This is according to research conducted by one of the Principality’s leading commercial business finance companies.
According to NGM Business Finance (NGMBF), the biggest area where SMEs are losing out relates to their office or commercial premises. As many as one in three companies that belong to the 150,000-strong SME community in Wales – particularly those that have been trading for less than five years – are opting to rent property rather than buy. This area alone could be costing every SME in Wales up to £2,000 a year. The cost to the small business communtity en masse is a staggering £100m annually (please refer to Notes to Editors).
Other areas that require a degree of belt tightening are the purchasing of computer and office equipment, when a leasing or hire purchase arrangement will often save money and be more tax efficient. NGMBF believes as much as £15m a year could be saved by the SME community in Wales if it adopted a more efficient approach to financial management.
Many companies are also spending excessive amounts on company cars – preferring to own the cars outright rather than acquire them on a fixed term leasing arrangement. NGMBF believes a further £10m could be saved by SMEs taking a more long-term view on the structure of their financial arrangements.
“Small businesses need to be more careful than any other sector of the business community when it comes to spending money,” commented Clive Smithyman, head of commercial lending at NGMBF. “Every pound that is spent really has to add some value to the business. Our research shows that this rule isn’t being applied in Wales.”
NGM’s conclusions were formed after an analysis of the finances of 1,500 businesses who have submitted applications for commercial funding during 2004.
“Many of the businesses we ran the rule over cited poor knowledge and not having enough time to thoroughly investigate the best deals available to them, as the main reasons for failing to address their financial situation,” added Clive Smithyman.
“For instance, many companies told us that they thought they wouldn’t qualify for a commercial mortgage because they had not been trading for three years. The reality is that a business can get finance to buy a commercial building after only 12 months of trading – thus ensuring they start to build an asset base sooner rather than later.
“Many companies that bought cars for their senior personnel did so on the basis that purchasing was a cheaper option than contract hire or leasing. However, the companies concerned failed to take into account gross depreciation of the vehicle when they entered into this arrangement.
“The end result was that a firm may have saved £9,000 over a three year period by choosing to buy a Mercedes executive saloon, however, once the depreciation on the car had been taken into account, the businesses could actually looking at a nett loss of some £14,000.”
All of the companies surveyed were based in Wales, with 200 based in Cardiff and the remainder being located in Aberystwyth, Swansea, Wrexham, Bangor and Merthyr Tydfil.
