13 Jul 2009

New research suggests the recession has levelled out for small businesses

Small businesses are now more optimistic about their immediate sales prospects, according to the latest Quarterly Survey of Small Business in Britain by The Open University Business School in association with Barclays Bank and ACCA. While 49% of small firms reported that sales were down over the year, most notably in manufacturing and construction, fewer firms now expect to cut employment, and 62% of small firms have not changed employment levels over this past year.

Almost half of respondents, especially those employing more than five people, now aim to expand over the next three years. Within this group, 34% have seen an increase in sales over the past year showing resistance against the generally poor performance of the economy as a whole.

The biggest improvements are for hotels and restaurants (up from -20% to +27%) and retail (up from -27% to +23%). However while construction does not appear to be suffering as much as in 1991/92, it is the sector with the greatest net cuts as it saw a 30% cut in employment, 20% cut in investment and a 20% drop in selling prices.

Professor Colin Gray, professor of Enterprise Development a The Open University Business School said “During the 25 years of conducting these surveys we’ve seen an impressive resilience in small business owners. They’re motivated not so much by a desire to make money but more by a desire to be their own boss and be responsible for directing their own small enterprise.

These second quarter results show the mood of UK small businesses as one of cautious optimism. The decline appears to have slowed and may be levelling out and points to small businesses having a very different experience of recession.”

But the last three years have been hard for entrepreneurs. More than one third (37%) are now setting modest growth targets, and 32% aim to keep their business at its present size, but 48% firms run by women report that they are more often content to remain at their present size.

Across the UK, reasons for starting up small businesses vary: in the South West and in Scotland were motivated by the desire to work for themselves; London businesses were likelier to start an up feeling they had no alterative or to avoid unemployment; and respondents in the North East and North West were mainly motivated by money.

In the previous survey, small firms in Yorkshire and Humberside and the West Midlands reported the worse sales performance. In this survey these are the only two regions to show an improvement. This is still significantly down from last year.

61% of small firms reported the ‘economic climate or fall in demand’ as the biggest factor affecting their businesses. 33% said cashflow, payments or debtors was an issue while 31% said Government regulations were the biggest problem.

The survey of 848 small business respondents was carried out by the enterprise research team at the Open University Business School with sponsorship by Barclays Bank and ACCA (Association of Chartered Certified Accountants). It was based on questionnaires and interviews with SMEs in the second quarter of 2009.

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