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Article from via ACCA / Barclays

At last, the economic outlook is brightening. It’s been a long time coming, but the latest set of economic and internal bank data makes for very positive reading. Cash turnover through Barclays Business Banking current accounts, for example, is up by 6% year-on-year to July 2013, while transaction volumes in July were up 10%.

All of which suggests that while we may not be at the end of the downturn, it looks likely we are (at the very least) at the beginning of the end. This being the case, it seems a good moment to rake over the embers of recession to see what we’ve learned about SMEs over the past few years. Here are a few things that stood out, and (more importantly) what it all means for you.

1. There haven’t been nearly as many company failures as you might think

Given the headlines about tough times on the high street (and they were tough), you’d be forgiven for thinking that the number of small and medium sized businesses has fallen through the floor. But not so, it seems. While it’s true that many bricks and mortar retailers suffered, overall there have been far fewer business insolvencies over the past years than there were during the recession in the early 1990s, even though the most recent downturn was much more severe in terms of both depth and duration. All of which should mean that the businesses that have survived will be leaner, fitter and better prepared for any commercial challenges to come.

2. Britain appears to be more entrepreneurial

More people than ever before started a business in 2012. It’s not clear whether the recession forced people to enter the world of the self employed, or whether they made a positive choice to do so, but either way, when there was an option to become their own boss, many people took it.

3. A significant number of SMEs are sitting on cash reserves

SMEs built a good cushion of liquidity to see them through the worrying uncertainty we all had to live with over the past few years. It’s likely that this is particularly true for SMEs with a turnover of £1m and more, as many of these firms were reporting an increase in sales 18 months ago, even as many smaller firms were running hard to stand still.

4. The cash on SME balance sheets isn’t from debt

One pronounced feature of the downturn that Barclays has seen is the phenomenon of SMEs paying down debt. Although an unusually deep and protracted recession made trading conditions difficult, most small firms found a way to protect cash flow so that they were in a position to pay back banks and other lenders. Which means that healthy-looking balance sheets are a result of trading and business activities, not debt.

5. When confidence returns, many SMEs could have the scope to grow fast

So what does this all mean? If you’ll allow a few generalisations, there are more SMEs than ever, and many of the established ones are paying down debt and building up their cash reserves. Many business owners are likely to be cautious about extending credit to new customers, given the extent of late payment and bad debt over the past few years, but nevertheless many are in a position to offer generous terms if a new business opportunity comes along either at home or abroad.

So is everything in the SME marketplace looking pretty rosy? Well, yes and no. There is scope for SMEs to expand and some business owners are already going for growth, it seems, given that the number of business loans taken out through Barclays is up 16% in the first six months of this year compared with the same period in 2012.

But trading conditions will need to be favourable for some time before firms generally feel secure enough to undertake debt-financed expenditure. Still, at least the r-word on everyone’s lips today is not recession, but recovery.

Case study – the power of two

When clients of Ian Jacobs were offered an opportunity to buy a similar business to their successful logistics firm, they quickly ran into obstacles at their existing bank.

So Ian suggested they meet with a contact of his, Barclays business manager Geoffrey McDonald. The four of them – Ian, Geoffrey and the clients – sat down to explore all the options and after a meeting Geoffrey was able to put forward a working finance proposal.

The close working relationship Ian and Geoffrey have developed over the years was crucial to the successful outcome for the clients. ‘We really understand and appreciate the way the other works,’ says Geoffrey. ‘It’s all about forging an individual partnership. There is no one-size-fits-all approach. Regular contact means we have become trusted advisers to each other.’ 

Learn more about Barclays business loans, overdrafts and mortgages.