Bowmark Capital publishes second Entrepreneurs' Index

Other survey highlights

• companies become more concerned about the impact of government intervention and legislation on their businesses - 70 per cent cited these as obstacles to growth, up from 56 per cent in January, while nearly two-thirds see tax as a major obstacle;
• profit and revenue growth have slowed;
• rising energy prices have had a negative impact on a third of companies surveyed; and
• the credit crunch is starting to bite - around a quarter of companies said that the availability and terms of bank debt have worsened since the previous survey.

The Bowmark Entrepreneurs’ Index is a survey of the directors of small to medium-sized businesses in the UK commissioned by Bowmark Capital, the mid-market private equity firm. Apart from respondents’ levels of optimism, the survey tracks their financial performance and prospects; corporate activity; and attitudes to the challenges and opportunities they face in the current economic climate.

Growing unease about the outlook for the UK economy has severely dampened the positive mood of entrepreneurial companies six months ago. While the Optimism Index measuring their attitude to their own businesses has dropped nearly 10 points to 66.7, their view on prospects for their industries is even gloomier - down nearly 17 points to just above 50. Their optimism about UK entrepreneurial businesses generally has tumbled 13 points to 49.7.

Bowmark Capital’s managing partner, Charles Ind, said: "The outlook for the economy in the next six months is more uncertain than at any time in recent history. Entrepreneurial company directors, normally more positive than most, have become increasingly apprehensive and cautious in their approach."

Growth in turnover and profits has slowed since the last survey. In January, more than 60 per cent of respondents reported profits up 10 per cent 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 per cent growth in revenue fell from 65 per cent in January to 57 per cent in this survey.

Companies have also reined in their expectations for future growth. Just over half of those surveyed expect a 10 per cent+ 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 per cent in profits, down from 70 per cent last time.

Only a third of respondents are planning acquisitions in the year ahead, compared to 43 per cent in January, while two-thirds this time are planning to launch a new product or service. "With merger and acquisition activity likely to be muted in the year ahead, entrepreneurial companies will be focusing on organic growth," Ind suggests.

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

Looking at the year ahead, nearly three-quarters expect to expand their workforce by less than 10 per cent, against just 55 per cent in January.

Obstacles to growth have become more onerous in the past six months, especially legislation and government intervention and taxes. Seventy per cent of respondents (up from 56 per cent last time) cited government initiatives as obstacles to growth. Two-thirds rank skills shortages as a burden (unchanged from last time) but taxes have become a bigger obstacle to growth this time - nearly two-thirds said taxes were a burden, against 43 per cent in January.

The credit crunch has started to have an impact on the terms banks charge for debt. Some 29 per cent of respondents said the terms they were offered for acquisition finance had worsened while just over a quarter experienced tighter terms for working capital and investment in fixed assets. However, most companies seem to have a strong financial base - 98 per cent were having no problems servicing their debt.

Respondents are investing in "green" initiatives in spite of economic pressures. Nearly three-quarters have already installed recycling schemes. Seventy per cent already have, or will, implement employee education schemes and energy saving measures in the next six months.