What is the outlook for small businesses in 2012?

It's no secret that the government is committed to helping small businesses grow. David Cameron has been out and about in the first few weeks of 2012 making sure everyone knows what the coalition is doing to help small businesses and to drive investment. So what can small business owners expect to see in 2012?

Cameron's buzz-word for the year ahead is 'tax cuts'. Increasing spending to stimulate the economy is out of the question, he says, but tax cuts and low interest rates will help to improve the situation for small business owners this year. Speaking to business owners in Berkshire in January, the Prime Minister said that his priority will be to keep taxes low to stimulate spending.

In addition, corporation tax will be reduced in stages from 26p to 23p, which he says will help small businesses, while keeping larger corporations on the straight and narrow when it comes to filing accurate tax returns.

Although there is obviously still a fair amount of concern among the small business community, some of whom are struggling under the pressure of drops in consumer spending, Cameron insists the situation is not as bad as it may appear. In fact, he claims that much of the consumer spending drop is down to a lack of confidence rather than a lack of spare cash.

The same goes for businesses, added Cameron. Many of them have built up large cash piles, but are unwilling to spend due to the volatility of the markets. Clive Lewis of the Institute of Chartered Accountants agreed. He commented: “Many companies are hoarding cash because of the uncertain trading environment. This limits capital expenditure and taking on employees.”

However, the expectation among analysts, including John Walker of the Federation of Small Businesses, is that inflation rates should start to ease in 2012, which will start to ease the pressure on overheads, improving conditions for small businesses.

The Prime Minister went on to outline some of the other measures the government is undertaking to help incentivise start-ups and small business in the UK. He detailed the plan to ensure that money invested by a small business into start-ups in 2012 is tax-free. “I think I am right in saying that you will keep more of your capital, your profit, if you start up a business in Britain than if you start up one in Silicon Valley,” explained Cameron.

Changes to employment laws, which have, in the past, made it difficult for small firms to grow and take on staff without the fear of costly tribunals, should help to boost confidence and reduce costs for small businesses, claimed Cameron. The government is extending the unfair dismissal threshold to two years, which should prevent many opportunistic cases going to court.

The “health and safety monster” is also being dealt with, according to the prime minister's speech. He said that there would be fewer regulations on the reporting of accidents, as well as the introduction of caps on lawyers’ fees in small claims cases.

All these measures show that the government is on the side of small businesses in 2012. Let's face it, they have to be, as nurturing small businesses is one of the very best ways to get the economy growing again. But aside from what the government is doing, what other factors are likely to impact the small business market this year?

Growth and opportunity
Both of these factors could come into play in 2012 and successful small business owners will position themselves to make the most of both.

According to Jeremy Cook, an economist at World First who spoke to This Is Money about the outlook for the year ahead, there will be some slight growth in the economy over the year. He explained: “We expect growth to be timid in the final quarter [of] 2011 and fall in the first quarter of 2012 of about 0.2 per cent. However, the slow grind higher will restart as we head towards the summer.”

Analysts were also very keen to point out the opportunities presenting themselves in emerging markets. Small businesses that export their goods and services to these growth markets are onto a good thing, according to Mr Lewis who explained that although the key market that is Europe could be spending less in the first half of 2012, the market outside Europe, including the US, South America and China, “is looking more positive”.

So where is the real money to be made in 2012?
In terms of buying a small business, it's hard to deny that retail, restaurant and pub units are in healthy supply and are priced well after a run of administrations in 2011. These offer great opportunities to the right buyers. Retail pop-up shops are proving a huge hit with customers and brands alike. Run almost as test stores, these short-term lets are a great way to experiment and find what works before buying a larger retail premises from which to work.

There are also several niche growth markets that savvy entrepreneurs are moving into this year. Small technology businesses are homing in on the demand for streamed media, which has gone from strength-to-strength in light of faster internet connections.

Meanwhile, the market for mobile payments is also booming, with a number of small businesses offering m-commerce solutions. The sector saw sales double in 2011 and they are expected to quadruple within just three years.

Overall, 2012 will be another tough year, but things are looking up for small businesses. The government's commitment to making conditions easier for small firms to grow means that this year is a great time to invest in small businesses. Investors will make the most of tax breaks and what has the potential to be an exciting and more prosperous year for the UK.

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