SMEs expanding faster than ever!

Small to Medium size Enterprises (SMEs) are Britain’s fastest-growing companies and their average annual rate of expansion has risen to 70% – up from 50% a year ago – according to findings published by the London Stock Exchange Group’s (LSE) annual round-up of the 1,000 most dynamic SMEs in the UK. For the fuller picture please read the article below which appeared today in The Daily Telegraph.

Roger Mundy, Managing Director, Beardsley Theobalds. 10th May 2017

 

 

Small and medium-sized companies pick up the pace to expand faster than ever

BRITAIN’S fastest-growing companies are accelerating their growth, with the pace of annual expansion rising to 70pc, up from an average of 50pc a year ago.

The findings come in the London Stock Exchange Group’s (LSE) annual round-up of the 1,000 most dynamic small and medium-sized enterprises in the UK which is being launched today.

Four years on from the bourse’s first 1,000 Companies to Inspire Britain analysis, the report reveals that businesses from the whole spectrum of sectors are represented.

Xavier Rolet, chief executive of LSE, welcomed the fact that faddish industries do not dominate the report, saying it was a testament to the enduring nature and variety of British industry.

“These companies are the very heart of an ‘anti-fragile’ economy: more robust; more flexible and less prone to boom and bust,” he said. “Their strength and diversity is readily apparent with a broad mix represented. We must continue doing all we can to sup- port high growth potential businesses like these dynamic, entrepreneurial and ambitious businesses.”

The engineering and construction sector is best represented, with 134 companies. Financial services is second, with 82 members.

Growing fastest on a sector basis is real estate, averaging growth above 100pc. Engineering and construction, financial services, marketing and advertising are not far behind with growth rates averaging above 90pc.SMEs in Scotland are expanding the quickest, with revenue rising at an average of 91pc, while London and the South East continue to dominate the list.

Since the UK voted to leave the EU, there have been plenty of warnings that the economy will suffer as a result. It is too early to see how challenging Brexit will be in the long run but so far the small and medium-sized businesses that drive much of our economy have shown resilience and, as we demonstrate today, the UK has a real opportunity to build a new, sustainable, productive and jobcreating post-Brexit economic model if it backs these dynamic entrepreneurs and businesses.

Today we at the London Stock Exchange publish – in partnership with The Daily Telegraph – the latest annual edition of our “1,000 Companies to Inspire Britain” report which identifies the most dynamic and fastest-growing companies across the UK. This report gives a platform to companies growing at exceptional rates – 70pc on average – and across a range of sectors.

The biggest sector represented by number of companies this year is engineering and construction, closely followed by financial services, demonstrating that the UK has great promise for our traditional and more recent economic success stories.

And with 35pc of companies coming from the Northern Powerhouse and Midlands Engine region it is clear the seeds of a new economic model may be being spread around the country.

Take Gtech Vacuum Cleaners and Tools – a classic example of innovative high end manufacturing, globally successful and locally based. Founded by one person from his home in Worcestershire, it now sells over 22m cordless products around the world, exporting to countries like the USA and China.

Or Westmorland, turning the arrival of the M6 through their hill farm in Cumbria in 1972 into an opportunity by opening Tebay Services, a small 30-seat cafe serving home-cooked, locally sourced food.

Tebay Services became the UK’s first family run motorway service station when it opened and today Westmorland employs 1,000 people and works with over 130 local producers.

These businesses are illustrative of the potential of dynamic small companies around the UK – and there are plenty of them.

Latest figures show the UK created a record 650,000 plus new companies last year. Today we have twice as many SMEs on average than our European neighbours.

So the economic potential of these companies is clear. The question we need to answer is how we realise that potential and take far more of these companies from “start up to stardom”. This is because when it comes to backing companies in the UK, the cards are sadly stacked in favour of big established companies (who, despite their best efforts, are not creating jobs).

In the UK 80pc of corporate finance comes in the form of debt, primarily from banks, which is tax deductible. This is fine for larger established companies to manage their obligations but does little to support dynamic companies who need to dedicate all their economic capital to investing, innovating and growing – rather than servicing a repayment plan every 30 days.

We must give our fledgling growth companies access to long-term Patient Capital, like equity, where people seek investment to grow their business either through individual investors, on capital markets, or through crowdfunding and peer-to-peer platforms.

In the Prime Minister’s words, we need to build an economy that “works for everyone”. Capital needs to flow directly from investors to innovators and small business owners up and down the country, instead of being concentrated through a few big banks to established firms.

Because just as the economic potential of these companies is clear, so too is the potential of equity finance. When the Government previously made shares on the UK’s stock market for high growth companies – AIM – eligible for ISA inclusion, £4bn extra capital flowed into these companies, practically overnight.

Innovative equity-funded firms can also help us achieve the Government’s stated aim of achieving Brexit success through exports: companies quoted on AIM are five times more likely to export than the national average.

And because these companies are highly innovative (counting thousands of patents and trademarks between them), the jobs they create tend to be high quality and well-paid, helping address Britain’s productivity problem.

No wonder independent studies have shown that just a one per cent increase in high-growth potential businesses would create 230,000 new jobs and add £38bn to UK GDP.

So the Government’s focus on supporting SMEs is welcome. Their Industrial Strategy Green Paper acknowledged that the growing number of start-ups will mean more firms will need later stage growth funding and we await the outcome of their Long Term Patent Capital review.

They should continue to recalibrate our tax system away from incentivising debt to give equity (which is currently taxed four times) a chance. Businesses up and down the country are doing so much to bolster job creation and foster innovation. The opportunity to put greater access to finance for them front and centre of any post-Brexit industrial strategy cannot be missed.