General
17 Feb 2009

Small firms in London hardest hit by economic downturn

Small firms in London are bearing the brunt of the economic downturn more than their counterparts in the North East, according to new research by The Open University Business School. The Quarterly Survey of Small Business in Britain, sponsored by Barclays Bank and the Finance and Leasing Association, found small firms are hardest hit, but sales of medium sized firms (more than 50 employees) are holding up.

Colin Gray, Professor of Enterprise Development, said: “Our survey found that small retailers in London responded to the crunch by cutting employment, while those in the East Midlands and East of England reverted to cutting investment. The construction and agriculture sectors also reduced investment, while wholesalers reverted to slashing prices.”

The outlook was slightly better for the hotel and restaurant sector, which reported slightly better performance than in previous surveys. Small business service firms also report marginally better performance than the previous survey and are the only sector where more firms have recruited extra staff than cut the numbers they employ.

Health, education, leisure and other personal services fared best in terms of sales performance and investment, although they still reported a net loss of staff.

Most businesses cited the current economic climate and demand as their biggest concern, followed by cash flow, payments or debtors and government legislation.

Small firms are often financed mainly by the owner and retained earnings. Fewer than half had external loans, and of these, bank finance was the main source of funds. The survey also found that small firms are usually owed more by their customers than they owe to their suppliers. Small firms needed extra capital over the past year to manage cash flow or bad debts rather than to fund growth, though many have still continued to invest.

A copy of the survey can be purchased by contacting Julie Sullivan, Tel: 01908 655831 or Email: OUBS-enterprise@open.ac.uk

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