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SMALL BUSINESS SERVICE NATIONAL OMNIBUS SURVEY SCOTLAND: AUTUMN 2002

CHAPTER SEVEN: GROWING, STABLE AND SHRINKING BUSINESSES

Analysis was carried out to distinguish characteristics and attitudes of growing businesses. Businesses have been categorised as growing, stable or shrinking based on the number of employees 12 months ago and the number of employees expected in 12 months' time.

The analysis was carried out using responses from only those businesses that were able to provide both these figures (so excludes the recently formed businesses).

Businesses with zero employees have been removed from the results except where results are specifically analysed by size of the business.

7.1 CHARACTERISTICS

7.1.1 Statistics

Overall 28% of businesses in Scotland expect to have employment growth for the period 2001-2003. 54% of businesses do not envisage change in employment (more than half of these, 54%, are zero employee businesses), and 18% are expecting to have a reduced number of employees. The 28% of enterprises that expect to grow in the two year period include 21% of businesses that had already increased employment.

27% of enterprises are planning to increase employment in the coming year. These include 20% that had grown in the past year, 2% that are recovering from a reduction in employment in the past year and 5% of firms where employment had been stable.

The table below shows employment growth over time:

Table 6 Employment growth over time

7.1.2 Profile

Growth in employment is more likely among firms that currently have one or more employees and lack of any change in employment is more likely among firms with no employees, as is shown on the chart overleaf (n=898 - 95% confidence limit within 3%):

Figure 41 Growth rate by business size (weighted, n=898)

Growth is also more likely among businesses younger than six years (47%), while the proportion of firms with stable employment increases with business age: 39% for businesses younger than six years compared to 62% for businesses older than twenty years.

The proportion of growing firms is higher among majority male owned businesses (30%) than among majority female owned businesses (27%). However, the proportion of shrinking businesses is also higher for majority male owned firms (22%) than for majority female owned ones (9%).

Relatively high proportions of businesses in the education, health and other services sector and in the financial services sector expect to increase employment (46% and 43% respectively). The highest proportion of stable businesses is found in the transport sector and hotels and restaurants sector. Over a third of the businesses in the agricultural sector are shrinking, as is shown in the chart overleaf (n=740 - 95% confidence limit within 3%):

Figure 42 Growth rate by industry sector for micro, small and medium businesses (weighted, n=740)

Over half of the growing firms are younger than ten years, while stable and shrinking firms are mostly older than eleven years of age, as is shown on the chart below (n=631 - 95% confidence limit within 4%):

Figure 43 Age of businesses by growth rate for micro, small and medium businesses (weighted, n=631)

54% of the shrinking businesses are firms that now have no employees.

A third of the shrinking businesses and a third of the stable businesses are firms in the retail and wholesale sector. Nearly one in five growing businesses is in the education and health services sector and another one in five is in the financial services sector. If a business is reducing staff it is not necessarily a sign that the business is in trouble. In fact, 68% of the businesses categorised as shrinking consider themselves to be doing fine or really well and only 14% are concerned about their survival, as the chart below shows (n=740 - 95% confidence limit within 3%):

Figure 44 Health of the business by growth rate for micro, small and medium businesses (weighted, n=740)

Sales growth expectations for the next three to five years are connected to employment growth. 75% of growing firms envisage also some growth in their sales over the next three to five years, compared to 47% of the shrinking firms that expect sales growth in the future. The proportion of firms that are planning to reduce their sales is highest among shrinking firms (6%).

A higher proportion of growing businesses would encourage someone to start up in business (68%) in comparison to shrinking businesses (54%).

7.2 BUSINESS ISSUES BY GROWTH

7.2.1 Greatest obstacle

The main concerns for growing businesses are staff issues, the economic environment and taxation. The economic environment, regulations and sales and competition become more important as the business is shrinking in size, as is shown in the chart below (n=699 - 95% confidence limit within 4%):

Figure 45 Greatest obstacle by growth rate for micro, small and medium businesses (weighted, n=699)

The most important issues facing businesses have been split into those within the owner/manager's control (proactive issues i.e. cashflow, obtaining finance, new technology and staff), those relating to external factors (reactive issues i.e. regulations, taxation, the economic environment, premises), and sales/competition which is of both proactive and reactive nature.

SMEs that are stable or shrinking are more concerned about reactive issues than are growing businesses:

Figure 46 Proactive vs reactive issues and sales/competition by growth rate for micro, small and medium businesses (weighted, n=699)

Owners of growing businesses spend slightly more time on paperwork related to complying with government regulations and taxes (5.2 hours), compared to owners of shrinking businesses (5.1 hours).

7.2.2 Other business issues

A higher proportion of shrinking businesses had difficulties in renewing their employer's liability insurance (30%), compared to 24% of growing firms. Again, a higher proportion of shrinking businesses were not offered a renewal (16%).

Growing businesses are more likely to have applied for finance in the past year (32%) than are shrinking businesses (15%).

61% of shrinking firms have problems with late payment, compared to 55% of growing businesses. Fewer growing than shrinking businesses would stop trading with a customer that pays late.

There is no relationship between growth of the business and use of information technology. However, a higher proportion of growing businesses would be interested in online business advice (52%, compared to 45% in shrinking businesses).

Shrinking businesses are more oriented towards reducing their impact on the environment, as 73% had taken some actions to reduce the cost of energy, water or waste disposal to the business, compared to 59% of growing businesses.

66% of the growing businesses are family owned (59% for shrinking firms).

7.3 SOURCES OF ADVICE BY GROWTH

A higher proportion of growing businesses (62%) have used some external source of advice in the past year compared to stable and shrinking businesses (45% and 48%, respectively). Growing businesses are also more aware of other advice in addition to the ones that they had used (55%) than stable (48%) and shrinking ones (39%).

This shows that growing businesses are more outward looking than others, and there has been evidence in previous studies that outward-looking businesses tend to make more use of business advice or support organisations. Growing businesses are also more likely to be members of a business association (59%) than shrinking businesses (50%). 13% of growing businesses are aware of Linc Scotland, compared to 11% of firms shrinking in size.

Unprompted awareness of the Small Business Gateway is higher among growing businesses, as is shown in the chart below (n=740 - 95% confidence limit within 4%). Prompted awareness is also higher but to a lesser extent:

Figure 47 Awareness of Small Business Gateway by growth rate for micro, small and medium businesses (weighted, n=740)

18% of the growing businesses have used the SBG compared to 8% of the shrinking businesses. However, there is no relationship between growth rate of the business and satisfaction with the overall service received by the SBG.

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