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A worrying number of small businesses believe they do not have enough cash reserves to survive another economic downturn, a study by Forbes Insights in association with ACCA (the Association of Chartered Certified Accountants), Certified General Accountants Association of Canada (CGA-Canada) and CNDCEC, the professional body for certified accountants in Italy, has found.

The study was based on a survey of more than 1,750 small and medium sized enterprises (SMEs) in Canada, China, Italy, Singapore, South Africa, and the UK, with 30% of the sample micro businesses employing fewer than 10 people.

It shows that while most SMEs believed the worst of the recession had past, there was an unexpectedly high number of businesses - between 31% and 54% in each country, including those which have seen high growth and were less affected by the global downturn - who felt they did not have adequate cash reserves to survive another financial crisis.

Those SMEs surveyed said the recession has forced them to become better businesses, and if they take on risk it is only where they can have control. Growing businesses, especially in the more dynamic economies, appear to be facing stiffer competition and rising costs, putting profit margins under pressure.

According to respondents, lenders appear to be directing funds to larger SMEs and big corporations rather than micro and small enterprises. The study also found that credit is being directed away from working capital towards capacity building investments and is increasingly likely to be secured against personal or business assets, while equity investments are drawn to acquisitions and to financing local or international expansion.

As commercial providers of finance have become reluctant to finance working capital, assume customer credit risks or refinance debt, the weight of expectation has shifted to shareholders and trade creditors.

The study found that those businesses that value professional or expert advisers above others have performed better - professional advice has given lean SMEs more confidence about their chances of survival, by ensuring that they have fewer urgent financing needs and better access to credit.

The study urges SMEs to consider factors such as interest rate increases, exchange rate volatility and inflation, when developing business plans and risk management policies.

The study further recommends that businesses explore supply chain finance, whereby large customers provide credit to small suppliers by factoring their own invoices, and governments, commonly the most creditworthy customers of SMEs, should consider similar means of financing their suppliers.

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