export
The UK’s RBS Group announced an attributable loss of £3,470 million (€4.7 billion) in 2014, compared with a loss of £8,995 million (€12.3 billion) in 2013, when it posted its 2014 financial report today.
However, the beleaguered banking group said it was making further progress towards a stronger, safer and more sustainable business.
“Last year we identified the areas we needed to improve in order to deliver our strategy - cost, complexity, capital and trust from our customers. The energy and resolve of our people have resulted in significant progress on each, and we have delivered on the goals we set for 2014,” said Ross McEwan, Chief Executive, RBS.
The 2014 results included a loss from discontinued operations of £3,445 million (€4.7 billion), which reflected a £3,994 million (€5.5 billion) fair value write-down in relation to the reclassification of Citizens to disposal groups, and a tax charge of £1.9 billion (€2.6 billion) which included a £1.5 billion (€2 billion) write-off of deferred tax assets.
Operating profit totalled £3,503 million (€4.8 billion) for 2014, compared with an operating loss of £7,500 million (€10.3 million) in 2013. This reflected improved operating results from the core domestic businesses together with significant impairment releases in Ulster Bank and RBS Capital Resolution (RCR).
Following its results release, RBS announced the following changes to its management team:
- Rory Cullinan will become Executive Chairman of CIB & Capital Resolution. He is currently CEO of RBS Capital Resolution Group (CRG).
- Donald Workman has been appointed as Executive Chairman, Private Banking.
- Rory Tapner, Chief Executive of Coutts, will step down and leave the bank, with immediate effect.
Within the overall strategic shape outlined for Corporate & Institutional Banking (CIB) in 2014, RBS said it is making further changes to improve its medium-term returns, building a stronger, safer and more sustainable business, focused mainly on UK and Western European customers, both corporates and financial institutions, supported by trading and distribution platforms in the UK, US and Singapore.
New layers of regulation are forcing banks and other top financial institutions to raise salaries for specialist professionals in the UK, a new survey reveals, despite pressure to cut costs.
According to the Robert Walters Salary Survey, professionals across regulatory reporting, product control and internal audit sectors have been securing double digit pay rises in return for accepting a new job.
Many banks are also offering a range of non-financial incentives to retain other sought-after staff – most notably newly qualified accountants - including flexible working hours and improved work-life balance.
With an increasing number of institutions relocating away from London to cut costs, demand for regulatory specialists is also exacerbating talent shortages in the regions, particularly for managers and leaders with strong strategic management skills.
“Although muted salary growth remains the norm for most banking professionals, the weight of regulatory scrutiny means that experienced specialists are still able to command significant rises,” said Peter Milne, Director of Banking & Financial Services Recruitment at Robert Walters (www.dubaidesignweek.ae).
“Greater competition for the best candidates is also contributing to a number of other trends, including steeper contractor day rates and an increased level of hiring from regulatory bodies.
“While competitive remuneration is important, so too is cutting down on delays between interviewing and making an offer – many regulatory professionals are receiving multiple offers, so any delays put hiring managers at risk of missing out on preferred candidates.
Gregor Alexander, Finance Director, SSE
The erosion of public trust in big business has changed the landscape for finance leaders, according to Gregor Alexander, Finance Director for British energy company SSE.
“Once there used to be a trade-off between making money in the short term or being a long-term force for good,” he said. “But now public expectations have rightly changed, and those companies which fail to contribute to society risk their business and their right to make a profit.”
No more has that erosion of public trust been evident than in the energy industry, which has rarely been out of the political and media spotlight of late. Earning back that trust, and by extension earning the right to be profitable, is at the heart of what is characterised as the ‘CFO’s dilemma.’
SSE has been taking strides towards balancing its profit with its social conscience. SSE became a Living Wage employer in September 2013. It was the biggest company at the time to achieve accreditation and is the only energy company to guarantee all its employees a Living Wage. In October 2014, SSE also became the first FTSE 100 Company to be Fair Tax Accredited.
“The CFO’s dilemma, in my mind, is not so much a binary choice: between the soft things that support society as opposed to the hard things like shareholder return. The dilemma is the choice of the actions you take to ensure you can achieve both. Then evidencing it to show clearly to shareholders and stakeholders what you are doing,” said Mr. Alexander,
“The CFO must be at the centre of this change, just as corporate social responsibility (CSR) must be at the heart of a good business too,” he added.
President Barack Obama
President Obama delivered a defiant and upbeat State of the Union Address earlier this week, claiming that 2014 had been a ‘breakthrough year for America’.
“Our economy is growing and creating jobs at the fastest pace since 1999. Our unemployment rate is now lower than it was before the financial crisis. More of our kids are graduating than ever before. More of our people are insured than ever before. And we are as free from the grip of foreign oil as we’ve been in almost 30 years,” President Obama said.
“At this moment - with a growing economy, shrinking deficits, bustling industry, booming energy production - we have risen from recession freer to write our own future than any other nation on Earth. It’s now up to us to choose who we want to be over the next 15 years and for decades to come,” he said.
“Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”
Talking at Capitol Hill, President Obama stressed the importance of what he called ‘middle class economics’, calling on Americans to embrace equality
“Middle-class economics is… when everyone gets their fair shot, everyone does their fair share, everyone plays by the same set of rules. We don’t just want everyone to share in America’s success, we want everyone to contribute to our success,” he stated.
According to the President, middle-class economics means helping working families feel more secure in a world of constant change. Top of the list is helping people to afford childcare, college, health care, a home and retirement.
“Middle-class economics works. Expanding opportunity works. And these policies will continue to work as long as politics don’t get in the way. We can’t slow down businesses or put our economy at risk with government shutdowns or fiscal showdowns. We can’t put the security of families at risk by taking away their health insurance, or unravelling the new rules on Wall Street, or refighting past battles on immigration when we’ve got to fix a broken system,” President Obama said.
According to President Obama, since 2010, America has put more people back to work than Europe, Japan, and all advanced economies combined. The country’s manufacturing sector has added almost 800,000 new jobs. He also added that there are millions of Americans who work in jobs that didn’t even exist 10 or 20 years ago - jobs at companies like Google, eBay and Tesla.
“No one knows for certain which industries will generate the jobs of the future. But we do know we want them here in America. We know that. Middle-class economics is all about building the most competitive economy anywhere, the place where businesses want to locate and hire.
President Obama also put a call out to further develop America’s infrastructure, calling on a bipartisan infrastructure plan that could create more than 30 times as many jobs per year, and make this country stronger for decades to come. “Twenty-first century businesses need twenty-first century infrastructure - modern ports, and stronger bridges, faster trains and the fastest Internet,” he remarked.
International trade and export were also on the agenda.
“Twenty-first century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but are also fair,” said President Obama.
“95% of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities. More than half of manufacturing executives have said they’re actively looking to bring jobs back from China. So let’s give them one more reason to get it done.”
2014 proved a record year in terms of mergers and acquisitions (M&A) activity, according to data from Deloitte.
The firm stated that high M&A deal values made an emphatic return in 2014, particularly in the healthcare, TMT and consumer products sectors. In the first three quarters of 2014, companies spent US$2.5 trillion (€2.1 trillion) on M&A activities, making 2014 the best year for deals since 2007.
“The high value of deals will remain in 2015, with a cautious but steady pick-up. In 2015 I would expect to see these sectors continue to perform well, but in addition to more activity in the mining and resources sector, with speciality finance also being one to watch. By geography, the faster pace of recovery in the US over Europe will also deliver more trans-Atlantic interest in the industrial and manufacturing services,” said Paul Lupton, Head of Advisory Corporate Finance for Deloitte.
Consumer product M&A activity also saw increased activity levels in 2014. According to Deloitte, Emperado’s acquisition of Whyte & Mackay and, more recently, Yildiz’s acquisition of United Biscuits signalled the welcome return of overseas buyers making major investments in the European market. Benign credit conditions, large corporate war-chests and increased US buyer interest in Europe also point to an increase in activity levels.
Conor Cahill, Corporate Finance Partner at Deloitte, said that a number of major corporates are now re-aligning their brand portfolios and divesting non-core assets, with Reckitt Benckiser’s divestment of Ribena/Lucozade and Unilever’s disposal of its Ragu and Bertolli businesses as examples of this.
“Looking ahead, despite the easing of general commodity prices, consumer product companies continue to face pricing pressure as the intense competition between discounters and larger retailers persists. The ability to demonstrate innovation and investment will remain critical for branded goods producers to differentiate themselves from their private label counterparts,” said Mr. Cahill.
The Financial Conduct Authority (FCA) has announced it will regulate seven additional major UK-based financial benchmarks in the fixed income, commodity and currency markets from 1 April 2015. This extends the FCA’s initial regulation of LIBOR (the London Interbank Offered Rate), as introduced by HM Treasury in 2013.
Martin Wheatley, Chief Executive of the FCA, said: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – this announcement is a vital step in achieving this. This builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board.”
The move extends the FCA’s approach to regulating LIBOR to the firms that administer, and where appropriate, contribute data or information to the following benchmarks:
- SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps
- WM/Reuters London 4pm Closing Spot Rate, which is the dominant global foreign exchange benchmark
- ISDAFIX, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
- London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
- ICE Brent Index, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.
Benchmark administrators and firms that contribute to benchmarks will be FCA-authorised. Key requirements include identifying potentially manipulative behaviour, controlling conflicts of interest and implementing robust governance and oversight arrangements.
The consultation closes on 30 January 2015, the FCA expect to publish final rules during the first quarter of 2015.
Nearly half of CFOs expect the US economy to improve during the next six months and only 9% expect it to worsen, according to the Grant Thornton LLP 2014 Fall CFO Survey. The biannual survey reflects the insights of more than 1,000 CFOs and other senior financial executives across the US.
The survey’s findings indicate that economic optimism has remained stable during the past year despite increasing global uncertainty. In spring 2014, 51% of respondents expected the economy to improve during the next six months, compared to 40% in fall 2013 and 45% in the firm’s spring 2013 survey.
The most common growth strategies for businesses in the upcoming year include pursuing organic growth in existing markets (87%) and introducing new products or services (72%). In addition, more than one-third (37%) of companies are considering a merger or acquisition in the next 12 months. For companies with more than $5 billion (€4.2 billion) in annual revenue, that number is even higher at 60%.
“While it’s encouraging that CFOs aren’t expecting contraction, they’re not predicting significant growth either,” said Stephen Chipman, Chief Executive Officer of Grant Thornton. “It’s vital that our country’s political leaders focus now on resolving this uncertainty by advancing comprehensive tax and entitlement reforms to spur economic growth.”
The notion that US economic optimism remains stable amidst increasing global uncertainty correlates with other recent research from Grant Thornton. The Grant Thornton International Business Report found that optimism for the nation’s economic outlook among US business leaders remained strong at a net balance of 69% in third quarter 2014 while Eurozone optimism dropped to a net balance of 5%, down 30 percentage points from the previous quarter. In particular, German optimism plummeted 43 percentage points to 36%.
“The economic environment in Germany has very significant implications for the US economy and businesses,” added Mr. Chipman. “We have yet to realise the domestic repercussions of the weakening Eurozone and will be watching the situation closely in the coming months.”
New research from the Grant Thornton International Business Report (IBR) has found that the UK ended 2014 as one of the world's most optimistic economies. Although UK business optimism declined on a quarterly basis (from 82% in Q3 2014 to 68% in Q4 2014), the UK still ranked amongst the top five international economies in Q4, just ahead of the US.
Supporting this optimism amongst UK business leaders, the data shows positive year-on-year expectations amongst businesses for: employment (+12%), revenue and profit (both +9%) and exports (+2%). Moreover, only 8% of UK businesses pointed to access to short-term finance as a potential constraint; the lowest amongst global economies surveyed.
"In many ways, 2014 was the first year since the 2008/09 financial crises where businesses felt they were really back on track. The measures adopted to cope with the downturn helped many of them turn into leaner and more nimble operations, the fruits of which are now ripening. Consequently, UK businesses are entering the new year on a stronger footing," said Scott Barnes, CEO of Grant Thornton UK LLP.
Globally, the IBR revealed that while business confidence in 2014 climbed to levels not seen since before the financial crisis, a recent spate of uncertainty is weighing on growth prospects for the year ahead. The falling price of oil, the future of the Eurozone, tensions in Ukraine and concern around the pace of the slowdown in China, the confidence of business leaders, especially in the world's largest three economies, has slipped.
In Q4, global optimism dropped from 43% to 35%, driven by steep falls in the US (down 10 percentage points to 59%), China (down 30pp to 25%) and Japan (down 12pp to -12%).
Derek Hamill, Head of Corporate at Gilson Gray
Scottish law firm Gilson Gray LLP has recently completed its first Employee Ownership Trust (EOT) arrangement – believed to be the first of its kind in Scotland.
EOT was introduced by the Finance Act in April 2014 as an innovative way of encouraging businesses to become employee owned through enhanced tax benefits.
Gilson Gray advised Mike Stoane Lighting on the introduction of an EOT. The deal saw 45 staff in the Edinburgh-based business benefit. The company now has an employee on the board of directors, following the decision by founder Mike Stoane, to step away from the day-to-day running of the business.
Derek Hamill, Head of Corporate at Gilson Gray, said the UK government encourages employee ownership because businesses tend to be more successful, competitive, profitable and sustainable if employees are engaged within the business.
He said: “Until now, the people who own a business, the shareholders, would have paid capital gains tax on what they made from their share sale.
“The lowest rate available has been 10%, provided the seller qualifies for entrepreneur’s relief. However, as an incentive to allow the creation of EOTs, a transfer of shares into the Trust qualifies for a full exemption from capital gains tax – the seller pays no capital gains tax at all.
“Other benefits include an exemption from inheritance tax in a transfer of shares and other assets into an EOT, and corporation tax deduction payments for bonuses.”
The EOT at Mike Stoane Lighting now holds a majority of the firm’s shares at 65%.
