Since the recession began company formation owners have faced to main challenges; declining consumer spend and a restricted access to finance. Throughout the general election all three political parties devised policies to address both of these issues.
Soon to be David Cameron pledged that he would make doing business in the UK easier. But, what has the coalition government actually done to help the SME sector since it has been elected into power?

Well, the Emergency Budget made some concessions to support small businesses, including a reduction in Corporation Tax, but many small business owners felt that it didn’t go far enough and the fact that it didn’t even address the fact that access to finance for most SMEs is severely restricted, was cause for much criticism.
However, it seems that Vince Cable and George Osborne, plan to change that. Yesterday, they released their discussions on the finance issue in a paper which claims to identify and define all other available routes to finance.

Ever since the government announced that the country was officially out of recession, our attention has been focused on how our rate of recovery compares to all countries and to what extent UK enterprise has recovered from the economic downturn.

Well, according to a recent report conducted by magazine ‘Enterprise UK’, most small companies in the UK are still suffering from the effects of recession and many company formation owners fear that their businesses will never return to pre-recession profitability.

Adam Grange, founder and CEO of high street retail chain ‘Direct Homeware’ comments; “The last recession will go down in history as the toughest in terms of its impact on the high street. Not only did the recession have an impact on consumer confidence, it also changed consumer behaviour and stimulate the rise of ‘discount shopping’, so that now, not only does the high street have to compete with online retail, it also has to deal with aggressive price cutting.”
Editor of ‘Enterprise UK’, Richard Simmons, comments; “The fact is the SME sector is still dealing with long term effects of the recession. The decline in consumer spending and lack of available finance makes doing business in the UK at the moment extremely tough. The government needs to devise an action plan on how to move forward.”

Prior to being elected Prime Minister David Cameron, then leader of the opposition, appeared on the Andrew Marr show – among others – declaring that company formation and running a business in the UK was extremely difficult and overly bureaucratic.

Therefore, when the coalition was first came into power and the Emergency Budget first announced, it was expected to contain many provisions for making running a company much easier. However, apart from a minor reduction in Corporation Tax and some provisions to help small businesses and recent company formations deal with the cost of National Insurance, the budget failed to make and attempts at making the tax system less complex.
However, the Chancellor George Osborne pledged that his subsequent economic strategy was devised with the objective of putting an ‘Open for Business’ sign on the UK , and as he annouces plans to radically change the current tax system and devise a new ministry call the Office of Tax simplification , it seems he is staying to true to his word.

For now  . . .

One of the main disappointments of June’s ‘Emergency Budget’ was its failure to adequately address the issue, which most small business and company formation owners ; the fact that access to finance from banks is severely restricted.

In the run up to the election campaign it was suggested by that the government that eventually came into power, should appoint a committee, the primary objective of which would be dealing with companies which had had their applications for additional finance rejected. However, this is yet to be established.

According to private equity firm ‘J.P Harnett’, higher administration charges on existing finance agreements and increase administration and rates on agreement renewals are causing many companies extreme cash flow problems.

Kay Barber, managing partner of J.P Harnett, comments; “The fact is, the economic downturn made most companies more aware of the importance of managing their finance. While the ‘Emergency Budget’ did include some concessions to small businesses and company formation, it failed to fully address the issues related to the lack of available finance.”

There has been much negativity in the media and small business press alike about the way in which banks are hindering the UK’s economic recovery by limiting the amount of finance available to small business and recent company formations.

However, Lord Peter Bridges, the chief economic advisor to the Federation of Small Businesses, has today come out in support of our nation’s banks.

Addressing a conference of small business and company formation owners in Manchester, Lord Bridges admitted that while throughout the recession one of the biggest challenges small businesses have faced is a limited access to finance, banks are facing there own challenges.

Bridges went on to say that the media have cultivated the perception that banks have lost faith in the company formation and SME sector, but that; in fact the opposite is true;

“Banks are aware of the integral role small businesses will play in our broader economic recovery. From my experience they are doing all they can to help improve the lending situation but still, as yet the funds are simply not available.”

Bridges spoke of his support of the appointment of a ‘ Recession Minister’ who would deal with the issues facing small businesses but suggests that change in the banking sector needs to occur at a much lower level:

“Moves need to be made by big banks to re-establish a trusting relationship between enterprise and banks. A banking relationship needs to be conducted a local level and banks need to work hard on improving their customer service and cutting overly bureaucratic processes. Companies need to feel that if they need that overdraft or loan, their application will be dealt with in an efficient and timely manner.”

The recession put an unprecedented amount of pressure on both the company formation and small business sector; having to make redundancies, being forced to diversify, and hostile market conditions. However, for most company formation owners, the biggest challenged they faced during the economic downturn was a limited access to finance.

At the start of 2009 banks simply were not lending on any large level to fund company formation. This situation had a number of consequences; many entrepreneurs relied on personal savings to fund their businesses, some depended on the support of family and friends, while others took the risky step of using their personal credit.

However, once the country was out of the recession and after two major banks were privatized the common perception was that banks would begin lending to small businesses again. Yet, regardless of the fact that recent figures reveal that the economy has improved over the last month, many small businesses and companies which have been recently formed are still being refused finance.

Martin Cooper, managing partner of business consultants ‘ M.Cooper and partners comments; “ The fact is that a bank’s decision to approve or decline a small businesses loan application can be the difference between a company increasing its turnover and employing additional staff members or going into administration.”

“As it seems increasing likely that fate of the UK’s economic economy will rest on the shoulders of private enterprise, it is vital the government address the current lending situation immediately, or risk facing a double dip recession.”

Having a limited access to finance has been one of the biggest challenges the company formation and small business sector has faced during the economic downturn.

While the government has pledged to address this issue, many small business owners are still finding that finance is hard to find. Indeed, a recent report has suggested that banks reject on average thirty three per cent of all small business loan applications.
In a context where conventional means of finance are difficult to find, many company formation owners are looking at alternative ways of getting funding for their company.

According to a recent report by financial services company ‘Finance Solutions’ over thirty per cent of small businesses admit to using a personal credit card to improve their company’s cash flow, while twenty three per cent said that they have taken substantial salary cuts to fund their business growth and pay suppliers.

2010 has been identified as the year of the strike. Not only have we had the threat of a British Rail strike since the beginning of January but we have also had to contend with a striking British Airways. The implications of both have been extremely damaging to UK businesses and posed a significant threat to the UK’s economic recovery.

This has not gone unnoticed by the British public, many of whom have complained about the inconvenience and damage it has done to their business in the media, However, the Confederation of British Industry have declined to comment, until now . . .

Historically the body has not wanted to comment either way about their opinion on both strikes, however, they are now calling for legislative change to protect British industry and the UK’s economic recovery.

The CBI wants to change the way in which industrial action is sanctioned. They suggest that laws are put in place which will stop a strike if less that forty per cent of a company’s entire staff agrees that it is the only remaining option to redress an industrial issue.

Company formation owner James Redman, who founded his IT Software Company over six years ago, comments; “While I appreciate and respect that the right to strike is a vital part of every democracy, the current economic state of our country needs to be taken into consideration. Striking costs business an absolute fortune and it has never been more important to make doing business in the UK as easy and efficient as possible. It is for this reason that, as a small business owner, I support the Confederation of British Industry’s decision to speak out in terms of toughening up strike legislation.”

George Osborne’s budget was positioned as ‘tough but fair’. While it did include plans to increase VAT to 20%, it also pledged to reduce Corporation tax to 20% and offered tax breaks on National Insurance contributions.

Osborne said that they budget was devised with the objective of informing the global economy that Britain was ‘open for business’ and it is clear from the concessions the budget makes for small businesses that they coalition government are more than aware that it will be enterprise that will drive our economic recovery.

However, while the budget has received fairly positive feedback from small business and company formation group, many have criticised it for failing to apply the same CGT ‘entrepreneurs’ relief’ to employees.

Osborne’s budget came under fire from many business owners – including Apprentice star Lord Alan Sugar- for plans to increase Capital Gains Tax. However, when the ‘Emergency Budget’ was announced on Tuesday, Osborne attempted to placate the company formation and small business sector by doubling the planned tax reduction for entrepreneurs. Yet now, many business owners are asking why the same relief hasn’t been extended to employees who have shares in the company they work for, through the Enterprise Management Incentive. Devised to help employers incentives staff beyond financial bonuses and salary increases.

The recession has initiated a number of cultural shifts ; consumers have become less obsessed with buying from big brands, discounting is now a major part of any company’s marketing mix and recent graduates are now preferring company formation over working within a large corporation. But what impact, if any will this have on the UK’s economic recovery?

Well, according to a recent report conducted by the Federation of Graduate Entrepreneurs, the number of recent graduates who have formed a company has risen by twenty two per cent over the past two years. This, the report claimed has given a welcome boost to the UK’s economic recovery.

The Federation of Graduate Entrepreneurs was established over five years ago with the objective of supporting young entrepreneurs through the company formation process right to the day to day running of their company. And it is not the only organisation of its type.

Dragon Den’s Peter Jones, has also set up an organisation to educate and support the nation’s young entrepreneurs. Jones is a passionate believer in the fact that the entrepreneurs of tomorrow hold the key to our economic recovery today. Another person who shares Jones’s belief is Oscar Robertson:

“In the current economic environment, it’s vital we empower young entrepreneurs with as much help and information as possible to ensure their ventures have every chance of success. Not only will this help decrease unemployment it will also provide a much needed boost to our economy.”