How The Recession Has Impacted British Entrepreneurs

From a British point of view the recession has caused a massive negative knock-on effect for every business and potential start-up business in the UK. And it all comes down to cash flow and acceptable risks.

Prior to the typhoon-like effects of this current recession, entrepreneurs in the UK followed the age-old path of developing a business idea, comparing the risks to the potential rewards and then deciding whether or not to start up a new business. In every venture the single most important hurdle to overcome is convincing financial backers of some kind to invest in, or lend money to the budding entrepreneur to start his venture with. Cash really is king just ask any bank that didn’t have any.

To start with, the UK is a lot more risk-averse in business to the United States for example. So the British entrepreneur is already facing an uphill battle to raise start-up capital for his or her venture. Then, suppose they are successful at raising funds early stage businesses almost always need financial support of some kind for the first few years, until the business starts to make a profit. Cash has to be there to allow the business to function, and there usually isn’t enough of it in the early years. This cash could be in the form of bank overdrafts, loans or credit accounts from key suppliers. And this is the way that small start-ups have grown into sustainable businesses.

However, this recession has changed the way people do business with each other. Small businesses in particular have been badly hurt due to the amount of goodwill and understanding that their size necessitates they rely on. As soon as the banks were forced to admit they were in trouble they started to call in any outstanding loans from suppliers, as well as shortening their length of credit terms to the same suppliers. These businesses often had previously agreed terms of 90 days credit cut to 30 days, or even zero. This forced suppliers to do the same to their customers. New start-ups were now in the position of not having any stock to sell until they had obtained more cash to clear their accounts with. If no credit could be obtained to do this with big problems soon ensued. Goodwill and understanding were withdrawn overnight.

And so on it has gone over the last two years Woolworths, MFI, Zavvi, and dozens of other well known retailers have all crumbled. And contrary to certain reports fed into the media by government sources, there is pretty much no chance of a start-up business being able to raise capital along traditional routes. Can you imagine what this does to the psyche of UK entrepreneurs? If it was hard to start a successful business in the UK before the recession, what viable chance is there of surviving more than two or three years in today’s climate? And that is if sufficient capital can be raised in the first place. The risk-to-reward ratio is simply far too skewed towards failure to make entrepreneurship a viable career option for the vast majority of perfectly capable people.

Aside from the mechanics of the whole process of starting and running a new business needing to be updated, it is going to take a huge sustained effort involving real tangible initiatives that can be seen to support UK entrepreneurs for entrepreneurship to really take off in the UK. There is plenty of media spin from the government, but real help is still only going to financial institutes and other massive conglomerates that should really already be self-sufficient. Until enterprise is seen as a tool to combat growing unemployment, entrepreneurial opportunities for your average citizen in the UK will carry on being destroyed before they are built.