Back to Basics: entrepreneurs focus on getting things right
Nobody could have predicted the speed with which the global economy has ground to a halt. The last Grant Thornton Entrepreneur Insight Survey in September 2008 was conducted during the most severe financial crisis in living memory. In its wake, the UK economy began an economic downturn and, in the intervening six months has officially entered recession following two quarters of negative growth in national income. The latest Office of National Statistics figures suggest that the economy shrunk by 1.6% in the last three months of 2008 – faster than had been anticipated - and the Chancellor in the 2009 budget forecast a contraction of 3.5% in the coming year. In the words of one senior banker, “the demand side has shut off: consumers aren’t spending, businesses aren’t borrowing and there is no corner of the economy or region of the country that is not being affected.”
It is unsurprising, then, that the latest Grant Thornton survey of 500 of the UK’s independent owner-manager and entrepreneurial businesses underlines just how tough it is out there. It shows clearly a segment of the economy whose immediate confidence is shaken but whose focus is on putting in place measures to ensure that they emerge fit and ready for a post-recession future which they predict will emerge in less than two years. The Grant Thornton Entrepreneur Insight Index (GTEII) stood at a value of 125 compared to 112 in September 2008: suggesting that, unlike at the time of the previous survey, they expected conditions to improve over the next 12 months. 81.6% of respondents said that their business was putting a fair amount or a great deal of pressure on their personal life and 35.3% said their business had performed slightly or much worse than expected six months ago (compared to 24.1% in September).
74.3% of those interviewed said they were not very confident or not at all confident in the banking sector as a whole. Interestingly, however, only 25% of the owners surveyed were actively making decisions about raising additional finance and it was the most important decision currently being made for just 3.5% of them. Only one third of those surveyed said that their relationship with their bank was a major subject for discussion at Board level currently and it was the single most important issue under discussion for just 2.9%. Nearly 56% of them say that their relationship with their bank is the same as it was six months ago and a further 9.3% say it has become slightly more or much more supportive. “There is evidence that the banks have lots of money that is just not being used at the moment,” commented xxxxxxxx. “The demand for loans has dried up completely – people just aren’t going through the door.”
Instead, the primary concern expressed in the Grant Thornton Entrepreneur Insight Survey was to increase sales. Some 93.5% saw this as a major issue and it was the most major issue for 43.5% of respondents demonstrating a really keen interest in this segment of the market in tighter management of the bottom line. 57% of them are considering renegotiating supplier pricing and 55% are expecting to use their legal rights to pursue debts. Other measures being put in place include tougher controls internally on cost reductions, cashflow management, supplier prices and payroll costs and externally on increasing sales, innovating for the future and investing in training and information and communications technologies.
It is this determination to tighten their management and financial systems and survive the downturn that again characterises the respondents to the survey. “Maybe these are lessons that should have been learned a while ago,” said Alysoun Stewart, partner at Grant Thornton, “but it does suggest that they are learning quickly now and are adapting rapidly to the new conditions in their competitive environment. The entrepreneurial spirit is still there – we can still see investments for the long term being made in people, technology and energy efficiency. Entrepreneurs are ensuring that they emerge fit for the future.” They are as, if not more, ambitious for their companies as they were six months ago. 93% of them want to make their businesses great places to work and 67.5% of them want to provide maximum investor return; nearly 60% want to provide a social, environmental and ethical return and 55.1% want to set the pace for innovation in their sector. 97% of them feel fairly or very responsible for their employees and 44.4% are much more ambitious or slightly more ambitious than they were six months ago (compared to 34.2% in September).
The entrepreneurial instinct is driving these companies through the downturn. Often that instinct is voiced through their dedication to the people they employ and the value they create. Those surveyed are no exception to this. They remain loyal to their workforces and nearly 99% believe that their workforces are loyal to them. Indeed, 98% of them feel responsible, or very responsible, for their employees and this is reflected in the fact that 52% of them expect their workforce to stay the same over the next six months with a further 15.2% expecting it to grow. They are using tighter financial management rather than downsizing to keep costs under control and while 45.5% say that they are considering reducing headcount, it is the single biggest issue for just 1.6% of those surveyed. It does not appear that escalating unemployment will emanate from this segment of the economy.
A clear picture of the independent entrepreneurial sector is being drawn through the survey: times are tough, but so are entrepreneurs. They are tightening up their financial and management controls which, in itself, is a good thing. While they are doing that, they are putting in place the structures to ensure their viability, indeed growth, beyond this current crisis. As one entrepreneur said, “Every cloud has a silver lining – why waste a good crisis? Use it as an opportunity to address some of the things that needed addressing anyway and to make some big changes that guarantee that we’ll be here when the next one comes around!”
New HTML asset