2010 mid sized confidence report

CIMA mid-sized business confidence monitor | Survey annual trend report 2010

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CIMA mid-sized business confidence monitorSurvey annual trend report 2010

The market research team of the Chartered Institute of Management Accountants and their selected research agency partners are members of the Market Research Society Company Partner Scheme, and guarantee that all work carried out complies with the MRS Code of Conduct.


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Foreword

This is the second CIMA annual trend report. The data provided in this document

draws together the findings from our quarterly surveys of members and students

working in medium-sized businesses around the UK. Medium-sized businesses are

the backbone of the UK economy and they can be a good indicator of the broader

business community’s confidence in the current economic climate.

Reflecting the UK’s economic outlook as a whole, this report depicts a climate that

is generally gloomy but dotted with the occasional sunny spell. Overall, CIMA’s

economic confidence index showed a small decline in business optimism (1.9 index

points) between Q4 2009 and Q4 2010. Concerns about the recent VAT hike and the

possibility of a double-dip recession indicate that mid-sized businesses are gearing up

for another turbulent year.

At the start of the year, 91% of business said they were confident that they would

survive the downturn. This figure dipped slightly through the year and ended at 84%

in the final quarter. However there are also signs of a fighting spirit. Despite the

continued uncertainty over economic recovery, most businesses surveyed indicated

that they were ready to rise to the challenges ahead.

In 2010, just over half of respondents recorded an increase in company turnover and

net profits. A reduction in overhead costs was reported by almost a third of companies,

indicating that cash flow management has been critical to business success. But our

data on salaries shows that there is a notable gap between businesses that are thriving

and those that are struggling. With the additional burden of fuel and VAT increases,

this gap may widen further.

Access to capital is also still problematic - despite the continuation of the Enterprise

Finance Guarantee to encourage more bank lending to SMEs. Our survey saw

improvements in access to finance in Q2 and Q3 but in the final quarter, almost half

of businesses said they were having difficulty in securing additional finance. However,

there was some optimism that businesses would grow in 2011 with 43% expecting

company turnover to increase and 42% anticipating that net profits would rise.

Charles Tilley

Chief Executive

CIMA


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CIMA economic confidence index 2010

Despite a strong start to CIMA’s economic confidence

index in Q1 2010, confidence in the economic prospects

facing mid-sized businesses over the next 12 months

saw a sharp decline throughout the remainder of 2010,

falling more than 17 index points from 29.6 in Q1 to just

12.2 in Q4.

While this sharp decline in confidence defied stronger

than expected UK economic growth recorded in Q2

and Q3 2010, it highlights the continued uncertainty

surrounding the recovery in the UK market.

Although year-on-year the confidence index shows little

change, with a decline of just 1.9 index points recorded

between Q4 2009 and Q4 2010, it is anticipated that

confidence in the economic prospects facing mid-sized

businesses will see a shaky start to 2011.

With further spending cuts on the way, fears surrounding

a rise in inflation and growing concerns over a double

dip recession following the shock contraction of the

UK economy in the last three months of 2010, it is

anticipated that mid-sized businesses are facing another

turbulent year in 2011.

However, it’s not all doom and gloom. In January 2011,

UK manufacturing expanded at its fastest level since

records began in 1992, showing a glimmer of hope on

the horizon for mid-sized businesses.

35.00

30.00

25.00

20.00

15.00

10.00

5.00

0.00

-5.00

-10.00

-15.00

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

Economic confidence index

22.3

14.1

29.6

18.2

20.4

12.2

Economic confidence index

Despite the continued uncertainty surrounding the UK

economy and ongoing challenges faced by mid-sized

businesses, confidence amongst mid-sized businesses

surviving the economic climate started 2010 more

positive than at any point during 2009. Confidence in

business survival peaked at 91% in Q1 2010, before

dropping off slightly to 87% in Q3 and settling at 84% in

the final quarter of 2010.

The mid-sized business survival chart on the following

page indicates a widening gap between those that are

confident and those who are extremely confident in the

survival of their business over the coming 12 months.

Furthermore, there were fewer businesses that were

extremely confident that they would survive the next 12

months in 2010 compared to 2009.

With research showing that more companies go bust

in the months after a recession than during a recession,

many mid-sized businesses would have stripped out any

unwarranted costs during this period, leaving even less

margin to make any further cost savings now.


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Securing additional finance and access to cash in 2010

The UK Government and Bank of England economic

policy continued to provide mid-sized businesses with

as much support as it could as the transfer of power

progressed, with the coalition giving direction to banks

to support mid-sized businesses to stimulate business

activity.

In November 2010, the coalition government announced

that Enterprise Finance Guarantee (EFG), set up by the

former Labour government to encourage more bank

lending to SMEs, would continue for the next four years,

making about £2bn available, and aiming to help 6,000

SMEs access capital each year.

90%

80%

70%

60%

50%

40%

30%Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q4 2010Q3 2010Q1 2010 Q2 2010

Confidence about surviving the economic climate

83%

42%45%

46% 48% 48%

56%

51%49%

35%36%32%

43%39%39%38%

83%85%

87%91% 88% 87%

84%

Confidence totalExtremely confidentConfident

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Access to cash was….

Not at all difficult Not difficult Neutral Difficult Extremely difficult

6% 11% 21% 43% 19%

16% 23% 35% 26%

5% 10% 33% 30% 22%

8% 11% 29% 33% 19%

19% 19% 29% 24% 9%

8% 23% 20% 36% 13%


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In order to monitor the support that mid-sized

businesses are receiving, CIMA’s mid-sized business

confidence monitor survey asked whether their business

had sought to secure additional finance from a bank over

the last quarter.

CIMA’s mid-sized business confidence monitor shows

that despite improvements in access to finance in Q2

and Q3 2010, Q4 saw much tighter restrictions on

lending, and almost half of businesses were again saying

that securing additional finance from banks was difficult

or very difficult.

The notion that lending became tougher at the end of

2010 is supported by the Bank of England’s Trends in

Lending report published in January 2011, which shows

that the stock of lending by UK banks and building

societies to businesses contracted by around £5 billion in

the three months to November.

Business performance for last quarter during 2010

Each quarter mid-sized businesses rate factors which

measure their performance against 17 key business

performance indicators, comparing each indicator over

the last quarter, to identify if they had increased, stayed

the same or decreased. The following data aggregates

these indicators for all of the quarterly 2010 surveys to

provide an annual summary for 2010.

Against a backdrop of extremely tough economic

conditions, just over half of mid-sized businesses

surveyed in 2010 recorded an increase in company

turnover (52%) and net profits (51%). 46% of mid-sized

business also recorded an increase in domestic sales

turnover.

Also seeing an increase, but more prohibitive to business

growth was the cost of transportation and fuel. In

January 2010, diesel prices stood at 109.46p per litre,

compared to January 2011, when prices had risen

to 128.35p per litre; just five pence below its record

high of July 2008. And with the 0.76p introduction of

the government fuel duty on New Year’s day and the

VAT rise from 17.5% to 20% on 4 January 2011, fuel

prices are set to rise further over the next 12 months.

When reviewing the previous quarter, 51% of mid-sized

businesses recorded an increase in transportation and

fuel.

Almost half (47%) of mid-sized businesses also saw

an increase in supplier prices in 2010. This is hardly

surprising given that annual producer output price

inflation rose to 4.2% in November 2010, according to

the latest figures produced by the Office for National

Statistics (ONS).

Amongst the indicators that have largely stayed the

same during 2010 are:

• research and development budget (79%)

• skills training both internal (73%) and external (72%)

• supply of goods and services (67%)

• basic salaries (66%)

• number of full time vacancies (66%)

• marketing/advertising (58%)

• capital investments (60%)

• total salary packages (60%).


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Although the majority of mid-sized businesses recorded

no change in earnings during 2010, three in ten recorded

an increase in total salary packages (31%) and basic

salaries (29%). This uplift in earnings is supported by

the most recent data released by the ONS, which also

showed a slight uplift in earnings, with average earnings

recording an increase of 2.1% in the year to November

2010, with average total pay rising by 1.9% to £449 a

week in the private sector, and by 2.4% to £469 a week

in the public sector.

As well as being amongst the largest increasing

indicators, company turnover and domestic sales

turnover also recorded some of the most significant

decreases amongst mid-sized businesses in 2010. This

indicates a notable gap between successful businesses

during the tough economic climate and those that are

struggling.

A reduction in overhead costs was also reported by

three in ten mid-sized businesses in 2010, which

indicates that cash flow management has been critical

to business success during the recent difficult economic

climate. One such impact will have been a reduction

in the number of full time employees, which was also

reported by three in ten mid-sized businesses last year.

With UK unemployment rising by 49,000 to almost 2.5

million in the three months to the end of November

2010, according to the latest figures from the ONS,

the government’s spending cuts appear to be having a

negative impact on employment figures.

Business performance for last quarter during 2010

Increased Stayed the same Decreased

52%

17%

31%

51%

20%

29%

51%

39%

10%

47%

42%

11%

46%

24%

30%

35%

34%

31%

31%

55%

14%

31%

60%

9%

31%

39%

30%

29%

66%

5%

27%

60%

13%

26%

67%

7%

24%

58%

18%

17%

66%

17%

12%

73%

15%

12%

72%

16%

11%

79%

10%

Com

pany

tur

nove

r

Net

pro

fits

Tran

spor

tati

on a

nd f

uel

Supp

lier

pric

es

Dom

esti

c sa

les

turn

over

Ove

rhea

d co

sts

Expo

rt s

ales

tur

nove

r

Tota

l sal

ary

pack

ages

Num

ber

of F

T em

ploy

ees

Basi

c sa

larie

s

Cap

ital

inve

stm

ents

Supp

ly o

f go

ods/

serv

ices

Mar

keti

ng/a

dver

tisi

ng

Num

ber

of F

T va

canc

ies

Skill

s tr

aini

ng (

inte

rnal

)

Skill

s tr

aini

ng (

exte

rnal

)

R&D

bud

get


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Business performance for next quarter during 2010

Each quarter mid-sized businesses rate the same factors

to measure their performance against 17 key business

performance indicators, comparing each indicator to the

next quarter, to identify if they expect them to increase,

stay the same or decrease. The following data shows

how mid-sized businesses rated how they expect each

indicator to perform in the following quarter during

2010.

Projected business performance levels for the next

quarter followed a similar pattern to that of actual

business performance in the last quarter, although

overall, mid-sized businesses were generally slightly more

positive about the outlook for the next quarter when

compared to the last.

Overall, the factors that were expected to increase the

most in the following quarter during 2010 were:

• company turnover (56%)• net profits (52%)• domestic sales turnover (49%).

The factors that were expected to largely stay the same

in the following quarter were:

• skills training, both internal (77%) and external (78%)

• number of full time vacancies (75%)• supply of goods and services (73%)• marketing and advertising budgets (70%).

The factors that were expected to decrease the most in the following quarter were:

• company turnover (22%)• overhead costs (22%)• net profits (21%)• domestic sales turnover (21%)• number of full time employees (19%).

Business performance for next quarter during 2010

Increased Stayed the same Decreased

56%

21%

23%

52%

27%

21%

49%

30%

21%

42%

50%

8%

40%

54%

6%

33%

45%

22%

29%

60%

11%

28%

65%

7%

27%

66%

7%

26%

69%

5%

24%

57%

19%

22%

73%

5%

20%

70%

10%

16%

75%

9%

13%

77%

10%

12%

78%

10%

9%

84%

7%

Com

pany

tur

nove

r

Net

pro

fits

Dom

esti

c sa

les

turn

over

Supp

lier

pric

es

Tran

spor

tati

on a

nd f

uel

Ove

rhea

d co

sts

Expo

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ales

tur

nove

r

Cap

ital

inve

stm

ents

Tota

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pack

ages

Basi

c sa

larie

s

Num

ber

of F

T em

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Supp

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f go

ods/

serv

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Mar

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ng/a

dver

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Num

ber

of F

T va

canc

ies

Skill

s tr

aini

ng (

inte

rnal

)

Skill

s tr

aini

ng (

exte

rnal

)

R&D

bud

get


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Topical issues

As the mid-sized business confidence survey has

monitored attitudes to the economy it has also provided

a vehicle for gauging the opinion of mid-sized businesses

on topical issues each quarter. This has provided further

insight into the decisions that mid-sized businesses have

been taking both as result of Government policy and

trading in the current economic climate.

Mid-sized businesses have been asked since the start

of the survey how important they think that the recent

Bank of England decision not to change interest rates

has been for their business. Throughout 2009 and 2010

around 40% of mid-sized businesses said it was neither

important nor unimportant for their business; with a

third saying that it is important to their business.

While at the start of 2009, half (51%) of mid-sized

businesses said that the interest rate decision had no

effect on their business, this increased to almost two-

thirds (63%) by the end of 2010.

In Q4 2010, nine out of ten mid-sized businesses

said that they were ready for the 20% VAT rate being

introduced on 4 January 2011. Over a third said the

20% VAT rate would negatively impact on the overall

performance of their business, sales and administration

costs and to a lesser extent turnover (26%).

Just over half (54%) of mid-sized businesses also said

that they will pass the full VAT increase over to their

customers, with 15% saying that they will absorb the

increase in full and 14% saying that they would absorb

it in part.

Relationships with suppliers to mid-sized businesses

improved from Q3 2009 to Q4 2010, as only a third

of mid-sized businesses had not changed supplier,

increasing to 61%. The main reasons for changing

supplier was price and value for money indicating careful

purchase and procurement of products and services

because of the economic environment.

Technical information about the mid-sized business confidence monitor

This research is completed by the market research

department of the Chartered Institute of Management

Accountants.

Each quarter, approximately 14,000 active CIMA

members working in mid-sized businesses in the UK are

interviewed via an on-line questionnaire. The interviews

last about 15 minutes and they gather opinions on past

and expected business performance and future prospects

for mid-sized businesses.

A copy of the full question set is available on request

from the market research department:

[email protected]

Data has been sampled to closely reflect the profile of

the UK economy for mid-sized businesses by company

size, number of employees, turnover, regional location

and industry/business sector.

How the CIMA economic confidence index is calculated

The CIMA economic confidence index is calculated from

responses to the following question:

Compared with the previous 12 months, overall, how

would you describe your confidence in the economic

prospects facing your business over the next 12 months?

Variable Score

Much more confident +100

Slightly more confident +50

As confident 0

Slightly less confident -50

Much less confident -100

Using this method, +100 would indicate that all mid-

sized businesses responding in the survey are much

more confident about future prospects, and -100 would

indicate that all mid-sized businesses are much less

confident about future prospects.

For more information contact the market research

department of the Chartered Institute of Management

Accountants.

Chartered Institute of Management Accountants26 Chapter Street London SW1P 4NP United Kingdom T. +44 (0)20 7663 5441www.cimaglobal.com

© February 2011, Chartered Institute of Management Accountants CMI003V0211

2010 mid sized confidence report

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