Cost pressures facing the small business sector are being ignored by the Treasury, says TERRY MURDEN
Two high profile failures in one week has prompted talk about why emerging companies with seemingly promising futures have been forced to call it a day, and got tongues wagging about who might be next. The latest setbacks may also lead already-hesitant investors to be even more cautious about who gets their money.
Investor hesitancy has been with us for a little while, fuelled by forces in government which are not creating the conditions to back aspiring businesses, made worse by a series of cost pressures that many SMEs, lacking the balance sheet flexibility of bigger companies, simply cannot afford.
On the face of it a pioneering plant-based cocktail drink sounds like the ideal product for an ethical generation that still wants to party. Not so. Panther M*ilk creator Paul Crawford, who had received backing from TV’s Dragons’ Den has struggled with cash flow and was forced to call in a provisional liquidator.
M Squared Lasers, which was making great strides in photonics and quantum technology, also faced cash flow problems. The state-owned Scottish National Investment Bank, which provided more than £30m in loans and other investments, will be lucky to get much of it back.
After recently announcing unrealised, or paper, losses of £77m the bank has been a target of criticism over its investment strategy. That may be harsh. The bank has a remit to take a risk and there is no risk without the possibility that some investments will not work out. However, it is equally the case that such losses can only be tolerated so long as they do not feature regular in media headlines. Unsupportive government policies are not helping investors by pushing more of those emerging companies to the brink of collapse.
The bank’s investment strategists got their fingers burned in the failure of Circularity Scoltand, the organisation set up to run the doomed deposit return scheme. That was largely a self-inflicted and avoidable wound by government ministers. This time, the losses are in the enterprise economy and the hurt will be shared more widely with a Scottish technology sector that has come to believe that everything it touches will turn to gold.
There is certainly no shortage of willing startups and Deputy First Minister and Economy Secretary Kate Forbes has been handing out more cash to support the Scottish Edge pitching scheme. John Swinney once described the initiative as one he was most proud to have supported and it has enabled a series of innovative companies to get ahead.
It’s more of a mixed picture in the food and drink business where consumer taste can be a fickle friend. Panther M*ilk ought to have benefited from an apparent trend for ethical products, in this case a vegan liqueur.
But being different is no guarantee of market share and a failure to get listings in two big supermarket chains contributed to its demise. Timing, therefore, may have been one unforeseen factor.
Interestingly, the food and drink sector has been seen as sufficiently successful that it does not need government support. That may be changing.
With BrewDog struggling to make a profit and losing both of its founders, and Pernod Ricard’s Chivas Brothers adding to a whisky downturn by reporting net sales down 3.4%, it looks like even the sector’s bigger players may be facing a rockier future than we’ve been led to believe.
Common to many of those firms that are failing is cash flow and rising costs. Some are passing these costs on to customers, or taking a big hit to their margins. Either way, it is isn’t a sustainable way forward.
It’s been said many times already, but the one person in a position to alleviate these pressures is the Chancellor Rachel Reeves and on the evidence of her first year in office she doesn’t seem too concerned about the damage she is doing.
Billions are being poured into big ticket projects like airports, railways, supercomputers and untested carbon capture and storage systems. It gives her an opportunity to talk up the “popularity” of the UK among overseas investors.
Meanwhile, those in the engine room – the shops, restaurants, small manufacturers, and so on who make up 99% of the economy – are only seeing higher costs of labour, property and energy. Assistance with these pressures is in short supply. Hospitality and retail leaders are counting job losses in tens of thousands.
So the cost of doing business is heading in one direction and no one in Westminster shows any willingness to change course. The Autumn Budget will soon be upon us and with attention focused on fixing the public finances it’s not likely to offer any significant relief to those trying to make a living running a small business.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business
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