The general election is almost upon us, manifestos have been launched and colours pinned to the mast. We may all have an idea of what the major parties are saying they’ll do for the country – and for individuals – but what about the lifeblood of the economy, the small to medium-sized businesses?
The Conservatives, Lib Dems and Labour have all understood that SMEs are important. Their manifestos cater for them in slightly different ways but all centre on providing financial support in one form or another. Labour talk about making it easier to access finance, the Conservatives pledge to increase the number of startup loans, and the Lib Dems focus on both capital provision and tax breaks for SMEs.
However, this unwavering fixation with finance betrays a misunderstanding of what SMEs need to help them grow.
A recent Bank of England report found that 77% [PDF] of SMEs are not seeking overdrafts or loans. This can be explained to a large extent by the fact that SME cash holdings continue to rise, with deposit levels now exceeding borrowing by £54 billion, according to the British Banking Association.
Funding just isn’t the issue that the main political parties seem to think it is. Rather, there are two factors that need to be addressed to accelerate SME growth.
Firstly, SMEs need access to guidance, insight and tools. Many are in business for the first time and will come across unfamiliar situations and have little idea how to deal with them.
They need answers to questions like: How do you set yourself up to take and make international payments, and what are the tax implications? How can business owners market themselves to new customers? In a technologically dependent world, how can small businesses take advantage of the planning, accountancy, web design and customer analytics tools that their larger competitors use? While there are some organisations which provide mentors and advice, they are difficult to find and are limited in number.
Secondly, the lack of a highly skilled workforce is hampering SME growth. In 2013 the UK had nine areas of skills shortage. At the end of 2014 we had 43. Much of the shortfall is in technology and engineering, coincidentally where much of SME growth is coming from. Although there have been promises of increased apprenticeships and better college funding, this is a long-term solution, and solving this problem in the short term is no easy task. You can’t simply make well-qualified, experienced employees appear out of thin air, and therein lies the crux of the issue.
The skills gap is something that has been on the agenda for years and the same solutions have been mooted at each election. We’re still in a situation where our economic needs aren’t being met by our educational direction. True, bodies such as the Technology Strategy Board [now called Innovate UK] have gone some way to making sure business and academia are working together, but without a greater focus on ensuring young people are equipped with the skills that employers need, the skills shortage will continue.
In the short term, technology can help with some of the issues – better accounting software, for example, can compensate for some financial skills, online forums can provide some advice and there has been a huge increase in the number of tools offered through the cloud, that are specifically designed for SMEs. Rather than promise SMEs more money and the potential of apprentices, politicians need to give SMEs what they really need: guidance, insight and tools to grow their business and a realistic long-term plan to help them recruit the people they need.
John Davis is the managing director of BCSG
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