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Omnibus Survey of Small Businesses in Scotland 2002: Rural Analysis

5 Issues facing SMEs

5.1 Health of the business

Respondents to the survey were asked how well their business is doing. 83% feel that their business is doing fine or really well (n=835 - 95% confidence limit within 3%).

There are no significant differences between how Businesses are performing in the three geographic areas:

Figure 5: Business health by geographic area for micro, small and medium Businesses (weighted, n=835)

5.2 Sales objectives

Respondents to the survey were asked if the sales objectives for the business over the next three to five years were to grow, stay the same or reduce.

55% of Scottish Businesses aim for their sales to grow in the next three to five years. The proportion of Businesses growing is highest in the accessible rural area (58%; urban/small town area - 52%, remote rural area - 54%). However, the proportion of Businesses planning to reduce sales is also highest in the same area (5%; urban/small town area - 1%, remote rural area - 0%).

5.3 Encouragement

Respondents to the survey were asked whether they would encourage someone to start up in business. 63% of Businesses in Scotland would (definitely or probably) encourage someone to start up in business (n=835 - 95% confidence limit within 3%). The chart below shows the views of Businesses by geographic area:

Figure 6: Encourage someone to start up in business by geographic area for micro, small and medium Businesses (weighted, n=835)

The proportions that would encourage other people to start up in business are highest in the urban/small town area (66%), while the lowest proportion is in the remote rural area (61%; accessible rural area - 62%).

5.4 Obstacles to the success

5.4.1 All obstacles

All participants to the survey were asked about the issues that affect the success of their business. Respondents were then read a list of other issues to which they were asked to give a yes/no answer (Q42: "I am going to read you a list of other issues and I would like you to tell me which, if any, represent obstacles to the success of your business:

• Cashflow (late payment, debtors, can't get credit from suppliers, etc)
• Obtaining finance (can't get grants, loans, etc)
• Regulations (employment regulations, national minimum wage, stakeholder pensions, health and safety, etc)
• Taxation (VAT, PAYE, national insurance, corporation tax, income tax, business rates)
• Employing, training and keeping staff
• The economic environment/strength of sterling/recession
• Keeping up with new technology
• Availability of suitable premises
• Sales and marketing/competition
• Insurance (Employer's Liability, car insurance)
• None.")

Half of the Businesses cite tax and regulations as an obstacle to the success of their business and more than 40% mention the economic environment. Although the most commonly cited obstacles are the same for the three geographic areas, firms in the urban/small town area are most likely to cite the economic environment (51%), firms in the accessible rural area are most likely to cite tax (50%) and firms in the remote rural area are most likely to cite regulations (51%).

The full results for both unprompted and prompted obstacles are shown in the table below:

Table 7: Unprompted and prompted obstacles by geographic area

Respondents that mentioned tax as an obstacle to their business were further probed to describe which aspect of taxation was a bigger issue. The level of tax is more of a burden to firms in the remote rural area, as is shown in the chart below:

Figure 7: Aspect of tax by geographic area for micro, small and medium Businesses (weighted, n=404)

5.4.2 Greatest obstacle

Respondents were asked to rank the issues they had mentioned. Nearly one in every five Scottish Businesses considers the economic environment to be the greatest obstacle to the success of their Businesses. The next most commonly cited obstacles are sales/competition, tax and regulations.

Geographic area of the business appears to be a factor in identifying the main obstacle (this excludes the 7% who did not identify any problem). The chart below shows the relationship between geographic area of the business and the top five greatest obstacles to the business (n=788 - 95% confidence limit within 3%):

Figure 8: Greatest obstacle by geographic area for micro, small and medium Businesses (weighted, n=788)

The economic environment is more important for Businesses in the urban/small town area than in the other two areas. For Businesses in the remote rural area the greatest obstacle is taxation (20%).

5.5 Markets served

Respondents were asked whether they would describe the markets they served as mostly in Scotland, mostly in the rest of the UK or mostly international. 78% of firms mostly serve markets within Scotland (n=835 - 95% confidence limit within 3%). There are nearly twice as many Businesses (12%) from the urban/small town area that serve markets mostly within the UK, compared to firms in the remote rural area (7%; accessible rural area - 10%).

The full results are shown in the table below:

Table 8: Markets served by geographic area

5.6 Foreign trade

All respondents to the survey were asked whether they undertake any foreign trade, i.e. do they sell outside the UK or do they import. 14% of the Businesses export and 11% of the Businesses import (n=835 - 95% confidence limit within 3%).

Businesses from the urban/small town area are more likely to export than Businesses in the remote rural area, 15% compared to 12%. However, the area with highest proportion of Businesses with any foreign trade (exporting and/or importing) is the accessible rural area, as is shown in the chart below:

Figure 9: Foreign trade by geographic area for micro, small and medium Businesses (weighted, n=835)

Where firms do export, foreign trade accounts, on average, for 24% of sales. The average proportion of sales that are exported is highest for Businesses in remote rural area (30%) which is due to a couple of firms for which export accounts for around 80% of their sales (the average for urban/small town area is 23%, and the average for the accessible rural area is 22%).

The most common destination for exports and source for imports in all three geographic areas is Europe, followed by America.

All respondents to the survey were asked about the obstacles to trading abroad and their respondents were categorised as follows:

• Fear of the unknown
• Lack of government support
• Lack of information
• High level of risk and uncertainty
• No resources available
• Product not suitable
• No demand
• Business is too small
• Effort of selling abroad
• Other
• No obstacles.

For 39% of Businesses there are no obstacles to trading abroad, and a further 30% think that their business's product or service is not suitable for export. There are no significant differences in the obstacles to trading abroad among Businesses from the three geographic areas.

5.7 Employer's liability insurance

Employers were asked if they had commercial combined insurance which covered employer's liability. 8% of Scottish Businesses with employees do not have employer's liability (n=835 - 95% confidence limit within 3%). There are only very small differences between Businesses in different areas.

Overall 22% of Scottish Businesses had had difficulties renewing their commercial combined insurance in the last year. The proportion of Businesses having difficulties in renewing their insurance was highest in the accessible rural area (24%):

Figure 10: Difficulties in renewing insurance by geographic area for micro, small and medium Businesses (weighted, n=835)

When asked about the difficulties that they had faced in renewing their policy, 80% of Businesses with difficulties (18% of all Businesses) said that their premium was higher and 7% (2% of all Businesses) had not been offered a renewal. The area with the highest proportion of firms that faced increased premiums was the remote rural area (97% of those facing difficulties; urban/small town area - 83%, accessible rural area - 84%). The proportion of Businesses to which no renewal was offered was highest in accessible rural area (11% of those facing difficulties; urban/small town area - 6%, remote rural area - 3%).

The average increase in insurance is 74%. The average increase in insurance has been twice as high for Businesses in the remote rural area (123%), compared to Businesses in the accessible rural area (61%). For the urban/small town area it has been 67%. The figures by geographic area should be treated with some caution since they are based on a small size. This is particularly the case for the remote rural area where the figures are based on the 20% of Businesses facing difficulties in the remote rural sample.

5.8 Finance

5.8.1 Raising finance

26% (2001 - 33%) of Businesses in Scotland had tried to obtain finance in the past year (n=835 - 95% confidence limit within 3%). The proportion is lowest for Businesses in the remote rural area (23%) and highest for the accessible rural area (28%; urban/small town area - 26%).

5.8.2 Sources of finance

For Scottish Businesses that had tried to raise finance, the main sources of finance tried were bank loans (12%), followed by bank overdrafts (7%). The main sources for finance are the same for firms across the three geographic areas:

Table 9; Sources of finance by geographic area

5.8.3 Difficulties in obtaining finance

78% of the Businesses that had tried to obtain finance did not have any difficulties raising the finance they needed, and a further 6% raised all the finance they had applied for but had some difficulties. The proportion of firms that did not obtain finance is highest in the remote rural area (26%) compared to 14% in urban/small towns and 5% in the accessible rural area:

Figure 11: Difficulties in raising finance by geographic area for micro, small and medium Businesses (weighted, n=264)

The proportion of firms that had no difficulties in obtaining the finance they applied for was highest in the accessible rural area, 86%, compared to 76% of firms in the urban/small town area and 65% in the remote rural area. The results in Figure 11 should be treated with caution due to the small sample size.

Firms that did not obtain any or part of the finance they applied for were asked about the reasons they were given (n=31- 95% confidence limit within 18%). Again the results should be treated with caution due to the small sample size. The full results are shown below:

Table 10: Reason for being refused finance by geographic area

It is interesting to note that over a third of the Businesses in the accessible rural area were refused finance on the basis that the business had not enough potential.

Other reasons for being refused finance were:

• "We were turned down by a private company because they had a reduction in actual funds and we didn't fit their priorities and criteria."
• "There is no more money left for retail, only manufacturing and wholesale."
• "We tried to raise money for a public skate and play area for children. The amount we wanted was 200,000 from the Lottery. However, because we are providing public services, we were told we should seek public funding."
• "They give to other charities and they can't spare us the cash."
• "There was no particular reason, just they have not got the funds to provide."
• "It was because the business wasn't in debt, we were told that if we had been over laden with debts then we would get a grant."
• "Because of court action that is occurring at the moment."

5.8.4 Effect on the business

The effect of the obstacles in raising finance is shown in the table below ⁵ (n=57 - 95% confidence limit within 14%):

Table 11: Effect on the business by geographic area

It is interesting to note that fewer Businesses in the accessible rural area (20%) are concerned about the effect on investment than in the remote rural area (40%). Concerns about not being able to grow as fast as would like also differ by geographic area: 57% of Businesses in the remote rural area are concerned about the effect of raising finance on their ability to grow fast, compared to 47% in urban/small town area and 33% in the accessible rural area.

Other effects on the business cited by respondents were:

• "We lose money on the interest charged by contractors whilst waiting for the grant."
• "We have had to discount our fees to make sure that we get paid on time."
• "We had to abandon the project, it just wasn't worth it."
• "The fee that we had to spend on hiring lawyers and accountants caused us severe cash flow problems."

5.8.5 Business Angels

All respondents to the survey were asked if they were aware of business angels, private investors who invest in small Businesses in return for a share of the equity. Just over one in five Businesses is aware of business angels, mainly in the urban/small town area (n=835 - 95% confidence limit within 3%), as is shown in the chart below:

Figure 12: Awareness of Business Angels by geographic area (weighted, n=835)

Regardless of whether respondents were aware of business angels, they were asked about Linc Scotland, an organisation that helps Businesses find private investors or business angels in Scotland. 11% of Businesses have heard of the organisation (n=835 - 95% confidence limit within 3%). The highest proportion of firms that were aware of the organisation was in the urban/small town area (14%; accessible rural area - 8%, remote rural area - 7%):

Figure 13: Awareness of Linc Scotland by geographic area (weighted, n=835)

5.9 Information technology

All respondents to the survey were asked whether their business used ICT. 70% of Businesses in Scotland use information technology, (n=819 - 95% confidence limit within 3%). The responses by geographic area are as follows:

Figure 14: Use of IT by geographic area for micro, small and medium Businesses (weighted, n=819)

81% of Businesses in the urban/small town area use PCs compared to 77% in the accessible rural areas and 69% in the remote rural area. The geographic area of the business is a factor in the use of ICT as over a third of the firms in the remote rural area do not use it (31%), compared to one in five firms in the urban/small town area (19%). It is also interesting to note that fewer Businesses in the remote rural area have a website (22% compared to 36% in the urban/small town area).

Respondents were asked whether they use information technology for any of the following:

• Financial accounting
• Invoicing
• Marketing or customer relationship management
• Production
• Logistics or delivery
• Research and development

The most common use is for financial accounting (72%) and invoicing (63%). The full results on use of ICT by geographic area are shown below (n=711 - 95% confidence limit within 4%):

Table 12: Use of ICT by geographic area

12% of Businesses with Internet access in Scotland have a broadband connection to the Internet (n=592 - 95% confidence limit within 4%). Over twice as many firms in the urban/small town area (19%) have a broadband connection compared to firms in the remote rural area of which only 8% have broadband (accessible rural area - 9%).

A higher proportion of Businesses in the urban/small area (40%) plan to have broadband connection in the future, compared to the other two geographic areas. However, it is interesting to note that more firms in the remote rural area (38%) plan to have broadband connection than firms in the accessible rural area (33%).

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