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SMEs Steve Godfrey of Auditel considers the Importance of SMEs to the Future British Economy There are 5.4 million businesses in the UK. 99% of them are SMEs, defined as a business with less than 50 staff.

Quick SME Glossary Some useful terms you may hear in the business world and what they actually mean! Acquisition Taking ownership. Frequently paired with Mergers – as in Mergers and Acquisitions. Amortisation The cost recovery system for intangible property. Angel Investor Individuals who back emerging entrepreneurial ventures . Business Incubator Provides workspace, coaching, and support services to entrepreneurs and early-stage businesses. www.nwes.org.uk Due-Diligence The investigative process of obtaining accurate information, which may influence the outcome of a transaction. EBITDA A company’s earnings before interest, taxes, depreciation, and amortisation. Entrepreneur A person who organises, operates, and assumes the risk for a business venture. Joint Venture A legal entity created by two or more businesses joining together. Venture Capital (VC) Form of financing for a company in which the business gives up partial ownership and control of the business.

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SMEs employ 60% of all private sector employees and contribute 47% of private sector turnover. 95% of UK businesses are micro-businesses with less than 10 staff and yet they employ one-third of all UK workers. SMEs create new jobs. Between 2008 and 2013 85% of new jobs were created by SMEs. UK SMEs also work hard. According to a recent survey commissioned by Bizdaq, many small business owners work 50.5 hours per week against a UK average of 37 hours. Some work 60 or even 80 hour weeks. 87% of business owners with children under 18 are not taking a holiday this year. 28% feel that the pressures of running a business have negatively affected their health. There is a geographic divide. One-third of all UK businesses are located in London or the South East. For example – the South East has 878,000 businesses, but the North East has just 136,000. This disparity looks likely to increase. The future for small businesses is uncertain. The UK all-sector PMI index (Purchasing Managers’ Index) measures a range of indicators from private sector companies such as new orders, production/inventory levels and staff headcount. It is at its lowest level since 2009. UK SMEs contain fewer high-growth firms than other major European economies. Whilst the UK can boast a record number of start-ups, many of these are micro businesses created for reasons of personal independence or lifestyle and with no intention to grow. Moreover only 20%-30% of start-ups survive a decade and most (75%) never grow beyond 5 employees. The UK economy is shrinking at its fastest rate since the 2009 crash, and unless this trend is reversed the future looks worrying.

So where could GDP growth come from? A Goldman Sachs study sought to identify the areas in which SMEs could usefully improve. They identified three main weaknesses - a lack of innovation, low productivity and a reluctance to export. UK SMEs lag behind our European neighbours for innovation ranking 24th out of 34 countries. We also lag our G8 peers in productivity. UK productivity – GDP earned per hour worked – was climbing until 2008 and now trails G8 averages by 6%. Only 1 in 5 UK SMEs ever export, and only 17% of those do so frequently. The ‘UK Small Business Survey’ of 2012 identified a group of potential exporters who have the characteristics of typical exporters. Goldman Sachs estimates that 9%-12% of current non-exporting SMEs could start to export, and if done regularly this would add £1.15 bln to our GDP. Access to capital is a frequent barrier to prospective exporters however – most of those that have taken the leap find that the extra revenues and opportunities more than justify the initial outlay. And if one of the unwelcome repercussions of Brexit is to trigger an exodus of large employers from the UK, we will rely more than ever on entrepreneurial SMEs to pay the bills. If you would like to contact the author please e-mail

steven.godfrey@auditel.co.uk


Stories Magazine for Harlow and District Chamber of Commerce