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L ifting the Barriers to Growth in UK Small Businesses

L ifting the Barriers to Growth in UK Small Businesses. S ara Carter Colin Mason Stephen Tagg. T he FSB Biennial Membership Survey 2006. P resentation. P roject methodology Profile of businesses Characteristics of business owners Markets and customers

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L ifting the Barriers to Growth in UK Small Businesses

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  1. Lifting the Barriers to Growth in UK Small Businesses Sara Carter Colin Mason Stephen Tagg The FSB Biennial Membership Survey 2006

  2. Presentation • Project methodology • Profile of businesses • Characteristics of business owners • Markets and customers • Finance: turnover, banking and income • Employment and the workplace • E-commerce • Business advice and services • Legislation, transport and environment • Incidence and cost of crime • Conclusions

  3. Project methodology • Analysis of current business issues and longitudinal data of small business sector • Fourth biennial survey of FSB membership (2000 - 2006) • Postal questionnaires to 169,418 of the FSB membership, September 2005 • Internet & non-English language completion • 18,939 responses (11%)

  4. Project methodology • Responses drawn from all regions and sectors • Consistency in regional and sector response over time • Regional distribution broadly similar to VAT-registered businesses • Sector distribution broadly similar to VAT registered businesses • Differences between regions in mix of industries

  5. Profile of businesses • Business Age • Median age 6-20 years (44%) • New and mature businesses • 5% under 1 year, 19% 1-3 years 8% 30+ years • Legal status • 48% limited liability companies, 33% sole traders, 17% partnerships • VAT registration • 77% registered for VAT, 21% not registered • Home-based businesses • 33% of businesses operate from home

  6. Business growth • Objectives • 49% expand moderately, 10% grow rapidly, 24% remain about the same size • 6% sell, 4% downsize/consolidate, 2% hand on to a successor, 1% close down • Methods to achieve growth • Improve sales and marketing capabilities • Reduce costs • Investing in growth • London businesses dominate in almost all categories • Reasons for downsizing • age and ill-health • burden of regulation • adverse economic conditions

  7. Characteristics of Business Owners • Age of owner • 7% 22-34, 34% 45-59, 30% 55-64 • Gender • 14% Wholly / majority female-owned, 53% Wholly / majority male-owned, 33% Male-female co-owned • No growth in female business ownership • Education • 28% degree or higher level qualification, 26% professional qualifications • Prior Employment Experience • 65% in employment (FT or PT) • 41% 3-5 jobs • 15% in self-employment (FT or PT) • 60% 10+ years work experience

  8. Business ownership • Business entry • 73% started from scratch 14% bought going concern, 5% inherited • Serial entrepreneurship • 48% previously owned business • 52% no prior experience of business ownership • Portfolio entrepreneurship • 26% own more than one business • Additional income sources • 66% main business is only source of income • One third have other income sources • Family involvement • 38% co-owned with spouse, 26% co-managed with spouse • Hours worked • 30% work 41-50 hrs, 27% work 51-60 hrs, 22% work in 60+ hours

  9. Markets & customers • Competitive strengths • 61% Product/service quality • 58% Reputation • 56% Customer service • Geographical markets • 78% sell to local markets • 67% sell to regional markets • 58% serve UK wide markets • Only 30% derive >50% of sales from UK wide markets • Export sales • 21% sell to EU • 17% sell to non-EU Europe • 17% sell to rest of world • London – highest proportion of exporting businesses • YH and NE - lowest proportion of exporting businesses

  10. Public Sector markets • Direct supply • 24% sell to Local Authorities, 19% to schools, 16% to tertiary education, 10% to NHS • 7% to Police/Fire Service, 4% to MoD, 6% to central government • 2% to devolved governments, 1% to EU • Indirect supply • 8% L.A.s, 7% Schools, 7% Universities and colleges • 7% MoD, 6% NHS, 6% central government departments • Pre-bid accreditation • 8% had undergone pre-bid accreditation to supply the public sector • 5% have ISO 9000 (mainly manufacturing); 3% have IIP (mainly services), 9% have sector-specific standard • Barriers to public sector supply • 24% “too complicated and time consuming” • 22% “too small to bid”

  11. Finance: turnover, banking & income • Sales Turnover • 10% have sales of under £25,000 • 65% have sales turnover under £250,000 • Smallest more likely to be: 100% female owned, sole traders, not registered for VAT, home-based, recent start-ups, with few employees and in the service sector • Largest more likely to be: male majority owned, Manufacturing and Construction, limited liability, longer established • Turnover growth • 55% increased, 26% decreased • Positive balance of +28 (cf. +24 in 2004) • Profitability • 46% increased, 31% decreased • Positive balance of +15 (cf. +20 in 2004) • Income • 35% gone up, 28% gone down • Positive balance of +7

  12. Sources of finance • Most common sources • 49% Bank overdraft, 41% own savings, 35% retained profits, 30% bank loan • Other personal sources • 21% personal credit card, 7% second mortgage, 4% inheritance, other business/employment, pension, 3% redundancy payment • Infrequent sources • 0.3% Venture Capital, 1% business angels, 2% SFLGS

  13. Sources of finance • Local banking facilities • 78% stress importance of a local banking facility • Youngest (< 1 year) and oldest (>30 years) businesses and those with 5-9 employees most likely to emphasise the need for local banking facilities • 74% need local banking facilities to deposit cash, cheques, etc • 9% to maintain good relationships

  14. Bank loan approval and rejection Loan application rate • 24% made one loan application and 5% made more than one application Loan approval rate • 91% approved for only/most recent application Most likely to apply for loan • Young businesses (1-5 years) and largest businesses (£250k turnover, 100+ employees) Least likely to apply for loan • Older businesses (>20 years), smallest businesses, female 100% owned

  15. Bank loan approval and rejection Most likely to be approved • Older businesses (>10 years old), bigger businesses (50+ employees; £1m+ turnover) Least likely to be approved • Youngest businesses (<3 years), smallest (<£50k, 0-4 employees) Fear of rejection • 10% of businesses had not sought a bank loan because of fear of rejection Most likely to be deterred • Youngest (0-2 years), smallest (<£50k turnover, 0-4 employees), 100% female owned

  16. Risks and Rewards • Personal Financial Risk • 54% less than 25% of household wealth invested in the business • 27% have over half their household wealth invested in their business (14% over 75%) • Consequences of business becoming insolvent • 11% lose everything – become bankrupt • 34% basic survival under threat • 44% scale down standard of living • 11% unaffected • Financial standing • 37% worse off as business owners • 41% better off as business owners • Quality of life • 48% better quality of life • 31% worse quality of life

  17. Employment and the workplace • Current employment • 92,000 f/t, 69,000 p/t, 29,000 casual/seasonal, 24,000 temporary • 214,000 employees, 142,000 FTEs • Total FSB membership employment • 1.9m (1.3m FTEs), of which 800,000 are full-time • Small businesses • 6% have no FT employees • 27% have 1 FT employee (the owner) • 13% have 10 or more FT employees • 33% have 10 or more employees, including PT, temporary, casual, agency, etc

  18. Employment and the workplace • Growing businesses • 54% employ more than two years ago • Strongest growth in NI, EM; most declining businesses in L & WM • 40% expect to increase employment in the next year (10% definitely), 8% expect decline

  19. Recruitment, skills and training • 32% report skill shortages amongst existing staff • Managerial, advanced IT, sales & marketing, technical • London businesses encounter the greatest skill shortages – both recruiting and amongst existing staff • A quarter report skill shortages when recruiting • Technical and generic (literacy /numeracy / communication) • Training • 76% undertake (mostly informal) training • More would train if grants (52%), financial compensation for workers being trained (37%) available • Report need for better information, advice and guidance (23%) and tailored training packages (19%)

  20. Impact of Employment Legislation • National Minimum Wage up-rate • 21% of businesses with (>1) employee have up-rated • 12% of total employment up-rated • Impacts on wage bill (18% increase), loss in profitability(13%) and increase in prices (13%) • 5% anticipate it will lead to decline in their employment • Health and Safety • 79% of small business owners responsible for H&S matters • Smoking prohibited by 73% of businesses; 25% believe ban beneficial; 4% believe ban detrimental

  21. Impact of Employment Legislation • Employment legislation • Maternity Leave, Paternity Leave, Working Time Directive, Disability Discrimination Act, fewer than 10% of businesses report negative effects • Employment Tribunals • 3% of businesses affected in past two years • 56% settled out of court • Businesses won twice as many cases as they lost • 0.5% of businesses have lost an Employment Tribunal case

  22. E-commerce • Limited take-up • 18% sell on line, 20% buy on line, 6% buy and 5% sell on Ebay • Hotels and Restaurants most involved in e-commerce • Smallest, youngest businesses slightly more likely to trade on-line, including e-Bay • Most businesses derive <10% of sales on-line; <1% of ‘pure’ internet businesses • 24% attracted new UK customers, 5% attracted new o/s customers • Barriers to e-commerce • Relevance: 37% ‘not appropriate for my business’ • Cost: 24% high costs to develop and maintain web site; • Risk of credit card fraud (19%), but only 6% have experienced credit card fraud

  23. Business Advice & Services • Main sources of advice • 51% accountants, 27% solicitors, 17% family, 16% other business owners, 15% customers, 9% banks, 4% government funded business support • Change since 2004 • Reduction in use of all sources of business advice • Accountants from 74% to 51% • Banks from 34% to 9% • Family stayed at 17% • Satisfaction with business advice • Most respondents satisfied or very satisfied with the advice they received • Accountants generated the highest level of satisfaction • Satisfaction with advice from banks is more mixed • Satisfaction is linked to usage – when businesses seek advice from a particular source they are generally satisfied

  24. Government Funded Business Support Services • Reasons for non-usage • Lack of awareness (26%) • Confusion over service provision (16%) • Services inappropriate for my business (13%) • My business is too small (11%) • Previous usage (8%) • Business is excluded from target coverage (8%) • Better advice from elsewhere (7%) • Factors that would encourage greater use • Better information about service provision (34%) • More useful advice (24%) • Better advice targeted at business needs (25%) • Better quality of business advisors (21%) • More sector specific products/services (15%) • Confidence in advice from publicly funded advice (12%) • Better signposting (11%) • Improved quality of service(10%)

  25. Legislation, Transport and Environment Legislative issues • High levels of dissatisfaction: • Complexity, volume, cost of compliance, rate of change • Lower levels of dissatisfaction: • Enforcement regime, inspection regime • Age and size effect: • Dissatisfaction increases incrementally with age and size of business • Growth in past 2 years: • 56% report increase in time spent on legislation, <1% report decrease • The older the business the higher the proportion of owners who report increased time on legislation • Sector effect: • Financial Services and Hotels and Restaurants most likely to report dissatisfaction, most likely to report increase in time spent on legislation

  26. Legislation, Transport and Environment Transport • High levels of dissatisfaction: • Fuel costs (73%), increase on 2004 level (66%) • Road infrastructure (50%) • Local transport planning (46%) • Congestion charges (28%) • Road tolls (27%) • Passenger transport (22%) • Traffic congestion • 15% of businesses lost over 100 working hours last year • 28% of businesses lost over 50 working hours last year • 40% not affected – no loss of time • 8% lost over £5,000 in revenue last year • 50% not affected – no loss of revenue

  27. Legislation, Transport and Environment Environment • Waste disposal • Recycling centres for paper (30%), packaging (28%) and electronic/electrical (21%) waste • Kerbside recycling for paper (17%) and packaging (11%) • 52% still use everyday rubbish collection • Substantial regional variations in waste disposal – reflecting regional variations in recycling facilities • Encouraging compliance • General concern for the environment (49%) • Clear information about government requirements (43%) • Information on cost savings (40%) • Pressure from customers (39%) • Least cited: voluntary code of conduct (20%)

  28. Incidence and Cost of Crime • Incidence of crime • 57% businesses experienced crime at least once in the past year • Vehicle damage (18%), vehicle theft (16%), threatening behaviour/intimidation (15%) and vandalism (14%) • Crime most likely to be experienced by bigger businesses (over 50 employees, over £1m turnover • Crime highest in urban areas, lowest in rural areas • Cost of crime • 38% negligible, 16% up to £250, 11% £250-£500 • 10% £500 - £1,000, 10% £1,000 - £4,999

  29. Incidence and Cost of Crime • Reporting of crime • 40% of businesses which experienced crime did not report it • Reasons for low reporting • 75% ‘Would not achieve anything’ • 47% Police would not be able to catch the criminals/bring a successful prosecution • 38% ‘Police not interested’ • Responses • Only a minority have taken any actions to prevent crime • 49% installed or upgraded security • Effective anti-crime measures • 49% more visible police presence, 45% faster police response, 37% tougher sentencing • ASBOs (14% effective) • Business Watch (17% effective)

  30. Conclusions • A third of businesses are home-based • Well educated business owners • A cadre of serial and portfolio entrepreneurs • The role of public sector markets • Bank loan refusals and fear of rejection • Financial standing & quality of life • Financial risk & exposure • Employment contribution of small firms • Size and age impact of legislation • Widespread experience of crime

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