Member Article

North-South gap widens for small businesses

Despite the government’s Summer Budget pledge to put the power into the Northern Powerhouse, the gap between London’s small businesses and those in the North looks set to more than double in the next 10 years according to new research by Everline, the UK’s largest business e-lender, and the Centre for Economic and Business Research (Cebr).

The research, which surveyed over 500 small business decision makers as part of the Everline Small Business Tracker, found that businesses from London are the most optimistic about their growth prospects, expecting revenues to increase over the next ten years by an average of 44% or £162,000 to £528,000 in 2025. This is over twice the turnover expected by small business leaders in the North, who on average expect growth of just 33% or £65,000 to £263,000 in the same period. A fifth expect no increase at all.

Business decision makers in the South (excluding London) are the most pessimistic about their growth options with almost a quarter (24%) predicting zero turnover by 2025. The average small business in this region only expects 33% or £61,000 growth. This is followed by growth expectations of 31% or £63,000 in the Midlands and 37% or £80,000 in Scotland.

Media, marketing, PR and sales were the most confident sector expecting revenues to increase by over 45% by 2025 – a potential turnover increase of £330,000. This was followed by the finance and accounting (43%) and IT & Telecoms sectors (43%).

Russell Gould, COO of Everline, commented: “With the average turnover of small businesses in London already more than 80% higher than that of other regions, businesses in the capital look set to move further ahead of the rest of Britain, with revenues forecast to increase by around £162,000 by 2025 compared to the £82,000 increase expected around the country as a whole.

“This is particularly telling given the government’s commitment to devolving more powers to the regions and creating small business hubs outside of the capital. Although small business growth has increased dramatically in the last ten years, it’s clear from our Small Business Tracker that more needs to be done to encourage a similar decade of growth and instil confidence in our small business network, especially outside of London.”

One area that could be holding regional growth plans back is digitalisation. Despite the growing importance of the digital economy, over a third (36%) of small businesses in the North dedicate only a fraction of their financial resource to digital activities, such as buying and selling online, and plan to reduce or keep their online expenditure flat over the next 10 years. This compares with just over a quarter (26%) of London businesses who said the same. A further 10% wish to increase spend but did not have the financial means to do so, while 11% felt they did not have the necessary skills.

With small businesses that do sell online making £810,000 a year on average through this channel, this means over 1.5m small businesses across the country are missing out on a significant potential revenue boost by failing to capitalise on the e-commerce marketplace.

Sam Alderson, Economist, Cebr, added: “A few years ago small businesses could be forgiven for thinking that sophisticated technologies were only within the reach of larger corporations who could afford the up-front investments. However, while there is still more that can be done to reduce the costs, digital technologies are becoming increasingly accessible to smaller businesses. Given the multitude of benefits that technologies can bring, from shaving time off everyday tasks to broadening a customer base, more could be done to promote and support the uptake of digital technologies in the nation’s small businesses.”

Inhibitors to growth

Digital uptake

Despite Britain’s small businesses currently spending over 3 billion hours on digital activities each year, a fifth still devote no time at all to online, including e-commerce. This figure rises to 30% in the midlands and 22% in the South.

When it comes to digital growth ambitions, over a third (36%) of London business owners view online activities as more important than offline in ensuring their business’ future success in the next 10 years. This compares with 30% of those in the midlands, 28% in the North, 27% in Scotland and 26% in the South.

Access to finance

A business is only able to grow when it has access to the right resources. When this is not the case a common theme of issues tends to arise. In a separate independent survey Everline conducted, half of small business decision makers said that their business has cash flow problems at least a couple of times a year, with 13% saying they have issues approximately once a quarter[2].

A lack of working capital was deemed to be the biggest obstacle when trying to grow their business with 42% saying it was detrimental. A quarter (26%) agree that their business growth has been restricted due to lack of access to cash or unwillingness from traditional lenders to loan to small businesses.

Skills shortage

The employment index climbed to a new high of 114.0 in Q1 2015 from 111.9 in the final quarter of 2014, while job vacancies at small businesses hit a 13 year high. The last Everline Small Business Tracker[3] however showed the UK economy is losing out on £18 billion due to 520,000 job vacancies that small businesses are unable to fill because of a lack of relevant skills.

This was posted in Bdaily's Members' News section by Emily Cunningham .