Is the age of small businesses ending?
A GROWING divide is emerging between the fortunes of the UK’s large and small businesses. While UK Plc has seen strong profits and is sitting on record high cash piles, life has been harder for small businesses and entrepreneurs.
According to a survey from the National Endowment for Science, Technology and the Arts (Nesta), venture capital has been hit by a slump in funding, which is threatening the prospects for start-up companies. This only added to the misery after news that Aim, the exchange for smaller companies, saw 15 companies drop out of the index in June and only one company join.
So what is fuelling the gulf between small and large firms? Garrath Marshall, director of entrepreneurial business at Deloitte, says that larger firms were able to react quickly to changing conditions during the downturn, which has left them well-placed to benefit during the recovery. However, small businesses are less adept at reacting so quickly. “Entrepreneurs can be closer to their businesses, which actually makes it harder to make those tough decisions during the bad times,” says Marshall.
Credit is the life-blood for growing firms, but there is no sign that banks are loosening their lending conditions. Data recently published also found that lending to small businesses by the government’s flagship small business loan scheme fell by more than 20 per cent in the six months leading up to the general election. And private equity and angel investors can only go so far in providing support.
So what does this mean for the future of small businesses? Stephen Alambritis, chief spokesman for the Federation of Small Business (FSB), says that this could lead to an influx of micro-businesses instead of small firms that have ambitions to grow. “Combined with the public sector job cuts, I think we will see more and more people set up businesses from their homes in the coming years. They are cheaper to set up, but it could reduce the number of small firms aspiring to become big companies.”
But is this bad for the economy? Yes and no, says David Scott, managing partner at
Vestra Wealth. “For the individuals behind one-man-band businesses they can be very successful, but it could be detrimental for the overall economy. If small firms find it harder to grow then they won’t provide the employment they used to.”
If economic conditions continue to erode the viability of growing firms, the UK’s economy will be the one to suffer.