New research suggests SMEs underestimate their true value

11th May 2015

New research suggests the majority of small and medium-sized businesses in the UK are underestimating their true worth by not taking into account the value of assets such as trademarks, patents and intellectual property.

According to new research conducted by Clydesdale and Yorkshire Banks, only one in four (27%) UK SMEs has ever taken steps to value their non-physical assets. 

As a result, SMEs may not be making the most of growth opportunities as around half of those questioned said they didn’t think their bank, shareholders or other lenders had an accurate understanding of their business’ intangible assets.

A business’ intangible assets are those which are not physical such as copyrights, franchises or brand reputation. They are often created through research and development (R&D) activity.

However, the Banks’ survey also revealed that most businesses seem not to be taking full advantage of government incentives to encourage R&D and fuel business growth.

Fewer than one in six (14%) SMEs has ever accessed government R&D incentives, and only one in five (19%) has a dedicated R&D budget, despite around half (51%) claiming to undertake some form of research and development.

In the last 50 years, the makeup of the UK economy has shifted from being dominated by manufacturing to being service-led. As a result, many businesses have had to invest to bring them a competitive edge. Since 1997, the share of the service sectors’ contribution to the UK economy has increased by 54% to 80%*.

Clydesdale and Yorkshire Banks’ new research suggests SMEs from all sectors could be doing more to innovate by taking advantage of government schemes, or encouraging staff to be more creative.

Only a quarter of SMEs incentivise staff, financially or otherwise, to come up with ideas to improve their business.

Perhaps understandably, the larger the business the more inclined it is to invest time and money in research and development, and have a more accurate understanding of its intangible assets. Businesses which tend to be more active in R&D include IT and manufacturing.

Paul Shephard, Director for Business and Private Banking at Clydesdale and Yorkshire Banks, said:

“The UK economy has changed considerably in the last 50 years in terms of what we produce, and the types of job being created.

“Whether they are a manufacturer in the automotive supply chain, or an IT software developer, it’s vital that businesses have an accurate understanding of the value of their intangible assets and the difference this can make to their business.  They also need to be fully aware of the incentives available to them which are going to drive their business forward.

“With many firms having few or no physical assets it becomes increasingly important they have a full understanding of their business’ true value. Having this knowledge could significantly enhance the possibilities of accessing finance for growth,   with profitability and cash generation, rather than the quality of the asset base, becoming an ever more important consideration for those lending or investing.

“We recognise the issues this research has highlighted, but by investing in our people and the way we support those businesses with intangible assets and strong profits and cash flows, means we continue to bring a genuine challenge in the SME market.”

Clydesdale and Yorkshire Banks has strengthened its support for UK SMEs by becoming the first to partner with the British Business Bank under its ENABLE Guarantees scheme. Up to £125m of new lending by Clydesdale and Yorkshire Bank, guaranteed by the British Business Bank, will help more small businesses achieve their growth ambitions.

This announcement and the Bank’s new research come as it prepares to launch its bi-annual celebration of British businesses. The Bank’s Business Week kicks off tomorrow (Monday 11^th May) and over the course of the week, more than 250 customer-focused events will take place in the Bank’s UK network of business and private banking centres.

Events will focus on areas such as succession planning, improving cashflow and inspiring the next generation of business leaders.

*According to the Office for National Statistics

Opinium Research carried out an online survey of 753 SME Business Decision Makers from 10th to 29th of April 2015. www.opinium.co.uk