Key findings: revenue performance

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2 About the survey In October 2010, Forbes Insights conducted a survey of small and mediumsized enterprises (businesses with 250 or fewer employees) in Canada and five other countries (China, Italy, Singapore, South Africa, and the U.K.). In total, 315 Canadian SMEs participated in the survey, including representative samples of micro businesses (under 10 employees), small businesses (10-49 employees), and medium-sized businesses ( employees). The survey was done in association with the Certified General Accountants Association of Canada (CGA-Canada), the professional association of certified general accountants in Canada; ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants; and CNDCEC, the professional body for certified accountants in Italy. The aggregated findings are available in the study: Small and Medium-Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth. 2

3 Key findings: revenue performance Having made it through the recession, Canadian SMEs were more likely than SMEs in three of the five other countries to experience revenue growth over the past year. Overall, 40% of Canadian SMEs said current revenue was higher than it was a year ago, with medium-sized businesses the most likely to be growing. Looking ahead, 56% of Canadian SMEs expect higher revenue in the next year, 7% anticipate lower revenue, and 37% expect it to stay about the same. Profitability rates follow revenue. Today, 35% of Canadian SMEs said profitability was higher than it was 12 months ago, and 17% said it was lower. Over the next year, 54% expect profitability to be higher, and just 9% see it as lower. 3

4 2% How does your current revenue compare to what it was 12 months ago? Where will it be in 12 months? Today 12 months from now 13% 15% 27% 41% 43% 37% 15% 2% 5% Significantly higher * Higher About the same Lower Significantly lower 0% 100% *Within the survey, the term significantly was defined as an increase or decrease of 20% or more. Canada 13% 27% 43% 15% 2% How does your current revenue compare to what it was 12 months ago? (by country) China Italy Singapore 14% 5% 6% 19% 37% 46% 42% 37% 24% 29% 13% 16% 3% 5% 4% Significantly higher Higher About the same Lower South Africa 10% 21% 31% 28% 10% Significantly lower U.K. 8% 23% 33% 28% 9% 0% 100% 4

5 Key findings: contributors to growth Additional hiring will drive revenue for growing Canadian businesses. More than 30% of SMEs (31%) that anticipate revenue growth over the next 12 months said hiring additional staff would contribute to their growth. That was followed by introducing new products and services (28%), and increased sales of existing products and services (27%). In addition, 30% of mediumsized businesses said an increased online presence will fuel their revenue growth, and 28% said the growth would come from a new corporate ownership structure. 5

6 Hiring addiqonal staff 27% 26% 31% 38% Introducing new products/services 28% 29% 30% 26% Increased sales of exisqng products/services 27% 26% 23% 31% What factors do you believe will contribute to this increase in revenue in the next 12 months? Increased online presence Increasing quality of product or service Strategic partnerships Increased outsourcing 11% 13% 25% 26% 21% 24% 18% 18% 19% 25% 21% 18% 18% 21% 30% 34% Entering new geographical markets (domesqc) 12% 18% 20% 21% Raising addiqonal capital (debt or equity) Entering new geographical markets (internaqonal) New corporate ownership structure 6% 5% 8% 14% 13% 16% 13% 14% 16% 18% 13% 28% Canada SME Total Micro Small Medium 0% 50% 6

7 Key findings: cash flow management Despite rising revenue, cash flow issues are is still a challenge for many Canadian SMEs. Overall, 30% of Canadian SMEs said it was harder to manage cash flow today than it was a year ago, 24% said it was easier, and 44% indicated it was about the same. Canadian micro businesses appeared to be the more susceptible to cash flow challenges; 35% said managing cash flow was harder, and 20% said it was easier. 7

8 2% Canada SME Total 24% 44% 30% Is it easier or harder today to manage your company s cash flow (cash position) than it was 12 months ago? Micro Small 20% 24% 43% 44% 35% 29% 2% 4% Easier About the same Harder Don t know 1% Medium 29% 45% 25% 0% 100% 8

9 Key findings: cash flow challenges Expense control is one of the biggest cash flow challenges Canadian SMEs are facing. While a slowdown for receivables was a primary concern in other countries, Canadian SMEs were more concerned with handling their expenses. Overall, their top three cash flow challenges were higher business expenses (29%), taxes (29%), and difficulty cutting expenses (22%). Mediumsized businesses had a bigger concern than other Canadian SMEs with inventory turns. Micro businesses were more affected by lower revenues. 9

10 Higher business expenses 24% 29% 28% 34% Taxes 29% 28% 30% 27% Difficulty cu^ng expenses 22% 24% 22% 21% What were the greatest cash flow challenges your business faced in past 12 months? Lower revenues Slower paying or non paying customers Slower inventory turns 6% 9% 13% 12% 21% 19% 17% 18% 22% 20% 22% 26% Loss of loyal customers 10% 13% 14% 16% Reduced sales pipeline 11% 12% 10% 11% Canada SME Total Micro Rising interest rates 6% 11% 11% 17% Small Medium Difficulty in securing financing 10% 8% 11% 12% 0% 50% 10

11 Key findings: anxiety about survival A significant number of respondents were anxious that they don t have a strong enough capital position to survive another downturn. Asked whether or not they felt they had adequate cash reserves to weather another financial crisis, 31% of Canadian SMEs said they did not. However, that rate is lower than SMEs in four of the five other countries in the survey. Other findings further highlight their concerns: 65% of Canadian SMEs said their market segment is more competitive than ever 54% were concerned about their company s long-term survival 46% indicated they believe that a lack of capital has hindered their ability to succeed 11

12 We have adequate cash reserves to weather another financial crisis. 16% 43% 10% 21% 10% Please rate your level of agreement with the following statements about your small or medium-sized enterprise. Our market segment is more compeqqve than ever before. I m very concerned about my company s long term survival. 23% 21% 21% 42% 21% 9% 24% 20% 21% 6% Strongly agree Agree Don t know Disagree Strongly disagree Lack of capital has hindered our company s ability to succeed. 16% 30% 11% 34% 9% 0% 100% 12

13 Key findings: growth inhibitors and enablers Competition, financing, and taxes may be hindering Canadian SMEs ability to grow. Survey respondents were asked if different factors inhibited or enabled their prospects for growth over the next two years. Among Canadian SMEs, 44% indicated they believed domestic competition hindered their chances to grow, while just 13% thought it enabled growth; 40% felt availability of financing hindered growth (21% enabled), and 38% said taxes hindered growth (20% enabled). 13

14 DomesQc compeqqon 13% 44% Availability of financing 21% 40% Looking ahead to the next 24 months, what will be the impact of the following factors on your prospects for growth? Taxes Canadian government policies/regulaqons Consumer confidence Availability of qualified staff 20% 29% 24% 27% 26% 34% 38% 43% Hinder growth Enable growth Availability/affordability of technology 26% 30% Past investment decisions 25% 28% 0% 50% 14

15 Key findings: financing performance Even during the height of the recession, most Canadian SMEs that applied for outside financing got most of the capital they required. Overall, 78% of SMEs said they applied for financing over the past 24 months. Of those, 64% said they secured all or most of the funding they sought, 25% said they received some, and 11% received none. 15

16 We secured the full amount 28% Thinking of all your financing needs over the past 24 months, which of the following best describes the outcome for the financing (regardless of type) that you actively sought? We secured most of the finance required We secured only a lible of the finance required 25% 36% We did not secure any of the finance required 11% 0% 50% 16

17 Key findings: access to financing Some Canadian SME respondents said they re starting to see easing of their financing markets, but more see no change. 32% said their ability to secure financing improved over the past year, while 15% said it worsened, and 46% said it remained about the same. The outlook for the next year is even better: 44% of Canadian SMEs anticipate their ability to secure financing will improve. Just 10% expect it to be worse, and 39% foresee no change. 17

18 2% Over the past 12 months, did your company s ability to secure financing improve, worsen or remain the same? How will it be in the next 12 months? Today 12 months from now 8% 11% 24% 33% 46% 39% 13% 7% 6% 4% 7% Significantly improved Improved Remained about the same Worsened Significantly worsened Not seeking financing 0% 100% 18

19 Key findings: debt financing Secured bank loans are the most common form of debt financing Canadian SMEs use today, and that will stay consistent over the next two years. However, a disproportionate number of Canadian businesses today have turned to personal credit cards to fund their operations often a risky substitute when other forms of financing are not available. Overall, the top three forms of debt financing Canadian SMEs use today are secured bank loans (31%), personal credit cards (30%), and business credit cards (28%). Over the next two years, secured bank loans (29%) are expected to be most prevalent, followed by revolving lines of credit (25%), and business credit cards (23%); personal credit cards drop to seventh place at 16%. 19

20 Secured bank loan Personal credit cards 16% 31% 29% 30% Revolving line of credit Business credit cards 23% 25% 28% 28% Types of debt financing used Unsecured bank loan Government grants 15% 19% 22% 24% Trade credit from suppliers Unsecured bank overdrae Secured bank overdrae Loans from friends/family 14% 14% 20% 19% 19% 18% 17% 17% Government loans/credit insurance guarantees Factoring/invoice discounqng Corporate bond issue 17% 15% 16% 15% 14% 14% Today Over next 24 months 0% 40% 20

21 Key findings: goals for financing Canadian SMEs want to use debt and equity financing to hire additional staff. While SMEs in other countries may be looking for working capital, SMEs in Canada are focused on staffing and expansion. In the U.K., for instance, 48% of SMEs said they want to use debt financing for working capital. In Canada, the top three things they expect to use debt financing for over the next two years are: hiring additional staff (25%), domestic expansion (24%), and new technology (24%). Those seeking equity have similar goals. 21

22 Hiring addiqonal staff 25% 31% New technology investment 24% 28% DomesQc expansion 24% 22% Customer financing 17% 23% Looking ahead to the next 24 months, what will you be using financing for? Working capital Expanding manufacturing/service capacity Refinancing exisqng debt 14% 20% 22% 20% 19% 17% Plant and equipment 14% 16% AcquisiQons 14% 17% Debt Foreign expansion 12% 13% Equity Research & development 12% 14% Trade financing 8% 9% 0% 40% 22

23 Key findings: equity financing Medium-sized businesses in Canada are much more likely to consider equity financing than are either small businesses or micro businesses. Looking ahead to the next two years, 33% of medium-sized businesses ( employees) said they plan to seek angel investments, and 29% will seek venture capital or private equity. They plan to use equity primarily for technology investment (41%), hiring additional staff (29%), domestic expansion (27%), and foreign expansion (24%). 23

24 Equity investment from angel investors or similar "informal" investors 9% 14% 33% What kind of equity financing do you plan to seek In the next 24 months? Equity investment from personal income/ savings Equity investment from venture capital or private equity firm ReinvesQng profits in the business 9% 19% 30% 25% 23% 29% 26% 24% 36% Equity investment from friends/family 12% 25% 24% Canada Medium Canada Small IPO or public stock offering 8% 20% 20% Canada Micro 0% 50% New technology investment 41% What will you be using this equity financing for? (medium-sized businesses only) Hiring addiqonal staff DomesQc expansion Foreign expansion Customer financing AcquisiQons Plant and equipment 21% 20% 19% 24% 27% 29% Working capital 19% Research & development 15% Refinancing exisqng debt 11% 0% 50% 24

25 Key findings: lessons learned Canadian SMEs in the survey said the recession essentially forced them to become better businesses. Overall, 64% said they are planning more effectively, and an identical 64% agreed they are smarter today about running their businesses than they were before the recession. 68% said they feel they are in a stronger position today than they were prior to the downturn. 25

26 The recent global recession put addiqonal pressure on our business to plan more effecqvely 21% 43% 10% 18% 8% Please rate your level of agreement with the following statements about your small or medium-sized enterprise. I am smarter about running my business today than I was before the recession 25% 49% 11% 11% 4% Strongly agree Agree Don t know Disagree Strongly disagree Surviving the recent recession made our business stronger 20% 48% 10% 16% 6% 0% 100% 26

27 Key findings: advice profiles Looking at how SMEs use outside advice, four profiles emerged based on an SME s need for confidence in their business decisions and their trust of outside advisors. Community Networkers: Community-based businesses that try to get maximum value from their advice relationships. They work with professionals, and also leverage trade associations and chambers of commerce. Confidence Seekers: SMEs that value advice mostly from highly trusted authorities, gaining confidence from the expert s experience and insight. They also trust the government for advice more than do other SMEs. Skeptics: These SMEs don t find themselves reassured by advice. They are only confident in formally qualified advisors, but may be just as happy not to seek advice at all. Go-It-Aloners: This group takes almost no advice, and they don t go out of their way to find outside counsel. Compared to other countries, Canadian SMEs are more likely to be either Community Networkers or Go-It-Aloners. 27

28 Methodology The information in this report is based on the results of a survey conducted online in October 2010 by Forbes Insights in association with CGA-Canada, ACCA, and CNDCEC. Forbes insights received responses from 315 owners and decision makers at small and medium-sized enterprises in Canada. In total, 1,777 responses were received from SMEs in six countries: Canada, China, Italy, Singapore, South Africa, and the U.K. For purposes of this study, SMEs were defined as businesses having up to 250 employees. The sample included SMEs of three sizes: micro businesses (those with fewer than 10 employees) made up 36% of Canadian respondents; small businesses (10-49 employees) were 35%; and medium businesses ( employees) were 30%. 28

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30 About the survey In October 2010, Forbes Insights conducted a survey of small and mediumsized enterprises (businesses with 250 or fewer employees) in China and five other countries (Canada, Italy, Singapore, South Africa, and the U.K.). In total, 257 Chinese SMEs participated in the survey, including representative samples of micro businesses (under 10 employees), small businesses (10-49 employees), and medium-sized businesses ( employees). The survey was done in association with ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants; the Certified General Accountants Association of Canada (CGA-Canada); and CNDCEC, the professional body for certified accountants in Italy. The aggregated findings are available in the study: Small and Medium-Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth. 30

31 Key findings: revenue performance Chinese SMEs outpaced other SMEs surveyed in revenue growth over the past year, and their future outlook is even brighter. Overall, 60% of Chinese SMEs said current revenue was higher than it was a year ago, 16% indicated revenue was lower, and 24% said it was about the same. Mediumsized businesses were the most likely to have grown 70% said revenue was higher and just 6% said it was lower. Looking ahead, 77% of Chinese SMEs expect higher revenue in the next year, 7% anticipate lower revenue, and 16% expect it to stay about the same. 31

32 How does your current revenue compare to what it was 12 months ago? Where will it be in 12 months? Today 12 months from now 14% 17% 46% 60% 24% 3% 13% 16% 7% Significantly higher * Higher About the same Lower Significantly lower 0% 100% *Within the survey, the term significantly was defined as an increase or decrease of 20% or more. Canada 13% 27% 43% 15% 2% How does your current revenue compare to what it was 12 months ago? (by country) China Italy Singapore 14% 5% 6% 19% 37% 46% 42% 37% 24% 29% 13% 16% 3% 5% 4% Significantly higher Higher About the same Lower South Africa 10% 21% 31% 28% 10% Significantly lower U.K. 8% 23% 33% 28% 9% 0% 100% 32

33 Key findings: top concerns Despite strong growth, SMEs in China are concerned about the battle for customers and more aggressive competition. Asked about their top concerns over the past year, Chinese SMEs, like SMEs in the other countries surveyed, cited finding new customers and prospects (36%). However, it was closely followed by increased competition, cited by 34% of Chinese respondents, and finding and retaining qualified employees, chosen by 30% of Chinese SMEs. 33

34 Finding new customers and prospects 36% Increased compeqqon 34% Finding and retaining qualified employees 30% Over the past 12 months, what have been the top challenges your SME has faced? (select three) Maintaining or maximizing profit margins Economic uncertainty Managing cash flow/maintaining cash posiqon 20% 23% 27% Improving markeqng 17% Finding financing 17% Retaining exisqng customers 16% Determining an appropriate growth strategy 13% 0% 40% 34

35 Key findings: contributors to growth Chinese SMEs are focusing on product/service innovation to fuel their growth next year. Asked what factors they believe will contribute to their increase in revenue over the next 12 months, SME respondents turned to increasing the quality of products/services (53%), introducing new products/ services (52%), and increased sales of sales of existing products/services. In addition to product sales, medium-sized SMEs in China expect growth to come from strategic partnerships and domestic expansion. 35

36 Increasing quality of product or service Introducing new products/services 53% 54% 50% 56% 52% 57% 48% 54% Increased sales of exisqng products/services 40% 40% 38% 43% Strategic partnerships 23% 35% 35% 43% Entering new geographical markets (domesqc) 33% 34% 29% 40% What factors do you believe will contribute to this increase in revenue in the next 12 months? Increased online presence Hiring addiqonal staff Raising addiqonal capital (debt or equity) Entering new geographical markets (internaqonal) 6% 14% 16% 15% 29% 31% 24% 25% 23% 28% 21% 22% 23% 26% 21% 37% New corporate ownership structure Change of locaqon / increasing office size 3% 14% 11% 14% 9% 9% 24% 24% China SME Total Micro Small Increased outsourcing 3% 12% 9% 22% Medium Mergers and acquisiqons 7% 6% 5% 11% 0% 60% 36

37 Key findings: cash flow management For Chinese SMEs, strong growth can signal cash flow concerns. Overall, 31% of Chinese SMEs said it was harder to manage cash flow today than it was a year ago, and 15% said it was easier; 53% indicated it was about the same. Interestingly, Chinese medium-sized businesses are having the more difficult time, with 38% finding cash flow management harder. 37

38 1% China SME Total 15% 53% 31% Is it easier or harder today to manage your company s cash flow (cash position) than it was 12 months ago? Micro Small 18% 16% 51% 57% 29% 27% 2% 1% Easier About the same Harder Don t know Medium 13% 49% 38% 0% 100% 38

39 Key findings: cash flow challenges Higher expenses and slower receivables are putting the greatest strain on cash flow at Chinese SMEs. Asked to select their greatest cash flow challenges over the past year, 40% of all Chinese SMEs cited higher business expenses. Other top cash flow concerns were slower paying or non-paying customers (38%), lower revenue (23%), and difficulty securing financing (21%). 39

40 Higher business expenses 33% 40% 39% 46% Slower paying or non paying customers 34% 38% 39% 43% Lower revenues 9% 23% 28% 33% What were the greatest cash flow challenges your business faced in past 12 months? Difficulty in securing financing Longer sales cycle Slower inventory turns 21% 18% 22% 20% 20% 20% 21% 18% 20% 24% 22% 15% More stringent payment terms from vendors 12% 18% 18% 20% Taxes 15% 13% 15% 20% China SME Total Micro Higher discounqng/charging less 14% 10% 12% 19% Small Medium Loss of loyal customers 12% 11% 10% 16% 0% 50% 40

41 Key findings: anxiety about survival Half of Chinese respondents are anxious that they don t have a strong enough capital position to survive another downturn. Asked whether or not they felt they had adequate cash reserves to weather another financial crisis, 50% of Chinese SMEs said they did not, while 44% agreed they did. Medium-sized businesses appeared the least anxious 58% agreed they had adequate cash reserves to weather another financial crisis. 41

42 We have adequate cash reserves to weather another financial crisis. 6% 38% 6% 42% 8% Strongly agree Agree Don t know Disagree Strongly disagree 0% 100% 42

43 Key findings: financing performance Access to capital for SMEs has been constrained in China 54% of Chinese SMEs said they secured all or most of the finance they sought over the past two years. While Chinese SMEs may be experiencing the most revenue growth, access to capital does not necessarily follow suit; the Chinese banking structure is not as friendly to lending to smaller enterprises. On top of that, the high growth rates of these companies could be pressuring their cash flow. Of those Chinese SMEs that sought financing over the past 24 months, 9% said they secured the full amount, 45% secured most, 35% secured a little, and 11% received none. 43

44 We secured the full amount 9% Thinking of all your financing needs over the past 24 months, which of the following best describes the outcome for the financing (regardless of type) that you actively sought? We secured most of the finance required We secured only a lible of the finance required 35% 45% We did not secure any of the finance required 11% 0% 50% 44

45 Key findings: access to financing Chinese SME respondents see some easing of their financing markets. Overall, 31% said their ability to secure financing improved over the past year, while 18% said it worsened, and 48% said it remained about the same. The outlook for the next year is much more positive: 48% of Chinese SMEs anticipate their ability to secure financing will improve, 11% expect it to be worse, and 38% foresee no change. 45

46 3% Over the past 12 months, did your company s ability to secure financing improve, worsen or remain the same? How will it be in the next 12 months? Today 12 months from now 4% 7% 27% 41% 48% 38% 15% 3% 2% 9% 3% Significantly improved Improved Remained about the same Worsened Significantly worsened Not seeking financing 0% 100% 46

47 Key findings: debt financing When it comes to debt financing, Chinese SMEs today are using secured bank loans, but loans from friends and family are also important. Overall, the top forms of debt financing Chinese SMEs use today are secured bank loans (33%), personal credit cards (26%), unsecured bank loans (24%), and loans from friends/family (22%). Those are also among the main debt vehicles Chinese businesses intend to seek over the next two years, although some may put their personal credit cards away for business credit cards. 47

48 Secured bank loan 33% 32% Personal credit cards 17% 26% Unsecured bank loan Loans from friends/family 20% 22% 21% 24% Types of debt financing used Revolving line of credit Business credit cards 16% 17% 16% 23% Government grants 14% 16% Trade credit from suppliers Unsecured bank overdrae 13% 12% 11% 17% Factoring/invoice discounqng Government loans/credit insurance guarantees 6% 9% 10% 13% Today Over next 24 months Secured bank overdrae 7% 9% Corporate bond issue 6% 8% 0% 40% 48

49 Key findings: goals for financing Chinese SMEs want to use debt and equity financing to build capacity and upgrade their corporate infrastructure. More than half of Chinese respondents (52%) said they plan to use debt financing to expand their manufacturing/service capacity. That was followed by new technology investment (43%), working capital (36%), and plant and equipment (34%). These businesses appear to have little appetite for foreign expansion. Those seeking equity have similar goals. 49

50 Expanding manufacturing/service capacity 52% 58% New technology investment 43% 42% Working capital 36% 38% Looking ahead to the next 24 months, what will you be using financing for? Plant and equipment DomesQc expansion Hiring addiqonal staff Research & development 34% 34% 30% 36% 28% 24% 22% 28% Customer financing 20% 16% Trade financing Refinancing exisqng debt 10% 12% 9% 11% Debt Equity AcquisiQons 8% 14% Foreign expansion 6% 10% 0% 70% 50

51 Key findings: lessons learned Chinese SMEs in the survey said the recession essentially forced them to become better businesses. Overall, 72% said they are planning more effectively, and 80% agree they are smarter today about running their businesses than they were before the recession. 73% feel they are in a stronger position today than they were prior to the downturn. 51

52 3% The recent global recession put addiqonal pressure on our business to plan more effecqvely 9% 63% 5% 20% Please rate your level of agreement with the following statements about your small or medium-sized enterprise. I am smarter about running my business today than I was before the recession 11% 69% 4% 14% 2% Strongly agree Agree Don t know Disagree Strongly Disagree Surviving the recent recession made our business stronger 12% 61% 3% 20% 4% 0% 100% 52

53 Key findings: financial management Looking at how SMEs use outside advice, four profiles emerged based on an SME s need for confidence in their business decisions and their trust of outside advisors. Community Networkers: Community-based businesses that try to get maximum value from their advice relationships. They work with professionals, and also leverage trade associations and chambers of commerce. Confidence Seekers: SMEs that value advice mostly from highly trusted authorities, gaining confidence from the expert s experience and insight. They also trust the government for advice more than do other SMEs. Skeptics: These SMEs don t find themselves reassured by advice. They are only confident in formally qualified advisors, but may be just as happy not to seek advice at all. Go-It-Aloners: This group takes almost no advice, and they don t go out of their way to find outside counsel. Compared to other countries, Chinese SMEs are most likely to be Skeptics. 53

54 Methodology The information in this report is based on the results of a survey conducted online in October 2010 by Forbes Insights in association with ACCA, CGA- Canada and CNDCEC. Forbes insights received responses from 257 owners and decision makers at small and medium-sized enterprises in China. In total, 1,777 responses were received from SMEs in six countries: Canada, China, Italy, Singapore, South Africa, and the U.K. For purposes of this study, SMEs were defined as businesses having up to 250 employees. The sample included SMEs of three sizes: micro businesses (those with fewer than 10 employees) made up 20% of Chinese respondents; small businesses (10-49 employees) were 49%; and medium businesses ( employees) were 31%. 54

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56 About the survey In October 2010, Forbes Insights conducted a survey of small and mediumsized enterprises (businesses with 250 or fewer employees) in Italy and five other countries (Canada, China, Singapore, South Africa, and the U.K.). In total, 266 Italian SMEs participated in the survey, including representative samples of micro businesses (under 10 employees), small businesses (10-49 employees), and medium-sized businesses ( employees). The survey was done in association with CNDCEC, the professional body for certified accountants in Italy; ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants; and the Certified General Accountants Association of Canada (CGA-Canada). The aggregated findings are available in the study: Small and Medium-Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth. 56

57 Key findings: top concerns Financial uncertainty still haunts Italian SMEs. SMEs in other countries appear to be looking toward post-recovery growth, but businesses in Italy may still be battling to get through recent economic turmoil. Asked about their top concerns over the past year, 29% of SMEs in Italy cited economic uncertainty, and 29% also chose finding new customers and prospects. Third on the list of concerns was finding financing (25%). 57

58 Economic uncertainty 29% Finding new customers and prospects 29% Finding financing 25% Maintaining or maximizing profit margins 18% Over the past 12 months, what have been the top challenges your SME has faced? (select three) Retaining exisqng customers Keeping up with technology Determining an appropriate growth strategy Managing cash flow/maintaining cash posiqon Increased compeqqon Improving markeqng 18% 17% 17% 17% 15% 14% Finding and retaining qualified employees 13% Customer service 12% OperaQng with smaller staff 12% Government regulaqons 9% Building brand equity 7% 0% 40% 58

59 Key findings: revenue performance Of the countries in the survey, SMEs in Italy were the least likely to have experienced revenue growth in the past year. Overall, just 24% of Italian SMEs said current revenue was higher than it was a year ago, 34% indicated revenue was lower, and 42% said it was about the same. Medium-sized businesses the least likely to have grown 19% said revenue was higher but 41% said it was lower. Looking ahead, 41% of Italian SMEs expect higher revenue in the next year, 16% anticipate lower revenue, and 43% expect it to stay about the same. 59

60 How does your current revenue compare to what it was 12 months ago? Where will it be in 12 months? Today 12 months from now 5% 4% 19% 37% 42% 43% 29% 15% 5% 1% * Significantly higher Higher About the same Lower Significantly lower 0% 100% *Within the survey, the term significantly was defined as an increase or decrease of 20% or more. Canada 13% 27% 43% 15% 2% How does your current revenue compare to what it was 12 months ago? (by country) China Italy Singapore 14% 5% 6% 19% 37% 46% 42% 37% 24% 29% 13% 16% 3% 5% 4% Significantly higher Higher About the same Lower South Africa 10% 21% 31% 28% 10% Significantly lower U.K. 8% 23% 33% 28% 9% 0% 100% 60

61 Key findings: contributors to growth Italian SMEs that anticipate growth next year believe it will come from product sales and improved quality. Asked what factors they believe will contribute to their increase in revenue over the next 12 months, SME respondents named increased sales of existing products/services (33%), and increasing the quality of their products/services (33%), followed by increased online presence (30%), and strategic partnerships (28%). In addition, 34% of Italian medium-sized enterprises also believe raising additional capital will contribute to future growth, but no Italian micro businesses cited this factor. 61

62 Increasing quality of product or service 23% 30% 33% 71% Increased sales of exisqng products/services 33% 30% 31% 50% Increased online presence 14% 30% 32% 34% What factors do you believe will contribute to this increase in revenue in the next 12 months? Strategic partnerships Introducing new products/services Entering new geographical markets (domesqc) Raising addiqonal capital 0% 7% 21% 24% 13% 22% 18% 20% 17% 28% 30% 29% 34% 34% 34% 43% Entering new geographical markets (internaqonal) 0% 19% 22% 23% Italy SME Total Mergers and acquisiqons 17% 14% 20% 14% Micro Small Hiring addiqonal staff 16% 21% 13% 17% Medium 0% 80% 62

63 Key findings: cash flow management Cash flow issues are a major challenge for many Italian SMEs. Overall, 43% of Italian SMEs said it was harder to manage cash flow today than it was a year ago, and just 12% said it was easier; 44% indicated it was about the same. Italian micro businesses appeared to be the more susceptible to cash flow challenges; 56% said managing cash flow was harder, and only 2% said it was easier. 63

64 Italy SME Total 12% 44% 43% Is it easier or harder today to manage your company s cash flow (cash position) than it was 12 months ago? Micro Small 2% 16% 42% 44% 56% 40% Easier About the same Harder Don t know Medium 14% 46% 39% 0% 100% 64

65 Key findings: cash flow challenges Slow receivables and low revenue are straining cash flow at Italian SMEs. Asked to select their greatest cash flow challenges over the past year, 32% of all Italian SMEs cited slower paying or non-paying customers; that issue was particularly prevalent for micro businesses. Other top cash flow concerns were lower revenue (31%) and taxes (29%). Medium-sized businesses felt that access to credit was impacting their cash flow 22% selected lower credit limits and 19% named difficulty in securing financing. 65

66 Slower paying or non paying customers 29% 26% 32% 52% Lower revenues 31% 28% 32% 36% Taxes 29% 27% 28% 34% What were the greatest cash flow challenges your business faced in past 12 months? Difficulty cu^ng expenses Higher business expenses Lower credit limits 6% 23% 22% 21% 26% 17% 16% 18% 17% 17% 18% 22% Longer sales cycle Rising interest rates Higher discounqng/charging less 6% 15% 18% 13% 16% 14% 18% 14% 14% 10% 17% 14% Italy SME Total Micro Small Medium Difficulty in securing financing 2% 13% 13% 19% 0% 60% 66

67 Key findings: anxiety about survival A significant number of respondents were anxious that they don t have a strong enough capital position to survive another downturn. Asked whether or not they felt they had adequate cash reserves to weather another financial crisis, 45% of Italian SMEs said they did not. Small businesses (10-49 employees) appeared the least anxious 52% agreed they had adequate cash reserves to weather another financial crisis. 67

68 We have adequate cash reserves to weather another financial crisis. 13% 34% 9% 30% 15% Strongly agree Agree Don t know Disagree Strongly disagree 0% 100% 68

69 Key findings: financing performance Even under economic pressure, more than 40% of Italian SMEs said they secured all or most of the finance they sought over the past two years. This rate, however, was lower than other countries, and half that of SMEs in the U.K. Overall, 86% of SMEs in Italy said they applied for financing over the past 24 months. Of those, 12% said they secured the full amount, 32% secured most, 42% secured a little, and 14% received none. 69

70 We secured the full amount 12% Thinking of all your financing needs over the past 24 months, which of the following best describes the outcome for the financing (regardless of type) that you actively sought? We secured most of the finance required We secured only a lible of the finance required 32% 42% We did not secure any of the finance required 14% 0% 50% 70

71 Key findings: access to financing Italian SME respondents said they re seeing little easing of their financing markets. Just 20% said their ability to secure financing improved over the past year, while 35% said it worsened, and 45% said it remained about the same. The outlook for the next year is more positive: 28% of Italian SMEs anticipate their ability to secure financing will improve, 21% expect it to be worse, and 50% foresee no change. 71

72 2% 1% Over the past 12 months, did your company s ability to secure financing improve, worsen or remain the same? How will it be in the next 12 months? Today 12 months from now 18% 4% 24% 45% 50% 29% 6% 1% 18% 3% Significantly improved Improved Remained about the same Worsened Significantly worsened Not seeking financing 0% 100% 72

73 Key findings: debt financing Secured bank loans are the most common form of debt financing Italian SMEs use today, and that will stay consistent over the next two years. Overall, the top forms of debt financing Italian SMEs use today are secured bank loans (39%), business credit cards (28%), secured bank overdraft (27%), and trade credit (25%). Those are also the main debt vehicles Italian businesses intend to seek over the next two years. 73

74 Secured bank loan Business credit cards Secured bank overdrae 29% 28% 26% 27% 24% 39% Trade credit from suppliers 21% 25% Types of debt financing used Personal credit cards Unsecured bank overdrae 18% 19% 18% 24% Factoring/invoice discounqng 18% 20% Unsecured bank loan 11% 18% Revolving line of credit Loans from friends/family 14% 13% 12% 21% Government grants 10% 14% Today Government loans/credit insurance guarantees 10% 15% Over next 24 months Corporate bond issue 8% 9% 0% 50% 74

75 Key findings: goals for financing Italian SMEs want to use debt and equity financing for domestic expansion and new technology. While SMEs in some of the other countries surveyed may be looking for working capital (as 48% of SME respondents in the U.K. indicated), few SMEs in Italy said that is why they are seeking financing. The top three things they expect to use debt financing for over the next two years are: domestic expansion (31%), new technology investment (30%), and expanding capacity (27%). Those seeking equity have similar goals. 75

76 DomesQc expansion 27% 31% New technology investment 30% 30% Expanding manufacturing/service capacity 27% 28% Customer financing 19% 25% Looking ahead to the next 24 months, what will you be using financing for? Refinancing exisqng debt Plant and equipment Hiring addiqonal staff 14% 17% 19% 22% 24% 27% Foreign expansion 17% 20% AcquisiQons 16% 20% Trade financing 12% 15% Debt Equity Research & development 15% 19% Working capital 6% 10% 0% 40% 76

77 Key findings: lessons learned Italian SMEs in the survey said the recession essentially forced them to become better businesses. Overall, 71% said they are planning more effectively, and 57% agree they are smarter today about running their businesses than they were before the recession. 60% feel they are in a stronger position today than they were prior to the downturn. 77

78 The recent global recession put addiqonal pressure on our business to plan more effecqvely 14% 57% 9% 14% 6% Please rate your level of agreement with the following statements about your small or medium-sized enterprise. I am smarter about running my business today than I was before the recession 12% 45% 11% 24% 8% Strongly agree Agree Don t know Disagree Strongly disagree Surviving the recent recession made our business stronger 13% 47% 13% 21% 6% 0% 100% 78

79 Key findings: advice profiles Looking at how SMEs use outside advice, four profiles emerged based on an SME s need for confidence in their business decisions and their trust of outside advisors. Community Networkers: Community-based businesses that try to get maximum value from their advice relationships. They work with professionals, and also leverage trade associations and chambers of commerce. Confidence Seekers: SMEs that value advice mostly from highly trusted authorities, gaining confidence from the expert s experience and insight. They also trust the government for advice more than do other SMEs. Skeptics: These SMEs don t find themselves reassured by advice. They are only confident in formally qualified advisors, but may be just as happy not to seek advice at all. Go-It-Aloners: This group takes almost no advice, and they don t go out of their way to find outside counsel. Compared to other countries, Italian SMEs are more likely to be either Community Networkers or Go-It-Aloners. 79

80 Methodology The information in this report is based on the results of a survey conducted online in October 2010 by Forbes Insights in association with CNDCEC, ACCA, and CGA-Canada. Forbes insights received responses from 266 owners and decision makers at small and medium-sized enterprises in Italy. In total, 1,777 responses were received from SMEs in six countries: Canada, China, Italy, Singapore, South Africa, and the U.K. For purposes of this study, SMEs were defined as businesses having up to 250 employees. The sample included SMEs of three sizes: micro businesses (those with fewer than 10 employees) made up 19% of Italian respondents; small businesses (10-49 employees) were 45%; and medium businesses ( employees) were 36%. 80

81

82 About the survey In October 2010, Forbes Insights conducted a survey of small and mediumsized enterprises (businesses with 250 or fewer employees) in Singapore and five other countries (Canada, China, Italy, South Africa, and the U.K.). In total, 337 Singaporean SMEs participated in the survey, including representative samples of micro businesses (under 10 employees), small businesses (10-49 employees), and medium-sized businesses ( employees). The survey was done in association with ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants; the Certified General Accountants Association of Canada (CGA-Canada); and CNDCEC, the professional body for certified accountants in Italy. The aggregated findings are available in the study: Small and Medium-Sized Enterprises: Rebuilding a Foundation for Post-Recovery Growth. 82

83 Key findings: revenue performance Of all SMEs in the survey, SMEs in Singapore were second only to those in China in revenue growth over the past year, and their future outlook is even brighter. Overall, 43% of Singaporean SMEs said current revenue was higher than it was a year ago, 20% indicated revenue was lower, and 37% said it was about the same. While in other countries most growing SMEs appeared to be unwilling to sacrifice profitability for revenue growth, nearly a third (32%) of the SMEs in Singapore that experienced revenue growth in the past year also saw their profitability fall. Looking ahead, 56% of SMEs in Singapore expect higher revenue in the next year, 7% anticipate lower revenue, and 37% expect it to stay about the same. 83

84 How does your current revenue compare to what it was 12 months ago? Where will it be in 12 months? Today 12 months from now 6% 12% 37% 44% 37% 37% 16% 4% 2% 5% * Significantly higher Higher About the same Lower Significantly lower 0% 100% *Within the survey, the term significantly was defined as an increase or decrease of 20% or more. Canada 13% 27% 43% 15% 2% How does your current revenue compare to what it was 12 months ago? (by country) China Italy Singapore 14% 5% 6% 19% 37% 46% 42% 37% 24% 29% 13% 16% 3% 5% 4% Significantly higher Higher About the same Lower South Africa 10% 21% 31% 28% 10% Significantly lower U.K. 8% 23% 33% 28% 9% 0% 100% 84

85 Key findings: top concerns Despite growth, SMEs in Singapore are concerned about the economy and its impact on margins. Asked about their top concerns over the past year, Singaporean SMEs, cited economic uncertainty (26%), increased competition (25%), maintaining/maximizing profit margins (25%), and finding new customers and prospects (25%). Micro businesses (with fewer than 10 employees) were the most concerned with their customer pipeline. 85

86 Economic uncertainty 26% Finding new customers and prospects 25% Maintaining or maximizing profit margins 25% Over the past 12 months, what have been the top challenges your SME has faced? (select three) Increased compeqqon Managing cash flow/maintaining cash posiqon Finding and retaining qualified employees 18% 19% 25% OperaQng with smaller staff 15% Retaining exisqng customers 15% Customer service 14% Finding financing 14% 0% 30% 86

87 Key findings: contributors to growth Product/service innovation will fuel growth for Singaporean SMEs next year. Asked what factors they believe will contribute to their increase in revenue over the next 12 months, respondents turned to introducing new products/services (43%), increased sales of sales of existing products/ services (43%), and increasing quality of products/services (35%). In addition to innovation, medium-sized SMEs in Singapore expect growth to come from strategic partnerships, and international expansion (not a surprise given the small geographic footprint of Singapore). 87

88 What factors do you believe will contribute to this increase in revenue in the next 12 months? Increased sales of exisqng products/services Introducing new products/services Increasing quality of product or service Strategic partnerships Hiring addiqonal staff Increased online presence Entering new geographical markets (internaqonal) Increased outsourcing Entering new geographical markets (domesqc) Raising addiqonal capital (debt or equity) Mergers and acquisiqons New corporate ownership structure Change of locaqon / increasing office size 28% 43% 43% 43% 32% 47% 50% 28% 35% 35% 41% 24% 34% 38% 40% 23% 27% 30% 27% 27% 26% 27% 28% 17% 25% 24% 32% 15% 24% 27% 27% 19% 23% 24% 25% 13% 19% Singapore SME Total 19% 23% Micro 6% 11% 15% 27% Small 4% 13% Medium 11% 22% 9% 8% 6% 15% 56% 0% 60% 88

89 Key findings: cash flow management For Singaporean SMEs, solid growth can also signal cash flow concerns. Overall, 32% of SMEs in Singapore said it was harder to manage cash flow today than it was a year ago, and 17% said it was easier; 48% indicated it was about the same. 89

90 Singapore SME Total 17% 48% 32% 3% Is it easier or harder today to manage your company s cash flow (cash position) than it was 12 months ago? Micro Small 16% 16% 47% 48% 34% 35% 3% 2% Easier About the same Harder Don t know Medium 19% 49% 28% 4% 0% 100% 90

91 Key findings: cash flow challenges Higher expenses and slower receivables are putting the greatest strain on cash flow at SMEs in Singapore. Asked to select their greatest cash flow challenges over the past year, 32% of all Singaporean SMEs cited higher business expenses. Other top cash flow concerns were slower paying or nonpaying customers (25%), difficulty cutting expenses (22%), and lower revenue (22%). Trade credit issues in the form of more stringent terms from vendors affected the cash flow of medium-sized enterprises in Singapore. 91

92 Higher business expenses 24% 32% 33% 40% Slower paying or non paying customers 25% 24% 23% 30% Lower revenues 22% 25% 20% 21% What were the greatest cash flow challenges your business faced in past 12 months? Difficulty cu^ng expenses Higher discounqng/charging less Taxes 22% 21% 24% 21% 17% 16% 17% 18% 16% 15% 16% 17% More stringent payment terms from vendors 10% 11% 16% 24% Reduced sales pipeline 15% 17% 16% 12% Singapore SME Total Micro Loss of loyal customers 10% 15% 18% 15% Small Medium Longer sales cycle 11% 15% 15% 20% 0% 50% 92

93 Key findings: anxiety about survival Respondents in Singapore are less anxious that they don t have a strong enough capital position to survive another downturn. While SMEs in China, Italy, and South Africa are particularly concerned about their cash reserves, SMEs in Singapore appear less so. Asked whether or not they felt they had adequate cash reserves to weather another financial crisis, 63% of Singaporean SMEs agreed that they did, while 30% believed they did not. 93

94 We have adequate cash reserves to weather another financial crisis. 11% 52% 7% 23% 7% Strongly agree Agree Don t know Disagree Strongly disagree 0% 100% 94

95 Key findings: financing performance Even during the recession, SMEs in Singapore appear to have gotten the financing they sought. Overall, 86% of Singaporean SMEs sought financing over the past 24 months. Despite tighter global financing markets, the vast majority was successful in getting all or most of what they wanted. Of those Singaporean SMEs that sought financing over the past 24 months, 16% said they secured the full amount, 56% secured most, 22% secured a little, and 6% received none. 95

96 We secured the full amount 16% Thinking of all your financing needs over the past 24 months, which of the following best describes the outcome for the financing (regardless of type) that you actively sought? We secured most of the finance required We secured only a lible of the finance required 22% 56% We did not secure any of the finance required 6% 0% 60% 96

97 Key findings: access to financing Singaporean SME respondents see easing of their financing markets. Overall, 35% said their ability to secure financing improved over the past year, while 12% said it worsened, and 49% said it remained about the same. The outlook for the next year is more positive: 49% of Singaporean SMEs anticipate their ability to secure financing will improve, 9% expect it to be worse, and 38% foresee no change. 97

98 2% Over the past 12 months, did your company s ability to secure financing improve, worsen or remain the same? How will it be in the next 12 months? Today 12 months from now 5% 7% 30% 42% 49% 38% 10% 4% 2% 7% 4% Significantly improved Improved Remained about the same Worsened Significantly worsened Not seeking financing 0% 100% 98

99 Key findings: debt financing When it comes to debt financing, SMEs in Singapore today are using secured bank loans, but trade credit is also important. Overall, the top forms of debt financing Singaporean SMEs use today are secured bank loans (36%), business credit cards (29%), and trade credit from suppliers (27%). Those are also among the main debt vehicles they intend to seek over the next two years, although more anticipate seeking government grants. 99

100 Secured bank loan 36% 41% Business credit cards Trade credit from suppliers 29% 27% 27% 27% Personal credit cards 19% 24% Types of debt financing used Secured bank overdrae Government grants 21% 23% 26% 29% Unsecured bank loan 19% 19% Factoring/invoice discounqng 18% 18% Revolving line of credit 16% 20% Loans from friends/family 13% 16% Corporate bond issue Government loans/credit insurance guarantees 12% 11% 15% 19% Today Over next 24 months Unsecured bank overdrae 9% 17% 0% 50% 100