Posted: Thu 21st Jun 2018
What is billed as the biggest ever study of micro businesses has revealed some fascinating insights into Britain's smallest businesses.
The study by the Enterprise Research Centre (ERC) of over 6,000 businesses with under 10 staff and trading for at least three years found that they employ an average of four people.
More than half of micro businesses are home-based, 70% are family-owned and 59% are both family-owned and managed.
At more than three quarters of firms, the founder is still involved, with 35% led by a single person and 45% with a leadership team of two.
In the remaining businesses where there are three or more members of the leadership team, 37% are women and 10% from ethnic minority backgrounds.
Turnover and profit
Micro businesses have a mean average turnover of £664,000 with strong regional variations. London firms have the highest turnover, with Scotland the lowest.
Turnover growth among micro businesses is strongest in East of England though, with London in second to last place.
A third of micro businesses are selling overseas, with an 8.7% of sales coming from exports.
At 47%, London has the largest proportion of exporting firms, followed by the North East with 36%. The East Midlands has the fewest, with 26% exporting.
When it comes to scaling up, 74% said they aim to 'keep their business similar to how it operates now', while 22% of all respondents aimed to build a national or international business.
There were some interesting gender variations.
While 30% of men said they wanted to grow their business rapidly and profitability with the view to exit, 33% of female entrepreneurs said the same.
More women also intend to increase the social and environmental benefits of their business and develop more professional HR practices, while men were more likely to want to build a national or international business.
When it comes to entrepreneurs' personal ambitions, more women said they were building a business to retire, something to pass on to their family and earn a high income.
Across the full sample, 32% of micro companies introduced a new or significantly improved product or service over the previous three years, with notable variations by region, from a high of 39% in the North West to a low of 27% in Northern Ireland.
Technology and productivity
Britain's 1.1 million micro companies have traditionally been seen as a drag on national productivity. But ERC said the economy could be boosted by £16.6 billion, as micro firms adopt digital technologies more widely.
Although micro businesses' use of technology has grown rapidly, with firms using cloud computing growing from 9% in 2012 to 43% in 2018, and web-based accounting software increasing from 15% to 42%, the study found that a quarter currently make no use of digital technologies at all.
The benefits of digital technology are strong though.
Cloud-based computing leads to an increase of 13.5% in sales per employee (a proxy for productivity) after three or more years, customer relationship management software adds 18.4%, e-commerce adds 7.5% and web-based accounting software leads to a 11.8% hike.
ERC said doubling digital adoption could provide the £16.6 billion 'digital dividend' boost to the economy.
Other indicators of better productivity included being being at home, the study found. Running a business from home was linked to having a turnover-per-employee around 21% higher.
Having a larger leadership team and being an exporter were also an indication of higher productivity, while larger levels of employment and being family-owned with the founder still involved were associated with significantly lower levels of sales per employees.
Stephen Roper, ERC director, said:
"This study provides the first evidence of the value of digital adoption to micro-business productivity in the UK.
"There's a clear 'digital dividend' for the productivity of our smallest firms from adopting certain technologies and these effects increase with the number used.
"Micro-businesses play an important role in all of our lives. They are our plumbers, our builders, our hairdressers and our mechanics. They are also our architects, designers, artisans, lawyers and accountants.
"By rooting business support and public information campaigns in the evidence, policymakers can help these firms to raise their productivity and have a major impact on the prosperity of UK plc."
Enterprise Nation has recognised the need for more research into Britain's micro businesses and called for delivering new data in a way that accurately measures the contribution small firms and self-employed individuals make to the economy and the communities in which they operate.