If recent reports are to be believed, the UK will be on its way out of recession in 2010. But what has the ‘credit-crunch’ taught small businesses and people considering company formation? We know it hasn’t put them off starting their own company,  research has found that company formation figures are up on last year, but what about how the recession has changed the way in which small businesses operate?
According to a recent report, conducted by small business forum ‘Entrepreneurs UK’, the main lesson the recession has taught small businesses, is the importance of keeping costs to a minimum and keeping a careful eye on cash-flow at all times.
The findings of the report revealed that over 55% of all business owners asked ,now how a more in-depth understanding of their overheads, while almost 80% say that the recession has forced them to be more cost efficient than ever before.
Ryan Scott, the director of the report comments; “The recession has posed serious challenges to all corporations, but especially the SME sector. The credit-crunch has made small business owners assess their business costs and develop a more detailed knowledge of their overheads.”

“This has had a number of consequences, namely the reduction of staff cost and switching of suppliers, yet, we feel that the recession has also stimulated innovation and a new cost conscious mentality in the SME sector which will ensure the sector emerges from the recession stronger and more efficient than ever before“

During the festive period, it is easy to think that most recent company formations are in the retail sector, and ignore the business to business arena. However, yesterday’s statement from Sage, the UK’s biggest professional software provider, reminded us that other sectors are still suffering.

Sage announced poor quarterly figures last month and was identified as one of the worst performing companies of its sector in the FTSE. And while its shares have fluctuated; the software giant still had to cut over three hundred jobs in the past year.

A spokesperson for Sage, has suggested that the decline license renewals is the main reason for the situation and that the SME sector has been the sector that has spend the least with them this year. Matthew Hudson, business development director of the company comments: “It is no secret that we have had a difficult year and if our projections are correct, it looks like 2010 will not be a great deal better. This is down, in part ,to a lack consumer spending; companies are less likely to spend money when the future looks uncertain and this has had an obvious impact on a number of companies which service the business to business sector.”
Hudson continues, “While there are encouraging signs that the SME sector is beginning to recover, we are expecting 2010 to show signs of market stabilization, not growth.”

The biggest online shopping day of the year was announced in yesterday’s post. However, it was felt that the trend would not continue offline. However, a recent report conducted by business analysts ‘JWT’ found that all retail sectors experienced growth over the last month; with the biggest revenue increase being recorded in fashion.
The report found, that over all sales across the high street increased by nearly four percent, while the fashion sector recorded an increased of nearly double that!

Stephen Wilding, director of enterprise at JWT, comments: ‘Obviously, Christmas shopping is a major catalyst for retail growth, especially across the high street. For our clients, these results could not have come at a better time as, initially, it was reported that Christmas 2009 would be a complete wash out for many high street retailers. These findings give a glimmer of hope.”

“That is not to say 2010 won’t still be challenging.” Wilding warns. “The recession is not over yet and while the report indicates that consumers are spending again, small businesses cannot afford to ignore the challenges that are undoubtedly still ahead.”

MTV, Lexis Nexis, CNN and Microsoft ARE all companies that were formed during economic downturns – indicating that necessity is the mother of all innovation. Now, according to recent company formation figures, tenacity is set to triumph again, as the number of people forming companies, is increasing despite the recession.

Regardless of the well documented downfall of many of the UK’s retail giants last year, there were almost 50,000 more companies formed than in 2007, according to a report conducted by the ONS. Matthew Clarkson, found and CEO of Advertising agency ‘Clear Agenda’ was one of those companies.

‘The company was not only formed in the midst of the recession, it was also formed at a time when many felt that the advertising industry was on the verge of collapse. Yes we believed that we had found a niche offering and that the company had a lot of potential in the future.”

While advertising online – the niche Clarkson refers to above – is very much a growing sector, Clarkson accepts that the recession has had a negative impact on his companies’ growth.

‘Though the recession has presented us with many challenges, all aspects of the company has had to be streamlined,therefore, I think that once the upturn finally arrives we will be ready to take advantage of all the opportunities that come our way.”

While the media has been saturated with news of the government’s increasing support of the SME sector, – with Business Secretary Lord Mandleson announcing that they are the ‘backbone’ of the UK’s economy. It seems that the majority of business owners still do not feel enough is being done to help them survive the recession.

While the Government announced that their further investment into banks would result in an economic situation in which more finance would be available to fund company formation and business growth, according to a report published yesterday, that has not been the case.

According to the Office of National Statistics, investment back into existing businesses has fallen by 3% in the last quarter.

Economist John Cocker comments: “While many people may be shocked to hear that investment has fallen over the last three months, it will not come as a surprise for the many business owners who are seeking finance. They have no doubt been faced with a less positive situation than the media and government would like us to believe.”

“ The findings of the ONS report just highlights the fragility of the UK’s economic situation and while it hints that the future is not entirely bleak, that fact that investment rates have been consistently falling, not only suggests challenges ahead, but also that the recovery strategies the government have been implementing are not working”

Last month America announced that its economy had comes out of the recession. As the old saying goes; “When America sneezes, the rest of the world catches a cold.” That was the situation when the American first entered the recession and yet as it has now recovered; the same cannot be said for the economic stability of the UK. Indeed, not only is the United Kingdom still in recession, it is one of the last countries to regain any sort of financial stability.

As the UK’s leading company formation agents, we are speaking to business owners on the front line. Here, we ask them what they think future holds for 2010.

Ben Anderson, managing director of Anderson Electrics

I am not entirely optimistic about 2010. While business has improved recently – as people are getting more confident and therefore more willing to spend -the damage that has been done is still significant.

It is also impossible to get any finance to fund growth. My company has survived due to the personal financial commitment I have made.

Peter Lindbergh, founder of advertising agency Hush.

My business partner and I formed our company in the midst of the recession and people thought we were crazy- not only we were starting a business when the country was teetering on the brink of bankruptcy, we were also entering an economically contracting sector. However, we had been made redundant, the prospect of getting similar salaries in another job looked unlikely, so we thought ‘lets give it a go.’

I am not going to say it hasn’t been tough at times, but in a lot of ways the economic situation has provided us with opportunities.

I am optimistic about the future, in business you have to be.

While the government has been concentrating on macro economics, most small businesses on the front line of the recession have been concentrating on how to ensure they don’t have to make redundancies.

One of the many strategies – including cost cutting, better cash flow management and diversification – that many small business owners employed, in trying to keep the jobs of the people that work for them, has been salary freezing. For the most part this strategy was the result of a shared commitment between employer and employee to try and ensure that redundancies didn’t need to be made.

However, a recent report conducted by the Confederation of British Industry, has revealed that while the UK is now on the brink of economic stability, most employers are still reluctant to increase salaries and thaw pay freezes.

Economist and business analyst, Tony Parsons, comments: ‘As the USA announced they were out of the recession, many employees in the UK thought that recession was over here too. They thought they could expect an increase in pay to pre-recessionary levels. However, we are not out of recession and it is important to remember that while many are suggesting that the worst is over, the instability of market conditions is still set to continue. Indeed, though growth is expected over the coming year, it will not be sufficient enough to secure pay increases to pre-recessionary levels.”

On the back of the Government’s recent announcement, that they will be injecting a further £39 billion into banks, to make more finance available to small companies, their very own ‘enterprise champion” , Sir Alan Sugar, has claimed that it was lending inappropriately to small businesses, that got the UK into the recession to begin with.

At conference for SME’s in Manchester yesterday, the star of the BBC’s hugely successful show “The Apprentice” and renowned entrepreneur, commented that the next generation of entrepreneurs had grown up in a context in which finance from banks – and credit in general – was widely available. Sir Alan said that he felt that it is this mentality, that has widely contributed to the current global economic situation.

Perhaps alienating the majority of his audience – and the vast proportion of the entrepreneurs he is meant to represent – Sir Sugar, stated that most of the small business owners, who complain about a lack of available finance are “moaners” and needed an “insolvency practioner” rather than additional funds given to them by banks.

His controversial remarks , have been met with widespread criticism from both MP’s and members of the SME sector alike and have cause many to suggest, that maybe his celebrity has distracted him from his political role.

Last week’s announcement that the United States had emerged from the recession, has put increasing pressure on the UK Government to follow suit ,by announcing the end of economic contraction. According to a report by the Centre for Economics and Business Research, Alistair Darling is being strongly discouraged from raising taxation on small business, in the hope that it will help the UK’s economic recovery ,

The report concluded, that if the rate of corporation tax was raised even by as little as 5%, the results would have disastrous and far-reaching consequences for the UK’s future economic stability.

Indeed the research found that, implementing a policy of increased SME taxation, would result in a greater number of small businesses going into administration, almost 100,000 job losses and a £4.3 billion reduction in the overall economic output of the small business and company formation sector.

Economist Robert Hall, comments: “ As the report concludes, increasing taxation on the SME sector is a short sighted strategy; not only will it compound an already hostile job market, it will also stunt the UK’s future economic growth as entrepreneurs considering company formation will be dissuaded and established companies will not be able to invest in their companies future growth. All in all, the Chancellor should be passionately urged not to increase small business taxation in his pre-budget report.”

As the recession continues to bite, many business analysts have stated that the SME sector has been the worse effected. This, it has been suggested, is a consequence of a lack of available finance to help recently formed companies.

However, if recent research is to be believed, this has not dampened the UK’s entrepreneurial spirit. Indeed the figures confirm that well over half of the population aspire to company formation, stating financial gain, flexibility and being their own boss as their main motivation.

According to the report, a declining job market has had a negative impact on the perception many recent graduates have on becoming an employee. Instead, the age bracket which holds the most people aspiring to start their own business is 22-35.

Graham Steele, public relations director from ACBA, who conducted the research comments; “While the recession has undoubtedly had an impact on the SME sector, it has definately not had any impact on the number of people wanting to form their own company.”

“In fact, if anything, the recession has actually made people consider starting their own business as a means of retaining control of their own financial future.”