British small businesses have dug in their heels against a tide of market pessimism.

Far from being defeatist, the industry remains confident about sales and profit growth for the year ahead, according to the second NatWest and RBS Small Business Monitor.

Whilst the issue of CGT reforms have loomed over small businesses for months, research shows this clearly wasn’t their Number One concern.

Steve Pateman, chief executive of NatWest and RBS Business Banking, pointed out that there was no knee-jerk reaction to sell businesses to avoid proposed tax increases but that entrepreneurs had prioritised the issues within their control instead.

“Staying ahead of the competition remains the chief concern ahead of Government legislation and red tape,” he added.

Confident about performance

Optimism for performance growth runs across small business with over a third (36 per cent) expecting sales to increase (despite only 16 per cent seeing a rise in 2007).

Across the sectors confidence is greatest in hotel, restaurant and construction, with more than half in each expecting higher sales.

Uplift is also expected for profit margins, whilst 16 per cent actually experienced a fall last year, 13 per cent are confident of a rise this year despite market scepticism.

Whilst agriculture, health/social care and wholesaling expect a tougher 2008 a percentage still expect sales and profit growth in each of these sectors.

Scottish businesses are most optimistic about profit margins, selling prices and operating costs for 2008.

Scottish entrepreneurs are 15 per cent more likely than the rest of the UK to expect an improvement on last year’s selling prices.

They are almost twice as likely to expect operating costs to fall (13 per cent compared to 7 per cent) and 40 per cent expect higher profit margins (36 per cent in UK).

More welcome good news for the economy is that 10 per cent of all small businesses surveyed in Britain expect to take on more staff, quite a shift from the one per cent who reported job creation in 2007.

Challenges faced

Whilst historically red tape has been a chief concern for those running a small business, for the second time in this survey, competition has been cited as their chief concern.

Pateman called it encouraging that businesses continue to be concerned about problems they can actually do something about.

“This displays good business sense on their part, no business can afford to take their eye off the competition,” he said.

Reaction to CGT reforms

Small businesses were surveyed at a time when those worth under £1 million faced significantly higher taxes when selling up.

Whilst much was written about the impact on the industry there was certainly no rush to sell up, in fact only 7 per cent were planning to sell to escape higher tax.  

Whilst the news sent nothing more than a ripple across the industry as a whole, waves were seen in certain sectors, namely hotels where almost 1 in 4 (23 per cent) were planning to sell their business as a result, followed by transport and communications (12 for both).

Pateman said his firms provide support to over a million small businesses, of which the Dragon’s Den type of serial entrepreneurs who see their business as a golden goose are a minority.

“Most are in it for the long haul and view their business as their livelihood, so it’s no surprise there was little reaction to sell in response to the proposed CGT reforms,” he added.

Britain’s entrepreneurial flare lives on

This survey has shown yet again that Britain’s entrepreneurial spirit is alive and kicking, NatWest and RBS said.

They pointed out that finding and acting on a potential market opportunity still remains one of the main reasons for starting up (increasing to 19 per cent), evidence that the entrepreneurial spirit is alive and well. 

The sectors attracting most new business in this opportunist way are healthcare and social work (30 per cent) and property (27 per cent).

Again this remains second only to the desire to have control over ones own destiny as a motivation for starting up (21 per cent).

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