November 18, 2019      < 1 min read

Small and Medium Sized Enterprises (SMEs) are a vital component to the economy of the United Kingdom. In fact, SMEs account for at least 99% of the businesses in every main industry sector. SMEs make up a significant portion of the private sector in the UK, and this article seeks to examine their key characteristics and current trends in this region.

Funding is still clearly a major issue for SMEs in the UK, and this will continue to affect businesses inventory​ ​control processes, a pivotal factor in maintaining the firms’ success or otherwise.

Key Statistics

According to data from the Department for Business, Innovation and Skills, at the beginning of 2016, there was a reported 5.5 million private sector businesses in the UK. This statistic shows a significant increase from previous years – 97,000 more private sector businesses since 2015, and 2.0 million more since the year 2000.

Significantly, small businesses made up 99.3% of the private sector at the beginning of 2016, and a total of 99.9% were SMEs. The combined annual turnover of all SMEs in the UK stood at £1.8 trillion at the start of 2016, making up nearly half (47%) of the UK’s private sector turnover.

SMEs also have a significant contribution to total employment in the private sector in the UK. Total SME employment was at 15.7 million at the beginning of 2016, making up an impressive 60% of all private sector employment.

Trends

Although SMEs are vital to the UK economy. Between 2001 and 2013, their relative contribution to overall GDP in sectors such as retail, manufacturing, construction and hospitality declined by £31.9bn.

Similarly disheartening for SMEs in the UK is that statistical trends show a significant increase in debt over the years. For example, from 1997-2007, private sector debt almost doubled.

However, business confidence for SMEs is still high. Research shows that almost half (45%) of SMEs at least plan to grow over the next 12 months. Especially for larger SMEs, confidence in the capacity for growth is steadily increasing.

But this business confidence may be unfounded, to some degree. Funding is still a niggling issue for SMEs in the UK, and growth may be impossible without sufficient finances. For example, from 2008 to 2012, lending to SMEs decreased by 6 percent, a whopping £2.6bn.

This lack of funding is reflected by the SMEs own perspectives on what factors inhibit growth. A recent study shows that, for example, 23% of SME managers consider external financing as a primary obstacle to business operations.

Similarly, 36% cited the process of applying for external funding as a main reason for their reluctance to seek it out. Refused applications for financial assistance also has had a dramatic effect on SMEs – 79% of SME managers claim that a previously declined application has made them reluctant to pursue external funding again.

Alternative Pathways

Research suggests that SMEs may be failing to acquire adequate external funding because they are not aware of any alternatives and largely only consider one provider. Inadequate funding can significantly affect SMEs inventory​ ​control processes, the proper management of which is key to a business’ success.

SMEs should therefore research other avenues such as unsecured short-term business loans, invoice factoring, asset-based lending and peer-to-peer crowd funding. Other alternatives should also be considered if necessary, such as merchant cash advances and pension-led funding options.

Pursuing other alternative funding systems should help SMEs to free up some cash for business purposes. Researching these alternatives should form a vital part of a business’ inventory​ ​control plan, since a lack of funding will have a significant effect on this.

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