Optimism falling but firms are financially solid, index shows

OPTIMISM among small business owners has dropped as have performance expectations, according to the latest Bowmark Optimism/Entrepreneurs Index.

But despite difficulties in accessing finance most companies seem to have a strong financial base and are investing in green initiatives in spite of economic pressures.

The index, run by mid-market private equity firm Bowmark Capital, shows that the effects of rising energy prices, the credit crunch and red tape are beginning to take their toll.

Positivity ratings dropped nearly 10 points to 66.7 since the beginning of 2008 with directors of small to medium sized businesses gloomy about the future prospects of their own industries.

The survey identified a number of key obstacles to growth and confidence including the impact of government intervention and legislation.

Around two thirds of respondents said they saw tax as a major barrier to business while 70% agreed that red tape was having a negative effect on trade – up from 56% in January.

A third of companies said that they had been affected by rising energy prices, while a quarter said that availability and terms of bank debt has worsened as a result of the credit crunch.

Growth in turnover and profits has slowed since the last survey. In January, more than 60% of respondents reported profits up 10% or more in the previous 12 months.

This time, fewer than half saw that level of increase and a quarter had stagnant or falling profits. The percentage reporting a more than 10% growth in revenue fell from 65% in January to 57% in this survey.

Companies have also reined in their expectations for future growth. Around half of those surveyed expect a 10%+ growth in revenue in the next 12 months, down from two-thirds in January’s report. Similarly only half are anticipating a rise of more than 10% in profits – down from 70% last time.

Only a third of respondents are planning acquisitions in the year ahead, compared to 43% in January, while two-thirds this time are planning to launch a new product or service.

Employment prospects have also worsened. Two-thirds increased their employee numbers by less than 10%, remained static or cut jobs in the past 12 months, up from 55% of respondents in the last survey.

Looking at the year ahead, nearly three-quarters expect to expand their workforce by less than 10%, against just 55% in January. as before two-thirds rank skills shortages as a burden.

However, despite diminishing credit nearly all respondents reported a strong financial base and no problems with servicing their debt.

Investment in green initiatives is also on the increase. Nearly three-quarters have already installed recycling schemes.

Around 70% already have, or will, implement employee education schemes and energy saving measures in the next six months.

Founded in 1997, Bowmark Capital is a leading private equity firm specialising in smaller UK companies.

It manages and advises equity funds totaling around £700m on behalf of a blue chip investor base including public pension funds, insurance companies and banks from the UK,US and Continental Europe.