Putting the economy back on track: Business Support and Finance

Transcription

1 Putting the economy back on track: Business Support and Finance Lifting the Barriers to Growth in UK Small Businesses 2008

2 page 2 lifting the barriers to growth in UK small businesses 2008

3 contents Acknowledgements...Page 4 Foreword...Page 5 Executive Summary...Page 6 Methodology and Background...Page 7 Reported Barriers...Page 9 Effects of Legislation... Page 10 Sources of Finance... Page 11 Sources of Business Support... Page 13 Use and Impact of Government Sources of Business Support... Page 15 Use and Impact of Non-Government Sources of Business Support... Page 16 Comparing the Use of Government-and Non-Government-Funded Business Support... Page 17 Sources and Impact of Business Advice... Page 18 Anticipated Future Use of External Sources of Business Support... Page 21 Conclusions... Page 25 Key Policy Recommendations... Page 27 Annex of Tables... Page 28 lifting the barriers to growth in UK small businesses 2008 page 3

4 acknowledgements This report was produced for the Federation of Small Businesses by the Welsh Enterprise Institute which is part of the Business School at the University of Glamorgan. The project also included expert input from four external consultants. The Project Team was as follows: University of Glamorgan Dr Gary Packham Head of Enterprise, Centre for Enterprise University of Glamorgan Dr David Pickernell Head of The Welsh Enterprise Institute Glamorgan Business School, University of Glamorgan Dr Christopher Miller Deputy Head of The Welsh Enterprise Institute Glamorgan Business School, University of Glamorgan External Consultants Professor David Brooksbank Director of Enterprise, Cardiff School of Management,- University of Wales Institute Cardiff Professor Oswald Jones Centre for Enterprise and Entrepreneurial Leadership,- Management School, University of Liverpool Professor David Smallbone Associate Director, Small Business Research Centre Kingston University London Dr Piers Thompson Senior Lecturer, in Economics, Cardiff School of Management, University of Wales Institute Cardiff Acknowledgements The project team would like to thank the FSB Project Working Group for their guidance in producing these reports. The team would also like to acknowledge the assistance provided by Alex Bakos, Martyn Jarvis and Dr Brychan Thomas in producing the regional data tables that supplement these reports. page 4 lifting the barriers to growth in UK small businesses 2008

5 foreword The UK economy is going through difficult times and small businesses are feeling the effects of the downturn. Lack of access to affordable finance and a shortage of working capital, coupled with late payments, are making the situation even worse for the 4.5 million small and medium-sized enterprises in the UK. The FSB is pushing the government to reassure small businesses that the recapitalised banks will free up finances at 2007 levels. This is vital, as over 50% of survey respondents said that they looked to the banks for major sources of finance. However, the FSB has found that the cost of finance is increasing and new claw-back products such as Facility Fees are being introduced by banks. This troubling mix of a decrease in finance in the credit market and the increasing cost of finance will hit small businesses hard. The FSB has urged the government to introduce a short-term Survival Fund, worth 1 billion. This can be implemented by reforming the Small Firms Loan Guarantee scheme, and should use European Investment Bank money to supplement the overall funding total. This scheme will help small businesses access affordable funds in the immediate short term for working capital. It will also help banks lend, as the government will take on 75% of the risk. We have also set out proposals on tackling late payments and helping small firms to access much-needed public contracts by simplifying the process. The issue of government-funded business support is still a concern for small businesses, and, in particular, the awareness and impact levels of government support which are of great importance, as Business Link will soon be the central point for all government-funded business support. The majority of businesses prefer to use private sources of business support. Notably, a firm s own customers were the most commonly cited sources of support, with high levels of satisfaction reported for the advice given. The business-to-customer relationship is critical during these difficult economic times and our survey reveals that our members will continue to provide value for customers in the way that only small businesses can. Small businesses represent over 58% of the private-sector workforce, and, as they are the primary job creators, it is support for this sector that will help push the country out of economic uncertainty. This is the first in a series of five reports that set out our positive proposals for putting the UK economy back on track. John Walker John Walker Policy Chairman lifting the barriers to growth in UK small businesses 2008 page 5

6 executive summary The key findings from the 2008 survey in respect of finance and business support are as follows: The concerns of small-business owners over access to finance and pressure on cash flow are not confined to struggling businesses. In fact, the results suggest that small-business owners and managers become particularly aware of financial constraints when they seek to grow their businesses. In view of the worsening macroeconomic conditions during 2008, it is not surprising that smallbusiness owners identified pressure on cash flow as one of the main barriers to their meeting their business objectives. Tight credit control and effective cash-flow management become increasingly important during periods of economic downturn, which small-business owners need to recognise, and government should help here by continuing to condemn late payments. The burden of increasing regulation continues to concern small-business owners, particularly those in the smallest firms, employing fewer than five. Although the adverse effects of specific legislation were typically rated lower than increased regulation as a barrier, those cases in which respondents did rate such effects highly tended to concern firms in the smallest size band and to relate to annual or maternity leave entitlement. This reflects the disproportionate effect of leave of absence for just one employee in the smallest firms. Significant sectoral variations in the types and sources of business advice and support emphasise the need for the business support system to have a strong sectoral dimension. The sources of business support most commonly used by small firms are customers, suppliers and professional services (such as banks, accountants and solicitors) and informal sources (such as family and friends). At the same time, the Internet is emerging as a recognised source of business support by small-firm owners, as was mentioned by approximately two-thirds of respondents to this survey. Marked differences can be observed in the use of government-and non-government-sponsored business support and also in respondents assessment of the impact of these sources on their businesses. Although government sources were used more frequently, respondents assessment of the impact on their businesses was considerably lower. This is particularly serious in the case of those regions where businesses are more reliant on government-funded business support, such as Northern Ireland and NE England. As previous FSB reports have noted, levels of satisfaction expressed by small-business owners with sources of business support tend to reflect the pattern of usage. In this survey, the highest levels of satisfaction with business support received were expressed with respect to family sources and own customers, which contrasted with a variety of public-sector sources, where dissatisfaction was commonly expressed. Significant differences can be identified between enterprise growth categories in relation to all the specified areas of business advice. In every case, sustained-growth firms show the highest propensity to identify useful advice in relation to all specified types, except for help with business recovery. As previous studies have shown, challenges faced by growing firms encourage businesses, owners and managers to seek external assistance. page 6 lifting the barriers to growth in UK small businesses 2008

7 methodology & background 1 Firm growth orientation is broken up into four categories using answers to questions in the questionnaire. Sustainedgrowth firms are defined as both having grown in the last two years and aiming for growth in the next two. New-growth firms have not grown in the previous two years but are aiming for growth in the next two. Contained-growth firms have grown in the previous two years but are not aiming to do so in the next two. Finally, No-growth firms have not grown in the previous two years and do not intend to in the next 2 years. Survey Methodology This report presents part of the results of the fifth biennial survey of the FSB membership. The data for the reports were gathered using a single questionnaire of around 100 questions that was sent to members in England, Northern Ireland, Scotland and Wales. The questions were divided into a range of topics covering the following areas: business background; location and premises; home-based enterprises; past performance; suppliers, customers and markets; finance; employment; skills and training; business advice and services; crime; the environment; transport; business continuity; insurance; patents and intellectual property; future business aspirations; characteristics of the business and its owners along with supplementary nation-specific questions. The questionnaire was then publicised via the FSB website and by ing the FSB membership at the beginning of March Printed copies of the questionnaire were sent out in the post and the questionnaire was also made available electronically on the FSB website. From this process, a total of 8742 questionnaires were obtained. From an initial analysis of the data, five topics were identified as requiring specific focus: Business Support and Finance Skills and Training Infrastructure (Transport, Environment and ICT) Crimes against business Work-Life Balance The survey questions were analysed against a number of issues, such as industry, region (including urbanrural differences), firm growth intentions 1, firm size, and firm age. Where applicable, gender, owner age, owner education level and type of premises were also issues against which the data were evaluated. Background This report focuses on business support and the effects of the regulatory environment on surveyed businesses. It is widely recognised that the more limited internal resource base of small firms compared with large enterprises makes their access to appropriate and effective support particularly important. Less scope for an internal managerial division of labour can also contribute to their being liable to higher compliance costs with respect to government regulations and legislation, with possible implications for a level playing field for businesses of different sizes. Moreover, firms with fewer than ten staff typically have no internal managerial division, and this group accounts for more than 95% of small businesses (SBS Stat 2007). The 2008 FSB survey included questions about the effects of specific areas of government legislation, as well as more general questions on respondents perceived barriers to them achieving their business objectives. It also included questions on: the sources of finance used; the use and levels of satisfaction with various types of business support; an assessment of the impact of business support received; and firms, anticipated use of business support in the future. In these respects, the survey seeks to build on the results of previous FSB surveys, although differences in question wording limit the scope for direct comparison. Previous FSB surveys in 2004 and 2006 have emphasised the important role of professional services (such as banks, accountants and solicitors) as sources of business advice and support for small businesses and also that of informal sources including family, friends and other business owners. Although the detailed results vary from year to year, public-sector sources have tended to emerge as less important than nongovernment- sponsored sources. lifting the barriers to growth in UK small businesses 2008 page 7

8 The most commonly reported barriers across the entire sample were increased regulation, building a customer base and pressure on working capital and cash flow page 8 lifting the barriers to growth in UK small businesses 2008

9 1 BERR (2006) Annual Small Business Survey (2005) Figure 1a Barriers to firms objectives in previous two years Reported Barriers Respondents were asked what they regard as the main barriers they have faced in meeting their business objectives in the previous two years. The most commonly reported barriers across the entire sample were increased regulation, building a customer base and pressure on working capital and cash flow (see Fig. 1), all of which have potential implications for business support. At the same time, concerning the reported financial pressures, it is not known to what extent surveyed businesses have actually tried to raise finance recently. This is important because some previous research has suggested that, among those who try, few businesses report any difficulties in raising finance. 1 However, the FSB s 2006 survey showed that the smallest, the newest and those businesses run by women were most likely to be turned down for finance. United Kingdom Other Personal health Increased regulation Increased competition (overseas) Increased competition (local/national) Building a customer base Affordable or suitable premises Adequately trained staff Time for business planning Accessible business support Working capital/cash flow Obtaining finance where 1 = not significant and 5 = very significant Figure 1b Barriers to firms aiming to grow in next two years Worried about taking an additional staff Fear of increased competition Uncertain market conditions Lack of affordable or suitable premises Lack of adequately trained staff Lack accessible advice Cashflow Lack of working capital Obtaining finance Legal requirements = not important and 5 = very important Respondents in businesses that were aiming to grow were also asked about any barriers they faced in achieving growth in the coming two years. Their responses emphasise uncertain market conditions, pressure on cash flow and lack of working capital. This emphasised the concern that many small business owners have about financing, particularly when future revenue streams are uncertain (see Fig. 1). There were some regional variations in the frequency with which barriers were reported, although in most cases these were relatively small. However, firms in Northern Ireland consistently showed an aboveaverage propensity to report barriers compared with the UK as a whole. This particularly applies to access to finance, time for business planning and access to business support, all of which have implications for the support needs of small businesses in Northern Ireland. No significant differences exist in the reported barriers between firms located in urban and in rural areas. lifting the barriers to growth in UK small businesses 2008 page 9

10 2 Firm growth orientation is broken up into four categories using answers to questions in the questionnaire. Sustainedgrowth firms are defined as both having grown in the last two years and aiming for growth in the next two. New-growth firms have not grown in the previous two years but are aiming for growth in the next two. Containedgrowth firms have grown in the previous two years but are not aiming to do so in the next two. Finally, no-growth firms have not grown in the previous two years and do not intend to in the next two years. Note: Total in categories are as follows: Sustained Growth (n = 2886), New Growth (n = 2044), Contained Growth (n = 973), No Growth (n= 2212). 3 Note: Total in categories are as follows: Owner-only (n = 1984), 2-4 employees (n = 3315), 5-9 employees (n = 1659), employees (n= 815), 20+ employees (n=527). 4 See annex - Tables 1 and 2. 5 See annex Table 1. 6 See annex - Table 2. The sources selected for inclusion in this table. Detailed analysis shows some sectoral variation in the most commonly reported barriers. Increased regulation was of most concern to business owners in the hotel and restaurant sector, the motor trade, financial services and transport and communications. Both a lack of working capital/pressure on cash flow and problems in building a customer base were fairly consistently reported across the sectors. However, statistically significant sectoral variations can be identified with respect to obtaining finance-, as a barrier to growth in the coming two years in firms seeking to expand. It was of particular concern to firms in the motor trades, hotel and restaurant, consumer services and retail sectors, but less important in financial services. Firms fearing future working capital and/or cash flow constraints showed a broadly similar sectoral variation. The three reported barriers that have the most direct implications for business support, namely obtaining finance, pressure on working capital/cash flow and accessing business support, all showed significant variation between enterprise growth categories. 2 Specifically, it was new-and sustained-growth firms that were significantly more likely to report barriers in relation to accessing finance, pressure on cash flow and accessing business support. This is a potentially important finding because it shows that financial constraints can be particularly acute when firms are seeking to grow. The same three barriers were fairly consistently reported across the firm-size categories. 3 Effects of Legislation Respondents were asked how their businesses had been affected by ten specific types of legislation, on a rating scale of 1 (negative effect), 2 (quite negative), 3 (not at all), 4 (positively), and 5 (very positively). Not surprisingly, none of the specified regulatory areas were assessed as having a positive influence on average, but neither were any given an average rating below 2. This means that no specific regulatory field was rated as very negative. Although increasing regulation was identified as one of the main barriers to firms achieving their business objectives, no single piece of legislation appears to be of major concern to surveyed small business owners. In fact, the average effect of the ten listed pieces of legislation was rated remarkably consistently. 4 These results suggest that it is regulation in general that concerns small business owners, rather than specific legislation. This reflects the cumulative effect of the cost and time involved in complying, bearing in mind that more than two-thirds of all respondents (67.9%) indicated that they worked in excess of 45 hours a week and a reported average working week of 53.1 hours. But, detailed investigation revealed significant differences between firm size categories with respect to the effects of some types of legislation; for example, maternity and paternity leave legislation was of particular concern to firms employing fewer than five, as were increased statutory leave entitlement and changes in employment law. 5 These results show that, where legislative compliance is identified as a burden by small business owners, this is particularly concentrated in the smallest firms, where the proportional effect of the leave of absence of an employee is significantly greater than in the case of larger firms. Some sectoral variations may also be observed in respondents assessments of the effects of most of the individual regulations specified. 6 The exception was paternity leave legislation, which was assessed similarly across the sectors. At the same time, firms in business services showed a significantly aboveaverage tendency to assess regulatory effects more negatively in six of the ten legislative areas. Other sectoral differences include: increased statutory leave entitlement, which was of particular concern to firms involved in the motor trades; smoking regulations to firms in health, education and social services; and the national minimum wage to those in transport and communications. Increased regulation is fairly consistently rated as a barrier across the regions, where variations in respondents assessment of the effects of specific legislation were minor rather than major. There were no consistent and significant variations in the effects of legislation identified between business growth categories. page 10 lifting the barriers to growth in UK small businesses 2008

11 Sources of Finance Respondents were asked which sources they had used to finance their businesses during the previous two years, distinguishing between major sources of long-term capital and minor sources, supplying smaller amounts of short-term finance. As Table 1 shows, the most common major sources of finance reported were own savings, followed by retained profits and bank overdrafts. The main public source was grants. Although fewer firms reported minor than major sources of finance, certain sources were more commonly used for this purpose, namely personal credit cards and supplier credit. A higher proportion of firms also reported using public-sector sources and enhanced capital allowances as minor sources. By contrast, own savings were more typically used as a source of long-term finance. Significantly, perhaps, bank overdrafts were much more commonly used than term loans (secured and unsecured), as both a major and a minor source. Very few firms are accessing venture capital, either from venture capital institutions or from business angels. Neither factoring nor leasing was reported by more than a handful of firms. Table 1 Sources used to finance the business in the last two years Source Major source Minor source Personal Friends 2.2% 3.8% Family 9.6% 9.0% Inheritance 3.6% 3.6% Personal credit card 10.% 16.3% Pension 2.7% 4.8% Own savings 32.9% 18.0% Other business/employment 4.7% 4.2% Redundancy payment 3.2% 1.8% Financial Bank overdraft 29.4% 16.5% Factoring 2.7% 1.6% Company credit card 8.2% 15.5% Bank loan (unsecured) 9.7% 5.6% Bank loan (secured) 14.4% 4.3% Leasing 4.1% 4.8% Second mortgage 6.0% 1.8% Small-firm loan guarantee 1.3% 1.1% Miscellaneous Retained profit 31.6% 13.4% Venture capital 0.6% 1.1% Supplier credit 6.4% 9.1% Business angel/private investor 0.8% 0.9% Government Grants 2.1% 5.4% Public-sector low-interest loan 0.5% 0.7% Enhanced capital allowances 0.3% 1.2% N lifting the barriers to growth in UK small businesses 2008 page 11

12 The results show that self-financing is the most common source of finance used by small firms, with bank overdrafts still more popular than term loans. Newer types of financing, such as leasing and factoring, are hardly used at all. In view of the concerns expressed by respondents about the pressure on cash flow in the context of increasingly uncertain demand conditions, there may be a case for the FSB to promote the importance of improving credit control amongst its membership. The FSB might also seek to raise awareness of the uses of factoring, as part of an attempt to help to improve their cash-flow management. In addition, government condemnation of late payment becomes increasingly important in times of economic downturn, when average debtor days tend to increase, with the smallest firms disproportionately affected. The sources of finance used showed some regional variations. Focusing on those cases in which significant regional differences exist, own savings, was most commonly reported as a major source of finance by London-based firms and was least common in the SW. The use of bank overdrafts showed significant regional variations, particularly as a minor source, with firms in Northern Ireland showing the highest level of use. Not surprisingly, the use of public-sector grants, small firms loan guarantees and low-interest loans also varied regionally, although the absolute number is too small for the results to be statistically significant. Significant regional differences may be observed with respect to the use of personal credit cards, although the regional pattern is different with respect to their use as a major and a minor source. In the first case, it is firms in London and the East Midlands that show the highest percentage of use. However, as a minor source, credit cards are most commonly used in Northern Ireland and NE England, where almost 1 in 4 respondents report using them. Firms located in rural areas were significantly more likely to have used grants as a source of finance than their urban counterparts. There are also some sectoral variations in the sources of finance reported. Statistically significant sectoral variations are apparent with respect to the use of personal sources (such as family and own savings ) institutional sources (such as bank overdrafts, company credit cards, secured and unsecured bank loans), and leasing, as well as in the use of supplier credit and retained profits. In the case of other sources, either variations were too small to be significant or absolute numbers were low. In general, the sectoral variations observed are not surprising. For example, the highest propensity to use family finance was in consumer services, agriculture, health, etc. and in the motor trades, and the lowest in financial and business services and manufacturing. Bank overdrafts were most commonly used in the motor trades and agriculture, and leasing was most commonly used by firms involved in transport and communications and agriculture. Significant differences can also be observed in the sources of finance used by the various enterprise growth categories. Referring specifically to major sources, the variation mainly reflects the higher propensity of new-and sustained-growth firms to access finance from all sources, which in turn reflects their greater needs for finance overall. At the same time, this pattern was less clear-cut in relation to the use of bank overdrafts and retained profits compared with other sources. Differences between growth categories were not significant with respect to the use of pensions, the Small Firms Loan Guarantee Scheme (SFLGS), venture capital, public- sector low-interest loans and enhanced capital allowances. page 12 lifting the barriers to growth in UK small businesses 2008

13 Table 2 Selected sources of finance used as major and minor sources by gender 7 7 The sources selected for inclusion in this table are those where significant gender differences can be identified. Major source Minor source Ownership Family Personal credit card Own savings Bank overdraft Bank loan (secured) Retained profit Supplier credit Male Majority (51-99%) 9.0% 9.6% 31.1% 30.5% 12.8% 35.0% 7.4% 4022 Equal Male & Female 8.3% 9.6% 33.3% 30.5% 18.0% 31.7% 6.2% 2721 Female Majority (51-99%) 14.2% 12.5% 37.5% 23.9% 11.9% 21.6% 4.2% 1316 UK 9.6% 10.0% 32.9% 29.4% 14.4% 31.6% 6.4% 8132 Male Majority (51-99%) 8.4% 16.3% 18.0% 17.3% 4.4% 13.7% 9.8% 4022 Equal Male & Female 8.6% 16.0% 18.3% 16.2% 4.7% 14.6% 9.5% 2721 Female Majority (51-99%) 11.2% 17.1% 17.6% 15.0% 3.4% 10.0% 6.3% 1316 UK 9.0% 16.3% 18.0% 16.5% 4.3% 13.4% 9.1% 8132 Note: Respondents were able to identify more than one source. N Significant differences can also be observed in relation to the use of various sources of finance, based on gender (see Table 2). Essentially, women show a significantly higher propensity to use family as a major source than men, as well as personal credit cards, own savings and other income. They show a significantly lower propensity to use bank overdrafts, factoring, secured bank loans, leasing, the SFLGS, retained profits and supplier credit, which the previous FSB survey suggested may be because they have greater problems accessing bank finance. In seeking to identify any differences in the sources of finance used by the various ethnic groups, three broad categories are specified: White British, Other White and Mixed/Non-White. The results show that some significant differences exist between these groups, although there is not a dominant pattern. Members of the mixed/non-white group only show a significantly higher propensity to use friends, personal credit cards, other income and secured bank loans as major or minor sources of finance, and a significantly lower propensity to use retained profits. Since previous research on access to finance has emphasised differences between ethnic minority groups, rather than between the ethnic minority as a whole and white-owned firms, the lack of clear-cut differences in the types of finance accessed by broad ethnic groups here is not altogether surprising. Some of the sources of finance used showed significant variation between enterprise size bands. This included the use of family finance, which declined in use with increasing firm size, as did the use of personal credit cards, own savings and other income (as major sources). By contrast, the use of factoring, leasing and secured bank loans increased with increasing firm size. Sources of Business Support Business support was defined in the survey as including the provision of assistance, advice, funding or services to private-sector businesses and social enterprises. In other words, business support is a broader concept than business advice, which represents one type of business support. Respondents were asked if they had accessed business support from a list of 19 specific types of organisation (see Table 3). The results show that the most commonly used sources of business support were the firm s own customers; personal financial advisers/accountants; suppliers; family; other business owners; the Internet; and banks. By contrast, the specified types of public-sector source had been used by considerably fewer respondents. The results show that it is backward and forward linkages in the supply chain, combined with professional services supplied by the private sector, that are by far the most commonly reported sources of business support. lifting the barriers to growth in UK small businesses 2008 page 13

14 Where external sources of business support had been accessed, respondents were asked how satisfied they were with the business support they had received, on a five-point scale ranging from 1, very dissatisfied, to 5, very satisfied (Table 3). As previous FSB surveys have noted, expressed satisfaction levels tend broadly to follow the pattern of usage. In this case, the highest levels of satisfaction with business support received were expressed in relation to family sources and their own customers, both of which are often described as informal sources. By contrast, those sources with which respondents typically expressed dissatisfaction were: central government; the EU (such as EU Information Centres); local government; tourist boards; export partnerships and enterprise agencies. All other sources were awarded a neutral assessment on average, including commercial consultants, banks and universities. Whilst the survey does not enable us to identify the causes of dissatisfaction with public-sector services, these results do raise questions concerning the extent to which public-sector sources of business support are meeting the expectations of small businesses. There was also a significant difference in the levels of satisfaction expressed between employment size bands, with respect to banks, with firms employing fewer than five rating banks significantly lower than larger enterprises. Table 3 Use and satisfaction levels with sources of business support 8 1=very dissatisfied; 2=dissatisfied; 3=neutral;4= satisfied; 5=very satisfied Source % Respondents using source No. of respondents using source Your customers 80.6% Personal financial adviser/accountant 76.6% Your suppliers 76.4% Your family 73.1% Other business owners 65.9% Internet 65.4% Bank 64.8% Trade association 55.4% Solicitor 43.9% Local govt 29.9% Central govt 29.6% Govt-funded support 28.7% Enterprise agency/trust 22.3% Commercial business consultants 20.2% RDA 20.0% Universities/colleges 15.5% Tourist board 12.2% Export partnership 6.5% EU support 5.1% Mean satisfaction with support received 8 Note: Satisfaction was recorded on a five point rating scale from 1= very dissatisfied to 5= very satisfied. page 14 lifting the barriers to growth in UK small businesses 2008

15 Significant regional variations can be observed in relation to the use of certain sources of business support. For example, firms in Northern Ireland reported the highest level of use of banks for this purpose and those in London the lowest. Use of the Internet for business support was highest in London and lowest in Wales. Solicitors showed the highest level of use in Northern Ireland and the lowest in Wales). Trade associations were used most commonly in the NW and least in NI. Reported use of tourist boards for business support was highest in NI and lowest in London; use of customers was highest in London and lowest in the NE; and use of family highest in NI and lowest in Wales). Not surprisingly, significant differences can also be identified between regions in the use of various public-sector sources of business support. 9 See Annex Table 3 10 See Annex Table See Annex Table 5 Significant sectoral differences exist in relation to each of the reported sources of business support used. 9 Compared with other sectors, agricultural enterprises showed a particularly high level of use of central government support; commercial consultants enterprise agencies/trusts; EU sources; other business owners; universities, colleges; family sources and own suppliers. Manufacturing firms were among the highest users of export partnerships, government-funded business support and RDAs. Firms in the motor trades were among the highest users of banks, family sources and other business owners for business advice. Respondents in the hotel and restaurant sector showed one of the highest propensities to have used banks, central government support, accountants/personal financial advisers, support from local government, solicitors, trade associations, tourist boards and their own customers. Financial and business service firms reported the highest tendencies to use the Internet as a source of business support. Those in health, education and social services were the highest users of universities and colleges; and firms involved in wholesale and retail activity, of suppliers. Use and Impact of Government Sources of Business Support Respondents were also specifically asked about their use (if any) of both government- and nongovernment-funded business support in relation to 12 specific areas. The results show that governmentfunded business support had been used for a wide variety of purposes; typically by between one-fifth and a third of respondents in each case. In this context, the most commonly mentioned impacts of government sources of business advice were help in getting the business started, increased confidence and improved skills. 10 Significant regional differences exist with respect to all types of use of government-funded business support, although this mainly reflects the higher level of use of business support services overall, since enterprises in NE England and Northern Ireland showed the highest propensities to make use of all types of support. Respondents were also asked to assess the impact of government-funded business support used, which their answers show to be typically very low. 11 On a five point rating scale from 1=no impact to 5=significant impact, only help in getting started (2.7), increased confidence (2.3), improved skills (2.2) and improved management skills (2.1) averaged beyond the no impact category. Based on respondents perception at least, government-sponsored business support is having little impact on the businesses reporting they had received it. Within the picture of the low overall impact of government-sponsored business support services, firms in health, education and social services, and also in business services, assessed the impact of help received at start-up from government-funded sources significantly higher on average than their counterparts in other sectors. At the other extreme, those in hotels and restaurants assessed government-funded business support significantly more negatively. Similarly, respondents in business services rated the impact of the government-funded help with identifying and accessing new markets significantly more positively than the average across all sectors and those in hotels and restaurants significantly more negatively. lifting the barriers to growth in UK small businesses 2008 page 15

16 With the exception of help in getting started and raising capital, significant regional variations can be identified in assessed impacts, although this is in the context of low assessments across the board. Firms in the SE region were significantly less critical of the overall impact of all other types of advice than their counterparts in other regions, with the highest assessments made of help in increasing confidence, improving skills and improved management skills. 12 See Annex Table 6 Significant differences between sectors may be observed with respect to all types of reported use of government-funded business support, reflecting the different needs of firms involved in different types of activity. 12 For example, manufacturing enterprises were the highest users of government-funded sources to help them to access capital and firms in business services of start-up support and help in improving contacts; firms in health, education and social services were among the highest reported users of government-funded help across a variety of different types of assistance. By contrast, firms in the motor trades were the lowest users of government-funded support services in relation to start-up support, accessing new markets, improving contacts, improving skills and improving management skills. Detailed analysis of the use of government-sponsored business support reveals significant differences between growth categories in relation to all 12 types of business support specified. In all 12 cases, it was firms in the sustained-growth category that showed the highest level of use of any of the enterprise growth types. There is no way of knowing whether it is the business support that contributes to firms growth performance, or growing firms more actively seeking support, or because an increasing amount of government support is either targeted on or restricted to growth businesses. Whatever the reason, the use of government-funded assistance appears to be concentrated in growing businesses. With regard to impact, whilst sustained-growth firms are either at or above the average rating of impact in relation to all specified types of business support, it is the low assessment of impact overall that is the dominant theme. Use and Impact of Non-Government Sources of Business Support 13 See Annex Table 4 Respondents were also asked about their use of non-government-funded business support, together with an assessment of its impact on their businesses. The most common types of business support sourced from non-government sources were help in getting started, improved contacts and increased confidence. 13 However, the point to stress is the wide range of support needs addressed from non-government funded sources, since ten of the 12 specified types of business support had been used by more than 20% of respondents (the exceptions were help with business recovery and with improving supply-chain operations). Use of non-government-funded business support showed less regional variation than governmentfunded support. For example, start-up support was one of the five types of non-government-funded business support for which no significant regional variations could be identified. In the other seven cases where significant regional variations were identified, firms in Northern Ireland and North East England typically reported the highest levels of use of non-government-funded business support. Significant sectoral differences in the pattern of use of non-government sources of business advice can also be identified. Sectors showing above-average use of non-government sources include: hotels and restaurants (for help in raising capital, reducing costs, improving their supply chain, improving products and services and business recovery); financial services (for improving skills); business services (for help with start-up, increasing sales, developing markets, improved contacts, improved skills and increased confidence); health, education and social services (for help with start-up, increased sales, improved contacts and increased confidence); and consumer services (for improved skills). Respondents assessment of the impact of non-government sources of business support was somewhat higher than that of government-funded sources, since four of the specified types of page 16 lifting the barriers to growth in UK small businesses 2008

17 14 Respondents were asked to assess impact on a rating scale from 1= no impact to 5= strong impact. support were rated 3 or more on the five-point rating scale and no type was rated less than two 14. Respondents assessment of the impact of the various types of non-government-funded business support showed little significant regional variation. In fact, the only type for which such a difference could be identified was advice with respect to business recovery, where firms in London and the SE showed a significantly higher assessment of impact than their counterparts in other regions. As in the case of government-funded business support, it was growing (i.e. sustained-growth) firms that consistently showed the highest level of use of non-government-funded business support in any of the four growth categories (see Figure 2). Figure 2 Impact of nongovernmentsponsored business support on business by growth orientation Average Mean Sustained New Contained No Growth 0 Helped me get started Helped me raise capital Increased sales Reduced costs Improved supply-chain operations Improved product services New markets Improved contacts Improved skills Increased confidence Business recovery Improved management skills Type of Support 1 = not important factor and 5 = very important factor Comparing the Use of Government-and Non-Government-Funded Business Support A comparison of the use and impact of government-and non-government-funded business support reveals some significant differences (see Table 4). Specifically, the level of reported use of governmentfunded support is higher than non-government-funded support in 11/12 specified types of assistance (raising capital is the exception). Significantly, however, the assessment of impact follows a reverse pattern, since non-government sources are rated to have higher impact in all 12 instances. Moreover, this pattern applies across the sectors. In no case do respondents from a particular sector rate the impact of government-funded support above that of support received from nongovernment sources. lifting the barriers to growth in UK small businesses 2008 page 17

18 Table 4 Comparing government and nongovernment sources of support 14 Respondents were asked to assess impact on a rating scale from 1=no impact to 5= strong impact. Type of support Government source Non-government source Use Assessment of Impact Use Assessment of Impact Helped me get started 34.0% % 3.4 Helped me raise capital 24.3% % 3.2 Increased sales 29.2% % 2.9 Reduced costs 26.3% % 2.7 Improved supply-chain operations 21.5% % 2.4 New improved products or services 23.8% % 2.8 New markets 27.3% % 2.7 Improved contacts 29.7% % 3.1 Improved skills 32.0% % 2.9 Increased confidence 32.1% % 3.1 Business recovery 18.2% % 2.2 Helped me improve management skills 28.9% % 2.9 The pattern of types of use is broadly similar across governments and non-government-funded sources of support, with help in getting started the most common in both cases, followed by increasing confidence. In the case of government-sponsored support, improved skills was the third most commonly cited; from non-government sponsored sources, it was improved contacts. More detailed examination shows that in agriculture, manufacturing, transport and communications, business services, health, education and social services and the consumer services sector, a higher proportion of firms had accessed government-sponsored support across all types. By contrast, in financial services a higher proportion of firms had used non-government-sponsored services in all areas except business recovery. In other sectors, it was mainly raising capital that drew more firms towards non-government-sponsored sources of business support. Although help in getting started is the most commonly used type of assistance from both government-and non-government-funded sources, in both instances respondents assessment of impact was lower in the case of government funded-support. Not surprisingly, in both governmentand non-government-funded support, there is a close relationship between the types of assistance most frequently used and those rated as high-impact. The exception is help in raising capital from non-government-funded sources, which ranked sixth in respect of use but second in respect of impact assessment. Sources and Impact of Business Advice As well as being asked about their use of different sources of business support, respondents were asked to identify the sources and types of business advice, that had made an impact on their businesses. In comparing these answers to those given to other questions in the survey, it should be noted that business advice is a subset of the broader concept of business support covered in other questions. It should also be emphasised that respondents were only asked to identify the sources of advice that provided one or more specific types of business advice, which means they may have sought more advice than is recorded here. page 18 lifting the barriers to growth in UK small businesses 2008

19 Not surprisingly, there was considerable variation in the level of use of the particular sources of business advice that were judged helpful (see Table 5). The most common types of advice sought and reported to have been useful were at start-up, in raising capital and in increasing sales. At the same time, between 12.9% and 65% of respondents reported finding advice helpful across the 15 specified areas. As a consequence, the overall picture that emerges is of small businesses being active users of external advice for a variety of purposes and from a range of sources. The most commonly reported sources overall were professional services (which included accountants, banks, and lawyers), customers and suppliers, informal networks and/or trade associations and family and friends. Government-funded business services had been used and found to be helpful by 27.5% of responding firms, making them the fifth-largest source of business advice. The most common uses of government-funded business advisory services are at start-up, advice with regards to environmental legislation, improving skills, and for improving management skills. Table 5 Sources of advice from which helpful advice was acquired, by region 15 See Annex Table 8 Professional services (banks, accountants solicitors, etc) Government business services Universities Family and friends Customers or suppliers Informal networks or trade associations North East 49.0% 34.0% 5.9% 39.2% 42.5% 37.3% North West 58.6% 24.7% 6.2% 41.6% 50.7% 42.6% Yorkshire & Humber 56.1% 25.7% 6.6% 40.6% 48.0% 44.4% East Midlands 58.6% 27.1% 4.5% 44.2% 50.1% 42.0% West Midlands 56.9% 21.9% 6.0% 43.5% 50.8% 43.6% East of England 56.9% 29.7% 5.4% 44.5% 48.0% 44.0% London 58.8% 23.3% 10.0% 45.8% 49.6% 42.9% South East 57.6% 27.6% 7.2% 43.3% 50.3% 45.4% South West 58.1% 27.2% 6.7% 42.5% 47.8% 44.0% Wales 53.3% 31.3% 5.6% 37.2% 46.9% 36.7% Scotland 55.0% 34.5% 6.6% 42.7% 52.3% 44.5% Northern Ireland 58.9% 35.1% 6.5% 43.7% 55.8% 40.3% UK 56.8% 27.5% 6.3% 42.3% 48.8% 42.7% The use of government-funded sources of business advice showed highly significant differences between regions, with firms in Scotland, NE England and Northern Ireland showing the highest level of use and those in the West Midlands the lowest (Table 5). In NE England and Wales particularly, high reported usage of public-sector advisory services appears to be compensating for low levels of use of other sources, since the reported use of professional services, customers, suppliers, informal networks and trade associations was the lowest of any region. These regional variations in the respective use of government-and non-government-funded services have important potential policy implications, by emphasising differences between regions in the extent to which private-sector business services are available to be brokered to under the current Business Link IDB model. lifting the barriers to growth in UK small businesses 2008 page 19

20 16 See Annex Table 8 There are significant sectoral variations across all sources of advice at start-up. With regard to professional services, firms in the health, education and social services sector showed the highest level of use and those in financial services and agriculture the lowest. Enterprises in consumer services, the motor trade and the health, education and social services sectors showed the highest level of reported use of family and friends. Use of government-funded business services at start-up was most commonly reported by firms in the health, education and social services sector, business services and consumer services. Sectoral variations in the sources of external advice are associated with significant sectoral variations in all types of advice used, except for advice with respect to improving overall capacity. More specifically: enterprises in agriculture showed one of the highest propensities to access advice with respect to environmental legislation and one of the lowest to use external advice at start-up; firms in mining and construction showed one of the highest propensities to access advice with respect to improving contacts; firms in manufacturing showed one of the highest propensities to access advice with respect to introducing new products or services, finding new markets; and improving supply-chain operations; firms in transport and communications did not vary significantly from the average with respect to any type of advice; firms in the motor trade were one of the lowest users of external advice with respect to increasing sales, finding new markets, improving contacts, improving skills, improving overall capacity, increasing confidence, helping business, and improving management skills. Firms in the hotel and restaurant sector showed one of the highest propensities to access advice with respect to raising capital, reducing costs, improving existing services, and environmental legislation. Firms in the financial services sector showed one of the lowest propensities to access advice with respect to reducing costs, improving supply chain operations, improving existing products or services, introducing new products or services, and advice about environmental legislation; they were not one of the highest users of any types of external advice. Firms in the business services sector showed one of the highest propensities to access advice with respect to start-up, increasing sales, finding new markets, improving contacts, and increasing confidence. They were one of the lowest users of external help with raising capital and with business recovery. Firms in the health, education and social services sector showed one of the highest propensities to access advice with start-up and with respect to improving skills, improving management skills and one of the lowest users with respect to supply-chain operations. Firms in the consumer services sector showed one of the highest propensities to access advice with respect to introducing new products or services, improving skills, improving overall capacity, increasing confidence, helping business recovery, and improving management skills Firms in the wholesale and retail sector showed one of the highest propensities to access advice with respect to raising capital, increasing sales, reducing costs, improving supply-chain operations, improving existing products, and introducing new products or services. page 20 lifting the barriers to growth in UK small businesses 2008