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Small firms planning to raise staff levels and investment

SMALL businesses in Scotland are showing a much greater appetite to invest and hire staff, following an improvement in turnover and profitability in the latest quarter, a key survey has revealed.

The survey, published today by the Federation of Small Businesses, also shows that firms in Scotland are significantly more confident in the latest quarter than they were in the same period of each of the past three years.

The FSB declared it was "heartening" to see that its member firms were planning for growth.

Subtracting the percentage expecting to reduce investment spending over the next year from the proportion anticipating a rise, a net 28.3% of small firms in Scotland projected an increase.

This is up from a net 19.3% in the previous quarter, and well ahead of a balance of 5.8% who made such a projection at the same time last year.

Although a net 3% of Scottish small firms reported a reduction in the workforce in the latest quarter, a balance of 3% anticipated an increase in head count over the coming three months.

The FSB said that, if these expectations were realised, it would be the first time that a net balance of small businesses in Scotland had increased staffing levels since comparable data were first collected in the second half of 2010.

Meanwhile, a net 9% of small firms in Scotland reported that profitability had increased over the latest three months. This contrasts with a balance of 8% of firms reporting a fall in profitability in the same period of last year.

The FSB noted that this reported improvement in profit margins in the latest quarter was the first in two years.

A net 29% of small businesses in Scotland reported a quarter-on-quarter rise in revenues in the FSB's latest Voice of Small Business survey. The FSB noted this was the strongest reading for revenue growth since comparable records began in 2010, and contrasted it with the balance of just 1% of firms reporting a rise in the same period of last year.

Small businesses' assessment of the credit climate was mixed.

The survey of 208 firms north of the Border shows that, in this quarter, 42.1% of small businesses reported credit affordability was "poor" or "very poor", down from 52.5% at the same time last year.

The FSB said that these latest findings suggested that the Bank of England's Funding for Lending scheme might be improving the credit market for Scottish small businesses. However, it also highlighted the survey finding that nearly three-quarters of small firms in Scotland still believed that credit availability was poor.

The FSB took this as a clear signal that "more could be done to help businesses gain access to finance".

One in four of Scottish small businesses surveyed reported that the availability of appropriately skilled staff was a potential barrier to achieving their growth aspirations.

The FSB noted that this was the case "despite the relatively elevated level of unemployment".

Stuart Mackinnon, senior public affairs adviser for the FSB in Scotland, said of the overall survey findings: "I think it is good to have some good news.

"While there are still problems for our members to overcome in areas such as business finance, it is heartening to see that our members are planning for growth."

He added: "The trend this year has been increasing confidence, so it is pleasing, but not surprising, to see things moving in this direction."

Summing up, the FSB said: "Small businesses' prospects are improving, but credit availability, low-wage growth and skills issues all pose significant challenges.

"Scottish small businesses remain confident and there are signs that companies are becoming more willing to invest, suggesting continued momentum in the economy.

"However, firms' ability to invest may be limited by a lack of credit availability."

In terms of the UK as a whole, the FSB has found that firms in the financial services, computer and related activities, and business services categories are faring best, with manufacturing in fourth position among the strongest sectors.

However, firms in the hotels, restaurants, bars, and catering sector are facing the toughest conditions.

Mr Mackinnon said: "We are still seeing businesses reliant on disposable consumer income squeezed."

Firms in the survey, as well as signalling skills shortages, highlighted conditions in the UK economy and consumer demand as barriers to growth.

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