Member Article

25% of micro-businesses to fold by 2014

Over one in four micro-businesses are set to fold within 2 years, according to new research.

Micro businesses account for 95% of businesses in the UK, employing 7 million people and contributing over £600 billion to the UK economy.However, a report by Professor Francis Greene, associate professor of enterprise at Warwick Business School indicates that many are struggling to weather the current economic climate.

The research indicated that one third of micro-businesses have found it difficult to fund their business over the past year, and a fifth have no credit available in their main bank account. 98% have no plans to apply for bank loans to finance their operations, and half will continue to rely on personal sources of finance to deal with their cash flow needs.

Professor Greene believes that to provide micro-businesses with effective support, banks and the wider business community need to take steps to understand their immediate needs.

He commented: “Micro-businesses are the backbone of the UK economy yet they face real challenges in surviving in today’s climate.

Micro-businesses have no intention of applying for bank loan finance to fund their business needs. Instead they are relying on a mixture of savings and short term external finance, mostly in the form of credit cards.“

The research was commissioned by credit card company Capital One, who are now working closely with Professor Greene to find ways to promote the survival of micro-businesses. He is calling for existing business advice services to be better promoted to help micro-businesses handle their cash flow and ultimately their chances of survival.

Professor Greene continued: “Ultimately it’s up to micro-businesses to create their own survival plan and in this regard there is clear evidence of a financial skills gap.

“Given that financial literacy is even more important in challenging economic times, there are several practical and common sense ways in which micro-businesses can better manage their housekeeping and succeed in these tough times.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .