The state of micro business Britain during COVID-19 and Brexit

The government has released the latest findings from its regular survey of UK small businesses with no employees. Conducted between September 2020 and April 2021, it provides fascinating insights into how micro companies have dealt with the coronavirus pandemic and the UK's exit from the EU. We've summarised the main findings alongside some relevant Enterprise Nation resources.

Turnover

The impact of the pandemic on turnover is clear. Compared to 2019, there was a 13% decrease in businesses with no employees reporting turnover growth, and a 37% rise in companies experiencing a decline in turnover.

Reduced turnover was more likely than average to have been reported in the sectors of health (75%), education (74%), transport (71%) and arts and entertainment (69%).

Many businesses were positive about future growth though. Around 35% of businesses expected turnover to increase in the next 12 months, a 5% rise compared to 2019.

Profit

COVID-19 also drove a fall in profits. In 2020 67% of businesses generated a profit or surplus in their last financial year, 11% lower than in 2019.

Businesses in finance and real estate and health sectors were most likely to have generated a profit or surplus, while those in accommodation, food and other services sectors - among the hardest hit by coronavirus - were the least likely to have done so.

Percentage of businesses with no employees that generated a profit or surplus in the last financial year, by sector:

Exporting

Overall, 14% of businesses with no employees exported goods or services in the last year, !% higher than in 2019. In comparison, 19% of small businesses with employees exported goods or services.

Of businesses with no employees that exported in the last year, 64% exported to European Union countries, while 72% exported to any destinations outside the EU. The next most frequently cited export destination was the USA (45%), followed by EFTA countries (20%), Canada (17%), China (8%), India (6%), Turkey (4%) and South Korea (4%).

Exporters were confident about future growth with 41% of current exporters planned to increase their level of exports over the next few years, up 4% on 2019.

Impact of Brexit

For businesses with no employees, the impact on the cost of imports from the UK’s exit from the EU was a more frequent concern than the impact on labour availability, with 22% having already experienced an increase in the cost of imports from the EU, a 7% increase on 2019.

Major obstacles relating to the UK's exit from the EU, experienced, or expected to experience, among businesses with no employees that cited EU exit as an obstacle:

Useful resource: Access Enterprise Nation's Brexit Advice Service

Access to external finance

Finance has been a big issue for small businesses during the pandemic with the amount of micro firms accessing external funding increasing in 2020. Overall, 60% of businesses with no employees were using some form of external finance in 2020. This was 14% higher than in 2019, and 12% higher than in 2018 and 2017.

The most common forms of external finance used were credit cards (20%), bank overdrafts (18%) and government coronavirus grants (18%).

The percentage of businesses with no employees making use of pandemic-related government and local authority grants was higher than the percentage making use of those not related to coronavirus support.

In addition, 19% of businesses with no employees made use of a pandemic-related government-backed accredited loan or finance agreement such as the Coronavirus Business Interruption Loan and Bounce Back Loan schemes.

Percentage of businesses with no employees currently using forms of external finance:

The impact of coronavirus restrictions

When businesses with no employees were asked how their business adapted during the lockdown restrictions, 33% reported that their business closed down completely for a temporary period, while 45% reported that there had been a reduction in operations.

Registered businesses without employees were more likely to stay open than unregistered businesses: 27% closed, compared with 36%. They were more likely though to continue to operate on a reduced scale (47%, compared with 44%).

By sector, temporary business closure was most likely in accommodation and food (84%), health (58%), education (55%), and in arts and entertainment (50%). In terms of reducing business operations, this was most likely in the sectors of transport (59%), finance and real estate (54%), administration (52%), and construction (51%).

Increased operations during lockdown restrictions was most common in the sectors of information and communication (13%), manufacturing (11%) and professional and scientific (10%).

Primary (53%), finance and real estate (38%) and information and communication (30%) were the sectors in which businesses were most likely to report no impact from the coronavirus lockdown restrictions.

Businesses with no employees were asked about other measures they had taken to mitigate the impact of the pandemic restrictions. These included:

• Changing processes/ways of working (55%)

• Postponing investment (23%)

• Changing services/products provided (21%)

• Changing methods of selling (19%, compared with 27% of SME employers)

• Increasing borrowing (19%)

• Building up stocks of supplies (12%)

Useful resource: Coronavirus small business support hub

Formal written business plans

In 2020, there was a decline in micro businesses with a formal business plan. The report found that 22% had a plan, a 4% decreased on 2019. Of those, more than half (13%) reported they kept plans up to date while the remainder (9%) did not. The percentage of small businesses employers (41%) with a formal written business plan was 19% higher than that for businesses with no employees in 2020.

Useful resource: A step-by-step guide to writing a business plan

Major obstacles to business success

Unsurprisingly the pandemic was the most cited obstacle to business success in 2020 with 70% of micro businesses with no staff saying it was an issue.

The next most cited obstacle was competition in the market (36% - a 5% decrease on 2019), followed by regulation and red tape (27% - a 6% decrease on 2019) and late payment (23% - also a 6% decrease on 2019).

Useful resource: How to get paid on time with the Small Business Commissioner

Business support

An estimated 16% of businesses with no employees sought external information or advice in the preceding 12 months (more than just a casual conversation), the same percentage as in 2019. In comparison, 24% of SME employers sought external information or advice in the preceding 12 months (also no change compared with 2019).

Registered businesses with no employees (18%) were more likely to have sought information or advice than unregistered businesses with no employees (14%).

Businesses with no employees which sought information and advice were most likely to be in the primary (25%), accommodation and food (20%) and finance and real estate (19%) sectors.

In 2020, businesses without employees were most likely to have sought information or advice for financial advice for the general running of the business (23%), business survival or operation through coronavirus (22%), and financial advice on how and where to get finance (19%), business growth or tax/national insurance lay and payments (both 18%). Relatively few sought information or advice for improving business efficiency and productivity (13%), or marketing (11%).

Of those businesses with no employees that sought information and advice, 42% approached accountants, 19% approached business networks/trade associations and/or internet search/google/other websites, 18% approached consultants and business advisers and/or the .GOV website.

Of businesses with no employees in England and Wales that received strategic advice in the last 12 months, 49% paid for it (a decrease of six percentage points on 2019). This compared with 60% of SME employers.

Among businesses with no employees that paid for advice, 23% paid less than £500 (25% in 2019), 28% paid between £500 and £999 (13% in 2019), 28% paid between £1,000 and £2,499 (31% in 2019), and 17% paid £2,500 or more (21% in 2019).

Useful resource: Book a free discovery call with hundreds of business experts

Growth ambitions

Confidence around future growth increased despite the pandemic. An estimated 56% of businesses with no employees aimed to grow sales over the next three years. This was 4% higher than in 2019 and 2018. The equivalent figure for SME employers in 2020 was 77%.

By sector, businesses in arts and entertainment (77%), retail and wholesale (73%), and information and communications sectors (71%) were most likely to aim to grow. Those in the professional and scientific (45%) and primary and production (49% of primary, manufacturing and construction businesses) sectors were least likely to be aiming to grow.

Businesses in most sectors were more likely to aim to grow in 2020 than in 2019.

Working from home

Some 60% of businesses with no employees located the main work premises in their home, compared with 20% of SME employers. The 2020 businesses with no employees figure compares with 39% in 2019. This increase likely reflects changing working practices as a result of the coronavirus pandemic.

Women-led businesses

An estimated 21% of businesses with no employees were majority-led by women (defined as controlled by a single woman or having a management team of which a majority were women).

This figure was 4% higher than in 2019. It was higher than that reported among SME employers (16%).

Women-led businesses were more common among unregistered businesses (27%) than registered businesses (12%).

Among businesses with no employees, women-led businesses were most likely in the health sector (61%). Women-led businesses were less common in transport and storage (5%), construction (8%), and information and communications (11%).

Useful resource: Enterprise Nation's Entrepreneurial Women campaign