2020 – planning for the year ahead

Tensions between the US and China seem likely to continue well into 2020 and beyond, impacting confidence, supply chains and foreign exchange. It is therefore likely all businesses involved in international trade, including SMEs, will benefit from hedging against forex fluctuations over the short to medium term or risk further uncertainties.

With elections due in the US in 2020, and in Canada in late 2019, it is possible that the North American business environment could pivot over the coming year. Canadian Prime Minister Justin Trudeau’s liberal agenda is coming under attack from the right, and whilst Canadians typically like to give their prime ministers two terms or more to demonstrate performance, the coming election is expected to be much closer than usual.

Whatever the political agenda, all are affected by it, to varying degrees. The top two of the top three threats to international trade identified by SMEs in our Global Business Monitor 2019 were political in nature – Brexit (35%) and the political situation in the US (42%).

Whilst a small number of large companies may command much of the business news, in reality the much larger number of small businesses have a more significant role to play in the day to day business of our lives. The catering company, the freelance consultants, the tooling manufacturers; not all have the business model or appetite to trade internationally, but many do. Their millions of connections and micro transactions are the enablers of economies, of innovation and of daily life.

It is notable that the two countries with the greatest percentage of SMEs voicing concern about the global economy – Hong Kong (70%) and Ireland (64%) respectively – are those whose fortunes are most closely bound to the activities of their neighbours.

Ireland faces significant exposure to challenges around Brexit, whilst Hong Kong’s relationship with mainland China brings exposure to China’s own slowing growth. The Czech Republic sees Germany as both the country offering the greatest export and import opportunity, so the recent German slowdown is hardly good news.

Despite this apparent threat coming from the global political agenda, the actual impact of international politics on the day to day business of SMEs is harder to quantify. It’s easy to focus on the politics of the moment, but politics moves slowly compared to business.

In terms of real-life challenges currently facing SMEs worldwide, our research reported the same three as in 2017, and predicted these would continue as the three biggest threats into 2020.

Rising overheads and costs (37%) were identified as the single biggest challenge, followed by government regulation/legislation and red tape (highlighted by 36% of SMEs) and cashflow (32%), which speaks more to the administrative burden of running an SME day to day than any specific political affiliation.

Opportunities abound for SMEs in 2020, if they are prepared to capitalise on them

More than a quarter of the SMEs consulted in our research expect their local economy to improve over the next 12 months, and this optimism can’t exclusively be culturally biased. The number of SMEs voicing concern about the global economy has significantly fallen, from 65% in 2017, to 56% in 2019.

More than twice as many saw their company grow as decline in the last year, which demonstrates their flexibility as much as their hard work and tenacity.

Just under half (46%) are expecting sales to increase over the next 12 months. US SMEs are the most confident about future sales, with 64% expecting growth; in contrast, just under a third (30%) of SMEs in Hong Kong expect sales to grow in 2020.

This year’s SME interviewees, representing nearly two and a half thousand businesses in 13 countries, saw opportunity everywhere, with 14% naming social media as the top opportunity for their business.

Putting the right financing in place is critical to SMEs making the most of opportunities in 2020

To thrive and grow as a business, SMEs must define their own goals and steer their own path. Business as usual is the business of the everyday, managing cashflow, seeking new customers, finding new ways to connect. Effectively meeting the challenges posed by fluctuating exchange rates means proactively considering new ways to manage this exposure.

The top three challenges facing SMEs over the coming year will be more practical than political: rising overheads / cost (37%), followed by government regulation / legislation (red tape) (35%) and cashflow (31%). Optimising financing to protect themselves against rising costs is a strategy appealing to both importing and exporting SMEs, enabling them to take advantage of bulk-buying discounts and protecting themselves from the worst impacts of rising prices.

Our report demonstrates the benefits of optimising cashflow by getting flexible, tailored funding in place. Many of our clients have been turned down elsewhere simply because the lender didn’t offer the right funding for them. Rejection in these cases has led to the clients becoming more creative and innovative in their search, and that approach has led to them not just surviving, but thriving.

Our Global Business Monitor Report for 2019 and its predecessors certainly tell the story of the research, but also reflect the personal stories of real SMEs run by real entrepreneurs. It tells the tale of rejection for finance, of struggling to balance the books, to find the right team, getting the right support. Of modern business models, agile and flexible, seeking financing that is fit for their purpose.

More than one in five (21%) of SMEs have been turned down for finance, not for any failing, but rather because banks are unable to service some sectors, certain business models, and very young start-ups.

These ambitious new businesses must look further afield and be more creative in their search for financing. Success may depend on leveraging every advantage and opportunity to grow. Rather than just relying on reinvesting profits, SMEs can explode their growth by increasing their cashflow, by borrowing to invest, whether this is in new technology, staff training, or simply to exploit bulk pricing opportunities. Fortune favours the inventive and the bold.

* Richard Carter (pictured) is chief executive officer of Bibby Financial Services, Europe and Asia. This article first appeared in the 2019 Bibby Financial Services Global Business Monitor, which is available to download here.