Lockdown Part II and adjusting to the “new normal”
Lockdown part II has seen our high streets and hospitality sector temporarily pause again. Restrictions have been reimposed on households meeting and the education system is staying open, but what about UK SMEs? As businesses had previously eased into the recovery period, this afforded them the time and opportunity to re-group and focus on how best to strengthen their proposition in the light of the global crisis. Here at The FSE Group, our Fund Managers have continued to provide support and advice for all of their SMEs and work with them during these unprecedented times.
SMEs remain open for business
It is true to say that the global crisis has had different impacts on UK SME’s. Whilst some have been hit very hard others have remained unaffected, and for them it really has been business as usual, some are even showing strong growth. Having spoken with many different sized SMEs which make up the portfolio here at The FSE Group, many of them have pivoted their business model to adjust to new ways of operating, which has in turn accelerated some productivity activities and strong growth opportunities.
The months ahead will no doubt remain challenging as we continue to operate under strict conditions, but it is important to remember that UK SME businesses are both resilient and creative and will continue to find ways to alter their business model accordingly to facilitate recovery and growth.
What can SMEs do to further accelerate their recovery and growth opportunities?
What we can see is that a significant amount of debt has been taken on with the Government supported loan schemes. However, we need SMEs to recover and then grow. Some will have a new debt burden from just surviving, and some may have used up historically generated cash reserves (which may have been deployed for growth purposes) to just survive, and thus there is going to be an increasing funding gap.
The recent report from Sir Anthony Seldon & Stephen Welton (BGF) focussed on a cohort of businesses that have existing sales turnover of over £2.5m that are deemed to be high growth. It is correct that these larger SMEs should attract attention to accelerate their growth and commercially focussed pure equity funds should rightly be attracted to them.
However, there are many more SMEs with much lower existing sales that need to be encouraged to grow their business and to have access to support and help finding the right funding solutions.
These smaller SMEs will typically be less attractive for traditional equity funds as their growth potential (and thus valuation and exit options) may not be as high as the larger SMEs. The growth potential is there but they could be a far more risky investment for those type of funds.
The above-mentioned report also stated that 67% of high growth businesses are based outside of London, and we agree with the importance of Regional Funds.
In Summary
UK Plc needs SMEs to grow and prosper. The FSE Group’s regional Funds are open to support them by providing funding to eligible businesses to assist in their growth and recovery journey. Many of the Funds have both Debt & Equity solutions and this allows the right combination of funding. In addition, the Funds are there to support the forward looking story, ie genuine projection led funding.
The clear objective is to strengthen the potential to achieve economic growth through enterprise whilst transforming the funding landscape for the UK’s SMEs.
Words by Paul Marston, CEO at The FSE Group.