A government report says this is the Golden Age for small businesses in the UK.
The report on the small business sector between 2010 and 2015 says there are now 5.2 million small businesses in the country, an increase of 760,000 since 2010.
Small firms now account for 48 per cent of private sector employment, and the Global Entrepreneurship and Development Institute ranks the UK as the most entrepreneurial country in Europe – placing us fourth in the world.
There are some interesting trends revealed by the report compiled by Lord Young, the former secretary of state for trade and industry.
The boom in small businesses is being driven by technology – but only a third of firms are fully exploiting the opportunities
In his report, Lord Young says a business can now be set up using little more than smartphone.
He says: “Technology is having a transformative effect on small business to trade, raise finance, export, market and network. Effective use of technology and the internet can lower business costs by making processes more efficient and automated, and allow businesses to reach more customers.”
Yet, he says, only 1.6 million (less than a third) of small firms actively trade online. So the potential for the expansion of the technology in the sector is huge.
Research in 2012 by Booz & Co suggested the internet represents a £19 billion opportunity for small firms and the UK.
However, infrastructure problems are holding back small businesses. Not all businesses have fast connections to the internet, and in 2012 a BIS small business survey found 8 per cent of businesses had no internet connection at all.
In 2013, the government launched a £100 million Broadband Connection Vouchers scheme to offer small firms a grant of up to £3000 to cover the cost of getting superfast broadband installed in their premises. So far, 7000 small firms have benefitted.
Another dampener to growth is the fact some firms simply cannot see the opportunities digital technology affords them, the report says.
A number of small firms have been combatting the technology gap by accessing digital expertise using the government’s Growth Vouchers scheme, which partners small companies with those with expertise in the fields they need.
Small businesses are becoming “inadvertent exporters” thanks to the internet
Overseas customers are spotting UK small business websites on the net and buying their goods.
Lord Young says: “In Growing Your Business, I reported that 25 per cent of PayPal’s activity in the UK comes from overseas trading. 81 per cent of SMEs (small and medium sized enterprises) on eBay export to five or more countries. Last year, eBay launched a new initiative to support UK businesses to sell overseas by allowing them to create a shop for other eBay sites across Europe.”
The importance of women entrepreneurs is growing
By the end of 2014, the government had lent £131 million to 25,000 businesses in start-up loans, supporting 33,000 jobs in under three years.
Here’s the interesting part – 37 per cent of those businesses were led by women, compared to an overall business figure of 20 per cent.
Young people are more prepared than ever to start their own businesses
Lord Young writes: “Particularly encouraging is the incredible entrepreneurial spirit amongst young people. This has been intensifying since 2010 and it is now the case that those aged 18 to 24 are almost twice as likely as older age groups to say they intend to start a business in the next three years.”
The rise of home-based businesses continues
The report says that in 2013 there were 2.9 million home-based businesses, an increase of nearly half a million since 2010. They contribute £300 billion to the economy. (SOURCE: BIS small business survey and business population estimates)
Lord Young says: “Today, knowledge based or service businesses do not require large amounts of space, and even small, artisan craft or food businesses can be run from a well-equipped kitchen. Once you might have been concerned about presenting a professional image or worried about giving customers your home address, today there are now many ‘virtual offices’ that provide these home-based businesses with a credible business identity.”
More people than ever, particularly the young, want to set up a social enterprise
Lord Young says: “Since 2010, there has been an increase in the number of social enterprises, from 240,000 to 300,000 and they now account for nearly 6 per cent of small firms, although 15 per cent of SMEs report they have a social mission.”
The National association of College and University Entrepreneurs (NaCUE) says that interest from its members in starting a social enterprise is noticeably increasing, and last year 19 per cent of their members were involved in founding a social enterprise.
New mum Gemma Roe set up her social enterprise Rotunda Living – building roundhouses from wood – in 2012.
She says in the report: “It allows us to put our profits into woodland regeneration and conservation projects in the UK – in keeping with our enthusiasm for human well-being and the natural world, we have a very strong environmental philosophy and are striving to provide a much needed boost to our British woodlands.”
Late payments and red tape are putting small firms off applying for public sector contracts
In 2010 only 6.5 per cent of the value of central government procurement spend – a quarter of a billion pounds – went to SMEs.
Lord Young writes; “Small firms told us that excessive bureaucracy through the use of Pre-Qualification Questionnaires (PQQs) had made access almost impenetrable; contract opportunities were too hard to find; and late payment not only impaired a supplier’s access to working capital but also discouraged them and others from competing for and delivering future public sector business. These impediments also pointed to a fourth issue, that small firms reported little means of recourse available to them when they were treated poorly by a public procurer or as a sub-contractor in a public procurement supply chain.”
Lord Young says central government should lead by example and stamp out late payments.
Sometimes, single contracts are so large that small businesses cannot compete. Some local authorities are tackling this by splitting up contracts to create a level playing field for small firms.
Ludlow butcher Andrew Francis is quoted in the report. He won a contract to supply a small area of Shropshire as part of a larger contract for Shropshire Council, and now provides fresh meat and sausages for schools in the south of the county. This happened after the council split its single contract into smaller ones, meaning smaller businesses could compete.
He says: “The contract has been fantastic for the business, increasing turnover year-on-year. I have increased my staff from five people to eleven. We have also had extra business from word-of-mouth recommendations, with parents coming into the shop having seen what they provide for children’s school meals.”
Small businesses are still having issues accessing bank financing
Lord Young says: “While it is encouraging that gross lending to SMEs is a third higher in 2014 when compared to the same period in 2011, issues still remain. Net lending to SMEs remains near zero as small firms continue to pay down their debts.”
He says the new British Business Bank is starting to address the issue.
“In 2014, Government announced a new British Business Bank, designed to unlock finance to small business, from a greater number of providers, through a wider range of products. I am impressed by its early progress including the way in which it has been able to attract additional private sector investment alongside public funds to increase finance available to small businesses. This has generated £890 million of new lending and investment to smaller businesses in the 12 months to end September 2014 and 71 per cent of support is being channelled through new, emerging or smaller finance providers.”
Read the full report here.
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