More than half of the UK's entrepreneurs are relying on working
capital to stay afloat, according to a survey by business advisory
firm Deloitte.
Fifty-three per cent of entrepreneurs believe funding for major
business projects during the next 12 months is most likely to come
from their operational cash flow, compared to 36 per cent last
year.
The survey also shows that, despite tougher lending conditions,
entrepreneurs continue to rely on banks as a major source of
funding (18.5 per cent), followed by existing shareholders (10.4
per cent).
Just 12 per cent said external investment from private equity
(4.6 per cent), venture capital (3.8 per cent) and angel investors
(3.8 per cent) would be the most likely source of cash over the
next 12 months, down from 28 per cent in 2008.
Ashley Hollinshead, who heads up the entrepreneurial business
practice at Deloitte in Birmingham, said: "Just two years ago, the
overarching theme for many entrepreneurs was growth and planning
for an exit to private equity or corporate buyers, or planning for
flotation on the stock markets.
"But this survey reveals that current business conditions have
created an alarming reliance on working capital at a time when more
than a quarter of entrepreneurs say they are having to monitor
their cash position daily.
"With entrepreneurial businesses looking to strengthen their
balance sheets, the market is ripe for investment from cash rich
private equity groups looking for businesses that are certain to
see renewed growth.
"Given the fall off in the mergers and acquisitions market and
the drop in valuation multiples, many entrepreneurs have shelved
their M&A plans.
"Instead their prime focus is on strengthening the operational
performance of their business to emerge as 'winners' from the
recession and this requires investment.
"For many businesses this investment will come from internal
resources but for some, external capital will be required. The
survey shows nearly a third of entrepreneurs say banks have reduced
their lending facilities, a dramatic change from two years ago.
This represents an opportunity for private equity to invest in
ambitious entrepreneurs."