Having officially moved out of recession in the last quarter of 2009, the UK, according to recent Bank of England (BoE) forecasts, will experience continued GDP growth in 2010 as a result of the substantial easing in monetary policy, as well as an increased level of demand for UK exports after the fall in the value of the pound. As business activity increases, a number of opportunities for growth are likely for nursery operators this year.
However, before we get too carried away, it is also worth pointing out that any recovery is expected to be fragile. In its recent Inflation report, the BoE also highlighted that the need to strengthen public and private finances will put considerable pressures on spending, while the availability of credit is also expected to continue to be restricted. While it is true that overall lending to businesses declined during 2009, the BoE has also recently conducted a credit conditions survey which suggests conditions had improved across the market in the latter part of the year.
The uncertainty about the strength of the recovery means that nursery operators should have an increased focus on risk management when planning for growth. In 2009 we saw some businesses review their financing structures, both on the back of mixed trading results and more prudent approaches to risk. Indeed, some businesses made a conscious decision to deleverage, that is to say, reduce the level of loans on their balance sheets, while others decided to raise funds for growth through equity instead of debt. The best approach will depend on the relative benefits and costs of raising capital though various sources, as well as your risk appetite and current balance sheet position.
Loan pricing has been perceived in some quarters as being a barrier to growth. However, 2009 actually saw significantly lower borrowing rates due to the substantial fall in base rates. Despite today's uncertainty, businesses that are able to demonstrate strong financial performance and a history of acceptable account behaviour should continue to be in a position to secure funding on competitive terms.
