ISSUES
: Business and Trade
Chapter 1: Business today
4
Growing pains for UK SMEs
Micro-businesses flourish, as proportion of high-growth companies falls.
Ö
Ö
New
generation
of
‘micropreneurs’
changes
landscape of UK business
economy.
Ö
Ö
UK adds 1.4 million micro firms
(up 43%) to business landscape
since 2000.
Ö
Ö
Zero-employee firms
1
are the
fastest-growing business size
category since 2007, up 21.4
per cent.
Ö
Ö
The proportion of high-growth
companies
2
fell by more than
20 per cent since 2005.
Ö
Ö
High-growth
expected
to
recover, but businesses need
more government support.
UK businesses are increasingly
micro in size,
3
while the proportion
of high-growth companies has
fallen considerably in recent years,
causing a drag on economic
development potential, according
to new research from RSA, the UK’s
largest commercial insurer. High-
growth companies are defined as
those achieving on average 20 per
cent annual growth in employment
for three consecutive years.
The new study,
Growing Pains
,
which examines the shape of the UK
business economy and the biggest
barriers to achieving growth, is
based on in-depth analysis of the
latest economic data and opinion
research among small business
owners and managers. While the
high proportion of SMEs in the UK
is well documented, the research
found that micro-sized businesses
are the only size category to have
grown their proportion of the
UK business stock since 2000 –
compared with small, medium and
large-sized businesses – rising
sharply by 1.4 million or 43 per cent.
What looks like an increase in
entrepreneurship is actually a new
generation of ‘micropreneurs’ or
sole traders. When looking at more
detailed size band information, the
number of zero-employee firms has
increased by 21.4 per cent since the
recession, making this the fastest
growing business size category
analysed.
According to the study, turnover per
worker climbs steadily in line with
employee numbers, with companies
employing 250–499 people yielding
the highest turnover per employee
(£186,100 on average). Therefore,
helping more businesses to grow
should reap greater economic
benefit.
David Swigciski, SME Trading
Director at RSA, comments: “The
UK has long been regarded as a
great place to start a business,
but the recent recession has
had a significant impact on
the business economy, with
companies becoming smaller in
size. Unfortunately, continuing
along this road isn’t an option if we
want a sustained recovery from the
economic downturn.
“Getting back on track and
strengthening
the
economic
recovery is a case of redressing
the balance between start-ups
and growth. This can be done by
encouraging investment in growth
and helping – as well as ensuring
– SMEs reach their full growth
potential.”
Growing pains
Since 2005, the share of firms that
were classified as high-growth
plummeted across all geographical
regions except London. The decline
was greatest in Wales, where
the proportion of high-growth
businesses fell by more than half,
and Scotland, where it was down
by more than a third.
Worryingly, medium-sized firms
were more likely to have become
small (16.5%) than large (3.6%)
between 2008 and the latest
available records (2011), with 79.9
per cent remaining as medium in
terms of their employee numbers.
Looking ahead to 2017, the number
of high-growth enterprises is
expected to recover as a result of
improving economic conditions.
However, the proportion of
businesses that are classified as
high-growth is expected to remain
below 2005 levels in all regions
except London, which will continue
to outperform the rest of the UK.
The research found that two-thirds
(64%) of small business owners
describe themselves as ambitious,
with large differences throughout
the country. The most ambitious
businesses are found in Wales
(80%) while the least ambitious are
based in Scotland (45%).
Despite this general optimism, a
third (34%) of small business owners
admit that it is getting harder, not
easier, to grow against a backdrop
of uncertainty around interest
rates, and in the lead up to the 2015
General Election. Two-thirds (66%)
say the Government must do more
to de-risk business growth, rising to
80 per cent in London and the South
East. A further three-quarters (73%)
say the Government must make it
easier for SMEs to access the right
information and support for growth,
Small and medium-sized enterprises
(SMEs) are made up of enterprises which
employ fewer than 250 persons and which
have an annual turnover not exceeding
50 million euro, and/or an annual balance
sheet total not exceeding 43 million euro.
