Orders up but profits down

The Forum of Private Business found that almost one in three (30%) members on its ‘Economy Watch’ panel saw increases in their order books and turnovers, with only 16% reporting a decrease.

Business for the remaining 54% stayed steady between the Forum’s previous survey in mid October and the latest study, which was carried out in late November.

However, many business owners on the panel also reported a sharp drop in profitability during the same period as increases in fuel costs, energy prices and raw materials hit home.

At 46%, almost half of the firms surveyed said they had seen a recent increase in the cost of doing business, with only 1% reporting that costs had fallen.

As a result, 27% of Economy Watch panel members reported a decrease in profitability since they were last surveyed in October, compared to just 14% who reported an increase.

Forum spokesman Phil McCabe said: “Our research shows that, for now at least, business appears to be on the up for many small firms. This perhaps reflects other statistics on the health of the overall economy in recent months.

“However, the ever-increasing costs of unavoidable overheads like gas, electricity, fuel and raw materials are taking their toll and eating into small companies’ profitability.

“This inflationary pressure is a real concern – it basically means more money is being sucked out of small firms and transferred overseas, or over to multi-national businesses in the utility and oil industries. It’s something the Government really needs to tackle if it wants smaller businesses to drive economic growth and create jobs in the months and years ahead.”

Economy Watch also revealed businesses expect to secure 20% more finance for development in 2011 than they did in 2010.

Those surveyed anticipated to receive around £45,500 each next year, rather than the £38,000 they said they expected during 2010 when surveyed in February.

However, the amount business expect to source from external sources - predominantly traditional bank lending – has seen a 27% slump. Correspondingly, the amount business owners expect to come from internal sources such as directors, friends and family members, has shot up from 10% for 2010 to 45% for 2011.

Mr McCabe commented: “It’s obviously encouraging to see that smaller businesses expect to invest more in business development next year than they did in 2010. It shows they are fairly optimistic about their prospects as we head into 2011 and believe they will be able to develop and grow in the future.

“The large drop in the amount of finance small companies expect to receive from external sources does serve as a stark reminder of how much faith has been lost in traditional credit streams such as bank lending.”