Small firms still power the North East economy
Apr 16 2010 by Simon Armstrong, The Journal
THE small business sector has often been described as the engine of the British economy – and the one which will help drive the UK out of recession and back to sustained growth.
More than half of the UK’s turnover is generated by the country’s 4.8 million small firms, of which three million are run by sole traders.
The figures, from the Federation of Small Businesses (FSB), show the number of small firms leapt from an estimated four million in 2003 and more than 500,000 people start up their own business every year. More than two million people run their businesses from home.
Around 95% of the firms in the sector employ fewer than five people and 97% employ fewer than 20 people, although almost 60% of the country’s private-sector staff are employed by a small or medium-sized firm.
The sector also attracts some pretty creative people, with more than six out of 10 commercial innovations generated by small firms.
Over the past few years, there has been growing recognition of the value of small enterprises to the economy and their role pulling the country out of the economic doldrums.
One of the key issues facing the sector and putting the brakes on expansion has been access of finance.
As the recession kicked in, higher lending rates or difficulties in securing cash to grow were widely reported as problems that were blocking small firms from reaching their full potential.
In his last Budget before the general election, Chancellor Alistair Darling pledged £94bn of funding for businesses through the partially state- owned RBS/ Lloyds Banking Group – and said half of this would be earmarked for the small business sector.
Small businesses have risen up the agenda of all the main political parties as they have to offer some hope to firms suffering badly from more than two years of economic slowdown. Although it obviously remains to be seen who holds the balance of power and which of these promises will be realised, there is undoubtedly a consciousness that the needs of SMEs must be recognised.
And some policies, such as Labour’s plans to raise National Insurance, and the repercussions of the tax or having to raise funds elsewhere, will have a serious effect on votes.
The sector has also highlighted continued cash-flow problems caused by the late payment culture.
Although Labour says that if it wins the election it plans to process Government payments within five days, it is impossible to secure similar promises across the board.
Despite these promises, Simon Hanson, the FSB’s North East policy officer, said small firms were still struggling in a number of areas.
“The number-one issue is bank lending which is still a problem and the other is the National Insurance rise that is due to come in next year.
“There are also some concerns that VAT may go up to 20% post-election ... and it might also include some items that are now subject to VAT at the moment,” he said. “It’s the tax system itself – a lot of our members would like to see that simplified.
“And late payment is still a problem, particularly from the public sector. That has a wide impact on cash flow.”
However, he said the economic downturn had not put the brakes on entrepreneurs starting up their own businesses in the region.
Many people who have been made redundant during the downturn have decided to invest their pay-offs into starting their own business rather than putting their future in someone else’s hands.
Buying into franchises – where the business idea is already proven and usually comes with support from the parent company – has also proved popular.
This is a trend which has happened in previous recessions when there have been heavy redundancies and high unemployment statistics.
“We’ve seen a lot of people take the plunge in the recession,” said Mr Hanson. “During a recession is one of the best times to start a business – there are lower costs, better opportunities and the chance to be prepared for when we come out of the recession.”
The Royal Mail, sponsor of this year’s small business category, deals with around 88% of small and medium- sized businesses on a daily basis.
It has a range of products available to help enterprises in this sector grow. They include information and advice on issues such as how to create mailshots to customers, buying postage online to save time and details about an overnight parts delivery service.
It has also launched a Partners for Growth campaign aimed at small and medium-sized businesses, which offers free, individual growth packs.
The pack includes advice and case studies about how the Royal Mail has worked with other companies to help them to expand.
There is a wide variety of help and advice available across the region for people who are considering starting their own business.
These range from pre-start-up work shops covering issues from research and drawing up the initial business plan, to help in expanding and developing an enterprise.
The downturn has not put the brakes on entrepreneurs starting up their own businesses
