Scottish SMEs are underestimating their true value -Clydesdale

New research carried out by Glasgow-based Clydesdale Bank suggests that the majority of small and medium-sized businesses in Scotland 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 Bank, only about one in three (34 per cent) Scottish 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 almost half (49 per cent) 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.

Only 13 per cent of Scottish SMEs have ever accessed government R&D incentives, and only one in five (20%) has a dedicated R&D budget, despite around half (53 per cent) 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.

According to official data, since 1997, the share of the service sectors’ contribution to the UK economy has increased by 54 per cent to 80 per cent.

Clydesdale Bank’s 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 27 per cent of Scottish 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.

Alastair Christmas, regional director for business and Private Banking at Clydesdale Bank, in Scotland 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.”

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 11th 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, including Glasgow, Edinburgh, Aberdeen and the Highlands and Islands.

Events will focus on areas such as succession planning, improving cashflow and inspiring the next generation of business leaders. Sessions being held in Scotland include advice on how to access finance from senior industry figures, an audience with women’s curling captain Eve Muirhead and an insight into recruiting young people by charity WorkingRite.