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5 Obstacles to business

However they define success, businesses tend to encounter a range of obstacles as they work to achieve their objectives. As in previous ASBS surveys, respondents to the 2006 survey were first asked to spontaneously cite obstacles and then read a list of potential obstacles and asked to indicate if any of these were also relevant to their business. Respondents who cited more than one obstacle were subsequently asked to identify the biggest obstacle to their business success.

This section first considers the biggest obstacles to business success and then the overall incidence of reported obstacles. This is followed by further discussion of the most cited obstacles.

5.1 Biggest obstacle to achieving business success

Table 5.1 shows the survey findings relating to the biggest reported obstacles to business success.

Table 5.1 Biggest obstacles to business success

The most frequently reported biggest obstacle among Scottish SME employers was taxation, followed closely by competition in the market and regulations (13, 12 and 11 per cent of all SME employers respectively). Roughly one in 10 of SME employers (nine per cent) felt cash flow was their biggest obstacle to success. An equal proportion of SME employers felt the economy and recruiting staff were their biggest problem (seven per cent each). Lower proportions reported problems with availability / cost of suitable premises, obtaining finance and a general shortage of skills. Only three per cent felt they had no obstacles while 2 per cent had no opinion on the matter.

5.2 Overall incidence of obstacles to business success

Combining the responses from the unprompted and prompted questions on barriers to business success provides a measure of the overall incidence of such obstacles. The four most frequently reported obstacles in response to these questions were: regulations and taxation/ VAT/ PAYE/National Insurance/business rates (61 per cent of all SME employers each), competition in the market (52 per cent) and the economy (46 per cent).

5.3 Competition in the market as an obstacle to business success

Competition in the market was the second most frequently cited biggest obstacle to business success. However, although this is clearly a concern for individual businesses, relatively high levels of competition can be interpreted as a positive finding in relation to the economy as a whole. Indeed, the existence of quite widely experienced competition is consistent with the positive findings relating to growth reported in Section 4.

5.4 Regulations as an obstacle to business success

Respondents who cited regulations as an obstacle to the success of their business were asked which specific regulations they considered to be an obstacle, and in what ways.

Chart 5.1 shows that Health & Safety regulations are the aspect of regulation that cause the most widespread concern. These were identified by 30 per cent of the SME employers in Scotland who perceived regulations to be an obstacle to business success (this equates to 18 per cent of all SME employers).

Of less concern, but still cited by as many as 16 per cent and 14 per cent, respectively, were tax regulations and environmental regulations. One in eight (12 per cent) identified employment regulations as an obstacle and both planning/building developments and sector specific regulations were identified by nine per cent.

There were few differences in the frequency with which different types of regulation were reported by different sizes of business. As might be anticipated, one exception to this was that larger businesses were more likely to report employment regulations; 28 per cent of medium-sized businesses saw employment regulations as an obstacle, compared with 20 per cent of small businesses and just 10 per cent of micro-sized businesses.

Chart 5.1 Regulations which are considered to be obstacles to business success (unprompted)

Base: All SME employers in Scotland that consider regulations to be obstacles to business success (weighted data); unweighted N-606

Respondents were also asked how the first regulation they reported acted as a barrier. The responses to this question are summarised in Table 5.2. These data suggests that for most SME employers the majority of difficulties with regulation fall into three categories: (i) understanding what is required and deciding how to respond, (ii) the administrative burdens associated with compliance and (iii) the compliance costs involved.

5.5 Managing cash flow

Managing cash flow was perceived as an obstacle to success by 41 per cent of SME employers in Scotland.

The most commonly reported cause of cash flow problems was irregular patterns of income generally (71 per cent) ⁵. Over half of the respondents who reported cash flow to be an obstacle cited working capital required from business (51 per cent). Similar proportions cited late payment from businesses and individual customers (48 per cent and 47 per cent respectively). Possibly because of the size of unpaid invoices, late payment by businesses was more commonly cited as the biggest challenge in cash flow terms (25 per cent).

All SME employers were subsequently asked a question relating to late payment. Two fifths of respondents said that late payment was not a problem for their business (43 per cent) or not relevant as the business did not provide customers with credit (14 per cent). More than four in ten SME employers (43 per cent) reported late payment as a problem and one in six SME employers (15 per cent) reported it to be a major problem. Smaller businesses were more likely to report that late payment was not a problem than larger businesses (44 per cent of micro-sized businesses compared with 28 per cent of medium-sized).

More than two-thirds of Scottish SME employers that provide credit to customers were aware of the legislation dealing with late payment (68 per cent). Fewer than one in ten (eight per cent) of these had actually taken legal action against anyone under the late payment legislation in the past 12 months.

The timing of tax payments contributed to the cash flow difficulties of two in five SME employers (39 per cent of those who perceive cash flow as an obstacle to the success of the business, with six per cent citing this as the biggest cash flow challenge).

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