Britain’s small business success story is being held back by red tape and growing pains
More than a quarter of start-ups forgo expansion plans because of the difficulties in accessing finance, Matthew Caines reports
Fast, agile and lean are three words that SMES often use to describe themselves. These are the secret ingredients, they say, that enable them to disrupt markets, take on the big players, and innovate and expand at speed. Except that they’re not, because many are currently suffering from growing pains.
Drawing on interviews with 500 small and medium-sized enterprise directors in England, a study by the British Business Bank found one in three wanted to grow their operation, but were unsure how. Awareness or knowledge of alternative finance was a key factor, with only 5pc of companies quizzed having considered early-stage equity investment and 7pc having thought about crowdfunding via websites such as Kickstarter.
“Many small business owners find it hard to identify or are simply unaware of the right type of finance to help realise their growth plans,” says Graeme Fisher, managing director of the Government’s economic development bank, which supports SMES in finding and accessing finance. “It’s fair to say that the financial landscape can be complex, daunting and hard to understand.”
It’s difficult and complicated enough that even for a sector with bundles of persistence and problemsolving ability, some are simply giving up – according to the study, 27pc of smaller firms that did not get the finance that they wanted cancelled their growth plans.
The image of ignorant SMES not sure of where to go and throwing in the towel is not one that chimes with the aspirations of government. At the Conservative Party conference this week, Theresa May declared that the party believes in businesses large and small and would back them to create jobs, build prosperity and drive innovation. The idea that SMES should be seen as the “engine room” or “heart” of the economy are regular winners of buzz-phrase bingo on the business event circuit.
Smaller firms are a big, beating heart worth backing; the country’s 5.7m SMES account for 99.9pc of all private sector companies, according to the most up-to-date figures from the Department for Business, Innovation and Skills. In 2017, they employed more than 16m people (a quarter of the population) and boasted a combined annual turnover of £1.9 trillion.
Yet this small company colossus is prone to stumbling.
Amelia Harvey, co-founder of yogurt brand The Collective UK, says most companies begin to stagger roughly two years in, when its products or services have taken off, but more people and money are required to lift growth.
“That’s where the crossroads start forming around what funding to take and how to spend it,” she says. “Too little and you’re all over the place, with team members trying to do lots of different things, but too much and you become strangled,” she explains.
The reality, however, is that SMES are struggling with staff. Only one-infour companies with fewer than 50 employees have someone in charge of finances who is qualified enough, according to another study of 4,500 business owners produced by BVA BDRC, a consultancy.
Mike Cherry, chairman of the Federation of Small Businesses (FSB), says that skills shortages are one of the biggest barriers to future growth for its members. “With employment at a record high and the supply of talent from the EU increasingly restricted, we need to see those furthest from the labour market – ex-forces personnel, the long-term unemployed and those with disabilities – brought into our workplaces.”
Bringing in “all-rounders” who can do a combination of sales, marketing, tech, management and operations will also mean that smaller firms are less stifled, thinks Chieu Cao, who used the approach to scale his employee benefits company, Perkbox, to more than 250 employees and a turnover of £34.7m last year. Staff specialised as it evolved, which avoided a scenario where it had too many senior marketers or product developers.
But underpinning all of these issues is bureaucracy and red tape – the hours upon hours of administration and form-filling that 18pc of SME owners questioned by BVA BDRC’S Finance Monitor said was a “major obstacle” to their business. Tax returns and reliefs, employment contracts, pensions auto-enrolment, and health and safety assessments are cited as headaches for smaller firms. The FSB estimates that the average small enterprise spends 70 hours a month on such tasks – precious time that could be spent on growth plans.
Harvey adds business banking to the list. “I remember being on hold for hours when we managed to lock ourselves out of our online account,” she says, explaining that had she been sent to the right department initially, a chat would have got her back on track.
‘Many small business owners find it hard to identify or are simply unaware of the right type of finance to help realise their growth plans’
Caption italic caption At the Conservative Party conference last week, Theresa May said the party would back businesses large and small to create jobs
Saurav Chopra, left, and Chieu Cao, co-founders of employee benefits company Perkbox, said bringing in “all-rounders” who can carry out a combination of jobs is helpful for SMES