It is not easy to achieve growth and progress as a small business. A longitudinal small business survey (LSBS) recently revealed that only 36% of SMEs reported an increase in turnover during 2017. As part of the same survey, only 47% of firms indicated that they expected turnover to increase through 2018.
A new productivity metric created by the Enterprise Research Centre (ERC), meanwhile, found that only 8.4% of all employer enterprises in the UK achieved positive productivity gains between 2014 and 2017.
That begs the obvious question of why so many small businesses are remaining stagnant in terms of growth and productivity.
Ambition for Growth & Innovation
Lack of ambition is a major part of why so many SMEs do struggle to achieve growth and instead remain static at a certain level of turnover.
The same LSBS survey reported that just 62% of SME employers indicated a plan to grow the turnover of their business over the next three years. That is the lowest percentage recorded since the survey began in 2007/08. A related Micro-Business Britain Survey, meanwhile, found that 73.7% of companies with between one and nine employees aimed simply to ‘keep business similar to how it operates now’.
The UK Innovation Survey 2017 revealed a similar story. According to that study, only 49% of SMEs were ‘innovation active’, as opposed to 53% between 2012 and 2014. More than half of firms, then, do not actively seek or invest significant money in innovation.
Leveraging External Finance for Growth & Improved Productivity
Alongside lack of ambition, an aversion to risk has also been identified as a major barrier for SMEs when it comes to achieving growth and improving productivity.
A study by Ross Brown and colleagues from the ERC found that around one in ten UK SMEs are ‘discouraged borrowers with potential implications for firms’ ability to invest for growth’. That means that those companies have an aversion to taking the risk associated with seeking external finance, to the detriment of their own prospects for growth and progression.
An LSBS study by Rowena Barrett and colleagues, for instance, found that management capability to access external funding and training to improve IT skills has significant and positive effects on productivity. Being reticent to seek such external funding, then, stunts the potential for such improvements in productivity and will also negatively impact overall growth.
The story is again similar when it comes to innovation. Due to an inherent desire to tighten the belt, SMEs tend to err on the side of limiting investment in innovation rather than seeking external finance to foster it.
The UK Innovation survey we mentioned earlier found that the proportion of firms investing in computer software fell from 27% to 19% between 2014 and 2017. Over the same period, the percentage of firms investing in hardware fell from 24% to 13% and companies investing in new marketing methods plummeted from 12% to 4%.
It is hard not to see a correlation, therefore, between firms’ reluctance to seek external finance and the lack of growth and stagnant productivity which many of them suffer. That serves only to underline the importance and potential benefit to SMEs of seeking appropriate funding to embrace opportunities for innovation and progression.
If you’re looking to break out of your current economic cycle and reach your goals, but you need extra capital to do so, we’re here to help. With our loans designed for business owners. At Boost Capital, we are champions of small business and we can have the funds with you in just two days, so you can focus on those KPIs for growth. Get in touch for an instant, no obligation quote!