ALMOST three quarters of small- and medium-sized enterprises (SMEs) in the UK are adopting increasingly flexible business models to deal with fluctuating customer demand, new research has found.
The report from Direct Line Business surveyed 505 SME decision makers, revealing that 74 per cent have set up their businesses so they can scale up or down without affecting overall viability. This strategy means these so-called ‘balloon businesses’ are better able to manage changing market pressures. Around three million small firms in the UK are operating in this way, the research found.
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They change things like headcount, with half of SMEs and a third of micro businesses saying their staff numbers fluctuate throughout the year, and one in 10 planning to increase their headcount in the coming year. They are also approaching premises and property with a more short-term focus, taking advantage of short-term leases and temporary or pop-up locations.
SMEs also highlighted a lack of consistent revenue throughout the year, with significant peaks and troughs. Many are diversifying into new areas to manage these pressures, with one in six planning to start offering a new product or service within their own industry in the coming 12 months.
“Traditionally business growth has been viewed as a linear process, but small companies are now incredibly agile, hiring contractors to meet demand and taking advantage of short term leases to test the landscape and expand their footprint,” said Jazz Gakhal, managing director at Direct Line for Business.
“By adopting flexible working practices, they can quickly scale up or down their operations without putting the company’s survival at risk.”
Peer-to-peer business lender Growth Street said the research demonstrates the demand from SMEs for flexible finance.
“It’s no surprise that many of Britain’s resourceful business owners set up their businesses to be agile and able to respond to changing demand throughout the year,” said Growth Street chief executive Greg Carter.
“What businesses desperately need, though, is for financial services providers to adapt to businesses’ growth plans by delivering truly flexible finance.
“We all know that banks don’t like giving businesses overdrafts any more, but if a growing company experiences peaks and troughs throughout a 12-month period, as is often inevitable, why should it be lumbered with a lumpy, restrictive repayment schedule from a term loan, for instance?
“Banks who rush to foist invoice finance or term debt facilities on ambitious businesses don’t necessarily have the best interests of the customer at heart.”
He instead urged SME owners to form “sustainable, long-term relationships” with finance providers which have a better understanding of how they run their businesses.