Sector review: Manufacturing

Manufacturing sector review

 

Welcome to the Close Brothers Asset Finance review of the Manufacturing sector. In this article we highlight a wide range of issues relevant to SMEs in this industry. 

The results are based on the Close Brothers Business Barometer (conducted in August 2017), a quarterly survey of close to 1,000 SMEs across the UK and Republic of Ireland conducted by specialist independent researcher, GMI on Close Brothers’ behalf. 

Where relevant, comparisons are made with national sentiment. 

The commentary in this review focuses on: 

  • Economic conditions
  • Where business owners go for financial support and advice
  • Culture of slow payments 
  • Impact of the general election 
  • Customer data and their rights 
  • Apprenticeship schemes 
  • Conducting business online 

 

Economic conditions 

A small majority (57%) of Manufacturing SME business owners expect their business to perform the same as they did in the previous 12 months with 1 in 5 (21%) expecting to expand against 11% seeing contraction. Only 1% say they will close their doors for business. 

As things currently stand, 26% of those surveyed feel business is improving with 13% saying they can see opportunities but can't access the finance to make them happen. 53% feel things are no different to last year while things have become worse for 6% of respondents and a further 2% may be forced to close down. 

“Overall, the manufacturing sector appears to be doing well, with sentiment among SME business owners more positive than the national average, and when compared to other sectors,” said Ian Barker, Managing Director, Manufacturing division at Close Brothers Asset Finance.

“An area of concern is that access to finance is still preventing growth for a large number of businesses despite the large number of funding routes available today.”

 

Where business owners go for financial support and advice

For SMEs in the manufacturing sector, the most popular source of financial support and advice was their accountant (24%) followed by their bank manager (19%). Nationally, friends and family were the first port of call (24%) for businesses and accountants in second place with 21%.  

TABLE: Where do you mainly go for financial support and advice?

 

 

National

Manufacturing

Accountant

21%

24%

Bank Manager

13%

19%

Finance Advisor

15%

18%

Friend/family

24%

17%

Online

16%

13%

Other

7%

4%

Peers

2%

4%

Solicitor/lawyer

2%

4%

 

Culture of slow payments

Manufacturing sector review: slow payments

Close to half (48%) of manufacturing companies are affected by slow payments, compared to the national average of 34%. Another 68% feel that current legislation does not support  SMEs to counteract slow payment by debtors. 

“Not only are firms in our sector affected by slow payments, but 74% of those surveyed feel that there is a culture of slow payments in the UK,” said Ian.

“And over one third of firms (37%) have been forced to seek legal advice because of slow payments.

“The consequences of slow payments are multiple ranging from damage to the supply chain and business reputation to the ability to access further funding. We should also not forget the very real human impact because, in many cases, the ability to pay staff in full and on time is a consequence of late payments.” 

 

Impact of the general election

Manufacturing sector review: election

The majority of manufacturing SMEs (72%) have not noticed an impact on business levels following the recent general election, leaving more than a quarter of respondents (28%) who have been affected.

“Elections can be disruptive and sometimes bring with them an element of uncertainty,” said Ian.

“Some businesses benefit more than others but it appears that for most the effect was negligible this time around.”

Despite the lack of impact on organisations, 72% of manufacturing firms do not think that another election would be good for the UK, with a further 68% going as far as to say that that they have no appetite for another election any time soon. 

“Set against these results is the understanding that 75% of sector SMEs are of the view that the lack of a majority government will hinder the UK when negotiating Brexit,” said Ian. “The prevailing view seems to be that the UK needs to press ahead to end the uncertainty, regardless of the political landscape.”

The number of businesses feeling less confident compared to two years ago (pre-Brexit and general election) stands at 15% compared to 17% who are feeling more buoyant; the remaining 68% feel ‘the same’. 

“Nationally, more businesses are pessimistic than positive (23% v 16%), which says much about the state of the manufacturing sector,” said Ian. “For the most part, there is an air of positivity, as reflected in these figures.” 

 

Customer data and their rights

Manufacturing sector review: GDPR

Only one third of manufacturers truly understand what ‘personal data’ means while 11% answered that they were not; the remaining 56% were unsure of its meaning. 

“Keeping customer data secure is becoming one of the key issues of our times with the new General Data Protection Regulation (GDPR) coming into force in May 2018,” said Ian.

“It’s vital that businesses of all sizes understand the rights customers have when it comes to collecting and utilising their personal information, because currently 38% of SMEs in our sector don’t understand customers’ new extended rights and another 39% don’t have the right levels of permissions to contact their customers under the new requirements of the GDPR.”

More than one in 10 (12%) of manufacturing firms share their customers' personal data with 3rd parties while 17% are ‘unsure’ if they do or not. When asked if they have a process in place to ensure they are collecting data in the correct manner, 46% either did not or were unsure. 

“The GDPR’s definition of personal data makes it clear that even online identifiers, for example an IP address, can be personal data,” explained Ian. “The new definitions provide for a wide range of personal identifiers to constitute personal data, reflecting changes in technology and the way organisations collect information about people.

“This example shows just how detailed the new regulations are going to be and it’s incumbent on business owners to understand what this means to them.”

 

Apprenticeship schemes

Manufacturing sector review: apprenticeships

According to 85% of manufacturing SMEs, apprenticeships are all or part of the solution to the UK's skills gap.

Firm owners also strongly believe that apprenticeships are a viable alternative to university, with 80% of business owners agreeing with the statement ‘apprenticeships are a valuable alternative to university’. 

“Skills shortages have made headline news recently and it’s clearly an issue that SMEs feel very strongly about,” said Ian.

“Many businesses are very concerned about where their next cohort of skilled workers is going to come from and the answer, they feel, is more apprenticeships.”

One in four manufacturing companies has its own apprenticeship scheme while 60% say it’s not right for their firm; the remaining 14% cite lack of affordability as the reason why they don’t have one of their own.  

“Clearly, not every business has a need for an apprentice; however, the fact that for many it’s simply too expensive shows that more needs to be done,” said Ian. “Close Brothers has long been a supporter of apprenticeships, with two schemes currently underway in the manufacturing and transport sectors.”

Nationally, 49% of business owners answered ‘yes’ to the question ‘if assistance was available either from either the government or the private sector, would you participate in an apprenticeship scheme?’. In the manufacturing sector this rose to 59%. 

 

Conducting business online

Over half (55%) of businesses conduct some form of business online with 40% having seen growth in online trade, although in 50% of cases it was limited to less than 20%; 12% of firms saw more than 80% expansion.

“57% of those surveyed felt that online will play an increasing role in coming years,” said Ian. “For many companies, especially those at the smaller end of the spectrum, there will continue to be a reliance on traditional channels to get their product to market.” 

 

About Close Brothers Asset Finance

We offer a range of flexible funding options including hire purchasefinance leaseoperating lease and refinancing to UK SMEs. Contact us today to find out how we can help you. 

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