Umbrella company contractors are more likely to find opportunities with small businesses, according to the results of a recent survey.

The European Commission published the results of its survey on the 16^th January this year and they make interesting reading. Not only do SMEs provide better quality jobs prospects than their larger counterparts, they provide employment for more than 67% of the UK’s workforce and are responsible for 85% of new jobs.

SMEs are an essential cog in the economic recovery and they go some way towards negating the affect the recession had on employment. The report goes on to say that in order to draw an effective policy after the crisis, there needs to be expert analysis of how new small business job creation was affected by the recession, as well as analysing the quality of current jobs.

Limited company contractors could find lucrative opportunities in the SME market. They could find better quality jobs with a higher rank than would be available in larger organisations. Small businesses could also reap the benefits of turning to highly skilled contractors who are available to slot into a role at a moment’s notice.

Conditions do look favourable for contractors this year. New business opportunities are starting to appear but a lot of employers still have concerns about the UK’s economic future. They are reluctant to commit to hiring permanent members of staff until conditions improve, so instead they will need to rely on the UK’s flexible workforce.

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IT contractors operating north of the border may be relieved to learn that the Scottish private sector growth rate accelerated again in December.

The latest Bank of Scotland PMI showed that employment rose slightly for the second consecutive month and, for the first time in four months, Scottish firms recorded an increase in new business. The headline PMI was up 0.1 points to 51.2 in December, helping it to edge away from the 50 mark that separates expansion from contraction.

The biggest rise in new business was found in the business services sub-sector. Accountants and lawyers are included in this group, which rose from 51.2 in November to 54.5 last month.

New business growth increased for the second consecutive month in the financial services sector and ended the year with an Index reading of 54.6; up from 53.5 in November.

However, it would appear that the manufacturing sector is in decline. Key export markets are suffering due to the crisis in the Eurozone and the manufacturing output index dropped sharply to end the year at 44.5. In November it had been 51.1. Furthermore, new export orders decreased for the third month in succession.

Both manufacturing and services firms did report a marginal increase in headcounts in December, but growth in Scotland is still lagging behind the rest of the UK, which ended the year with a PMI of 53.2. Nevertheless, December’s figures do suggest that the country may not fall back into recession.

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While a large number of the UK’s young people remain unemployed, there is a shortage of junior talent with experience in media and creatives, according to the chairman of Aspire Global Network.

Paul Farrer was commenting on the results of a recent survey by Credit Suisse that showed the media and advertising sectors in Northern Europe continue to grow. Furthermore an IPSOS survey conducted on behalf of AGN discovered that 80% of media and marcoms professionals thought their company’s performance was stable or improving.

Farrer said there are many opportunities in media but little talent to fill them. Very few people joined the sector during the recession and there is now no available talent with between two and four years experience.

Most businesses have an on-going need to replace people who are moving elsewhere and they also want fresh talent to fill roles created by the introduction of new technology. He went on to advise media companies that implementing a strong retention strategy will reduce the amount of time and money they need to spend on recruitment.

The latest unemployment data from the ONS showed that 973,000 young people in the UK are without a job.
The REC has continually said that this is a major cause for concern and the government should implement measures to encourage employers to hire young job-seekers. However, Tom Hadley, the REC’s director of policy and professional services explained that the business community also has a role to play.

Maybe companies in the media and creative sectors should take note!

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Female umbrella contractors might be interested to learn that Scottish recruiters believe the shortage of women working in the engineering, maths, science and technology sectors could be detrimental to the country’s economy.

Last week the Institution of Engineering and Technology said the proportion of women working in science related jobs is still the same as it was in 2008.

Colin Woodward, the director of Contract Scotland, said the construction industry in Scotland had been struggling to recruit women into technical and professional roles for the past twenty years. Because the sector failed to take advantage of buoyant market conditions before the recession, it is now still recruiting from a narrow pool of talent.

Despite the fact that few women are entering the field of engineering, people who have graduated are finding it hard to get a job.

Research by Birmingham University has discovered that it is not easy for qualified engineers to get a job that fits their qualifications.

The study found that 46% of the class of 2009 found a position relating to their engineering degree within six months of graduating. A further 20% secured a skilled job, but 24% had to take an unskilled position.

A recent poll from eFinancialCareers’ discovered that 75% of UK graduates would work for free if they thought it would improve their career development and help them secure a permanent job.

Out of the recent batch of finance graduates, the survey found that only 16% have received a job offer. More than a third of finance graduates expect to be unemployed for three months after leaving education.

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A study by ICAs shows that finance directors are losing confidence in the UK economy and cannot reach consensus over the best way to solve the problem.

ICAs surveyed more than 170 of its UK members and discovered that only 9% expect economic growth to be slow but consistent in the coming 12 months. This time last year the figure stood at 28%.

56% expect to see negligible growth until the second half of next year and 25% believe that things are going to get worse before starting to improve. FDs at firms with a turnover of less than 10 million are less optimistic than their counterparts in large organisations.

Just over half of the respondents back the government’s policy of eliminating the fiscal deficit during one parliamentary term, but 20% fear the economy is suffering because of the austerity measures. Among the smaller business community, 30% of FDs said the scale and speed of cuts could damage the economy, whilst 46% thought the coalition was coping with the problem in the right way.

Anton Colella, the chief executive of ICAS, said that as well as being concerned about the current economic predicament, financial directors also worry about where the next global crisis is going to start. Despite their concerns, 60% of FDs have had the chance to grow their business since the start of the recession in 2008 and 52% have managed to grow by acquiring other companies.

Meanwhile, the number of jobs available continues to grow, albeit very slowly, according to the latest Report on Jobs from KPMG and the REC.

The number of permanent staff placements in August increased at the same pace as in July and demand for temporary staff remained steady. More people are now looking for a permanent position as candidate supply rose at its fastest rate since the beginning of 2010.

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New research from the Clydesdale and Yorkshire banks shows that an increasing number of older Brits are foregoing retirement and setting up a business instead.

The study found that more than 25% of small businesses in the UK were set up by recent retired people or those who had been made redundant. In fact in excess of one million “older-preneurs” have taken the opportunity to set up their own limited company after redundancy or retirement.

Clydesdale and Yorkshire Banks’ director of small business banking, Gary Lumby, said a lot of people realise that there’s more to life than being employed by someone else and it’s an added bonus if you can form a business from something you love doing.

Redundancy can be a difficult time but for some it acts as a spur to starting up on their own, he added.
In the second quarter of 2011, GDP grew by a mere 0.2%, compared to 0.5% in Q1. The Office for National Statistics blames one-off factors like the wedding of Prince William and Kate Middleton and warm April weather for this sluggish growth. However, George Osborne was quick to point out that the economy is still growing and creating jobs.

We’re also seeing a large increase in the number of new start-ups. According to Wilkins Kennedy, 396,000 new businesses have started up in the past year, compared to 362,000 last year and 330,000 in 2008/09.

Kevin Walmsley, a partner at the accountancy firm, said that opportunities are presented during each recession and despite the economic downturn, the UK has entrepreneurs who still have enough confidence in their business model to start up their own business.

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The latest Business Trends report from BDO shows that business confidence is plummeting as growth in the manufacturing sector seems to have stagnated.

Businesses in the UK are now expecting to see very little economic growth in the coming six months.

The manufacturing output index, used to gauge advanced growth in the sector, has dropped to 93.9. This is below the benchmark level of 95 and therefore indicates the industry is contracting. It’s also the lowest recording since the economy started to emerge from the recession in October 2009.

The manufacturing optimism index has been below 95 for the last two months, suggesting the manufacturing sector will remain in a recessionary state into the beginning of next year.

The service sector is not faring much better. Although its index has not dropped below the 95 mark, it has been hovering just above for more than a year, indicating zero growth for the remainder of 2011.

Peter Hemington, one of the partners at BDO LLP, said the economic recovery is still faltering and declines in the manufacturing sector are alarming. Furthermore, the service sector is not showing any sign of being able to pick up the slack.

Although the overall picture seems to be one of doom and gloom, businesses in Scotland seem to be doing reasonably OK if the most recent Bank of Scotland Report on Jobs is anything to go by. Demand for both permanent and temporary workers north of the border increased strongly in July.

Bank of Scotland chief economist, Donald MacRae, said the number of permanent placements had been increasing continually over the past ten months, and last month the rate of vacancy growth rose to a three-month high.

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New research suggests that the personal finances, and private lives, of a lot of small business owners are suffering because of the rising costs associated with running their own company.

The study, conducted by the Centre for Economic and Business Research and Make it Cheaper, discovered that 47% of small business owners have had to inject some of their personal finances into their company this year.

89% of SMES think the UK is an unbearably expensive place in which to conduct business and a lot of them are only surviving by supplementing their company cash flow with their own personal finances.

The MD of Make it Cheaper, Jonathan Elliott, said the effects of cost increases and squeezed margins are not only affecting companies, but also the financial security of the businesses’ owners and families.

Another survey, this time form Bibby Financial Services, shows that more than 25% of SMEs feel they are only just surviving. 24% say trading conditions have deteriorated further since last year and 35% expect the UK economy to remain in the doldrums until at least 2014.

Edward Rimmer, the UK chief executive of Bibby, said businesses are still a long way away from a full recovery and although turnover is currently stable, there is a danger that negative growth could turn into a backward slide and lead the UK back into recession.

24% of small enterprises this that the economic recovery can be best helped by a loosening of lending criteria. Despite this doom and gloom, 70% of businesses in East Anglia are optimistic about their future and 50% share the same optimism in several other areas of the UK.

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New research from Aviva shows that around 10% of small firms in the UK are worried they might have to close this year if trading conditions do not improve.

Aviva surveyed 500 small businesses and discovered that a mere 13% feel positive that the British economy will improve, whilst 28% think that we might drop back into recession.

David Bruce, Aviva’s commercial product manager, said confidence among SMEs is at its lowest since the start of the global downturn and many are now seriously concerned that they will lose their business if the economy doesn’t improve this year.

The FPB was not surprised by these findings and believes the general pessimism is caused in part by the lack of accessible funding for small enterprises. The banks taking part in Project Merlin have so far failed to meet their key lending targets. However, the current economy could offer business owners the opportunity to move into niche markets and high redundancies mean there is a strong pool of candidates to recruit from.

17% of firms are using sales and discounts to keep their business thriving and another 17% have had to resort to permanent price reductions. 14% are looking to cut salaries or benefits, and 9% are thinking about reducing their permanent headcount.

The downturn in demand is affecting nearly 66% of firms according to Lovetts, the commercial debt recovery law firm.

The government has come up with measures to help small businesses, such as the New Enterprise Allowance and the Red Tape Challenge, but these have not brought about an entrepreneurial uprising.

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Last week’s GDP figures from the Office for National Statistics confirmed growth of just 0.2% in the second quarter of this year.

Various one-off factors have been blamed for the sluggish growth, such as the royal wedding, April’s warm weather and the Japanese tsunami.

George Osborne, the Chancellor of the Exchequer, said it was positive news that the British economy is still growing and jobs are being created. The UK is also seeing an increase in the number of start-ups, which should benefit umbrella company contractors. 396,000 new firms started up in 2010/11, up from 362,000 the previous year.

Kevin Walmsley from Wilkins Kennedy said that recessions present opportunities and the increase in start-ups shows that there are still entrepreneurs who are confident that they have a strong business model.

However, small businesses are being crippled by rising costs and more than 50% of them think their business will fail if the situation continues. Over the past five years, overheads have increased by 22.8%.

A survey by the CEBR and Make it Cheaper has discovered that rising costs are the most significant threat to 78% of small businesses. In fact 89% said the UK is an unbearably expensive country in which to conduct business.

67% of small firms said their profit margins have been eroded by increasing costs, 46% have had to increase their prices and 22% have reduced their headcount. 74% of the UK’s small firms think that rising costs have damaged their ability to grow and 86% say this is damaging the economic recovery.

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The Office for Budget Responsibility says that tougher austerity measures and higher taxes are needed if Britain is to achieve long term fiscal sustainability.

The UK has an ageing population that is putting pressure on the long term sustainability of public finances, according to a report published earlier this month from the OBR. Over the next fifty years, the number of people in retirement will increase sharply, whilst the number of working age individuals will decline. Currently we have 4 people working to support one pensioner, but that ratio will soon become 2:1.

Analysts predict that the UK population will reach 75 million by 2060, putting additional pressures on the cost of pensions and health care. Without substantial policy changes, the OBR warns that UK net debt levels will rise above 100% by 2060.

In order to bring the debt level down to 40%, the government will need to find an extra £22 billion. The key to sustainable public finances lies with public health but unless NHS productivity improves the UK’s debt levels could rise dramatically.

The OBR report also showed the financial services industry contributed approximately £40 billion of GDP in tax, in 2007. However, it is thought the sector’s contribution will drop to about £34.6 billion if tax rates remain unchanged. The OBR therefore expects the UK economy will rely less on financial services in future years.

The British Chamber of Commerce’s chief economist, David Kern, said the report suggests that we are unlikely to see a return to the level of public sector spending witnessed before the recession. The UK has to adapt its ambitions to more limited resources and acknowledge that the private sector is responsible for creating wealth through greater productivity and increased growth.

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The small business sector is crucial to EU growth, according to Helena Walsh, the Brussels regional director for Cicero Consulting.

Ms Walsh said EU member states are looking to small businesses to help their respective economies grow out of the recession. She went on to stress that it is important to have venture capital available for small businesses but at the moment finance support indicators for this form of funding are very poor.

Small businesses continue to struggle as the banks have tightened up their lending criteria and fewer grants up for grabs. Walsh has now urged the respective EU governments to pass urgent reforms to increase small business lending. She did however warn business owners that they were unlikely to see any reforms in the near future.

Earlier this year, the UK government and the major banks agreed SME lending targets through Project Merlin, but the first quarter targets were not met.

Cicero Brussels recently launched a Green Paper entitled ‘Access to venture capital for SMEs’. The paper deals with issues such as allowing venture capital funds to operate across EU borders and reducing the burden of administration on fund managers.

In the UK it’s not only lack of finance that is holding SMEs back. A recent survey from the FSB found that a lot of small business owners say excessive red tape is their biggest obstacle to growth.

Everybody agrees that small business growth is vital to the economic recovery, so when will governments throughout the EU takes steps to ensure that they get the necessary finance to enable them to do so?

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