Sage has partnered with the Centre for Business Economics (CEBR) and published a substantive report entitled SMBs Driving Economic Recovery Business. The report is based on economic data from national resources across Europe and the US. The report covers U.S., Canada, UK, Spain, Germany, France, Ireland and Portugal. It argues that if the impact on SMEs during the recession of 2007-2009 is repeated, SMBs will help economies recover. The report estimates that SMBs will increase in number within the UK by 1.7% rising rise by 342,000 by 2025. The UK is third behind France and Germany in terms of the growth of SMBs. However, the US will grow slower, but still have the largest number of SMBs by 2023, 6,676,400, due to its larger economy.
It argues the importance of SMBs to the UK and other countries. Derk Bleeker, President EMEA at Sage, says. “SMBs shouldn’t be underestimated in helping to recover and drive the economy as we head into the next few years. They make up 99.9% of all businesses and generated more than half (51.1%) of UK business turnover in 2022. So, while business owners are facing real challenges, they are clearly in a better position to adapt to changing economic landscapes and have the resilience to ride the storm.
“Our ask of the government is simple; make it as easy as possible for SMBs to do business digitally and adopt technology that will unlock productivity and give them the insights to adapt and grow quicker. With the right support, policies and incentives in place, SMBs will unleash their full potential and play a vital role in economic recovery and sustained long term growth.”
Will inflation matter?
While the report is well-researched and has some valid findings, it seemingly ignores the impact of an inflationary economy on SMEs. While acknowledging the challenges an inflationary economy brings, it does not consider business failures. In a study of business success in the UK between 1966 and 2003, Liu and Pang stated, “As regards the effects of the inflation shock, in the pre-1980 period the company birth rate decreases immediately in response to an unexpected rise in the inflation rate, and then shows a path back towards equilibrium. However, its positive effect on the business failure rate appears to be permanent, suggesting that inflation is directly associated with business failures.”
The report omits any academic references and ignores the potential impact of business failure. However, today’s business climate is very different from 2007-2009. The gig economy is flourishing, and it has never been easier to set up a business. Also, technology to support SMEs, such as Sage, is far more prevalent, much stronger, and affordable than it was forty-five years ago.
The study further outlines the role of SMBs in powering global economies, with the sector showing no signs of slowing. Growth in turnover for UK SMBs is expected to outperform the growth rate for all businesses from 2023-2025, with SMBs expected to make up 51.9% of total business turnover in the UK economy by 2025. By 2025, CEBR forecasts that the number of SMBs will grow across all countries studied, the U.S., Canada, the UK, Spain, Germany, France, Ireland and Portugal.
What is in the report
At fifty-four pages, this is a significant piece of work. Following a forward by a local Sage business leader and a short executive summary, the report is divided into three main sections.
Looking Back
This section looks at how the number of SMBs dropped and recovered during the economic crisis in the noughties. It notes that whilst the number of SMBs fell by only 0.2% in Europe, the number was much higher across the US, more than 2% in 2008 and nearly 3% in 2009. Businesses seemed to survive by shedding staff in Europe and North America, mainly in 2009, before quickly returning to growth. The report goes into some detail across different countries and also notes the importance of SMBs to the global economy.
Looking Forward
CEBR forecasts the growth rate of SMBs between 2022 and 2025, seeing growth across all economies, although Ireland is the slowest, with a flat growth rate in 2023 and 2025. It does not include a forecast for the US, as the lack of a complete data set made this difficult. This bullish viewpoint has no variances, such as using time series forecasting, though the data points may not have been available. It merely uses the 2007-2009 statistics overlaid on the current data sets. However, the trend towards the importance of SMBs in the economy cannot be doubted, with SMBs making up between 99.6% and 99.9% of business output across the European economies studied.
The report states, “Analysis so far has shown SMBs are expected to remain key to economic recovery in the post-pandemic world. Our economic model forecasts solid growth in almost every SMB indicator in each of the eight countries studied.” The difference and justification for the rapid rise of SMBs post-2022 are partly due to the digitisation of SMBS and the ease with which they can create websites. In Spain, 76% of SMBs had a website in 2021, up 8% from 2013. Similar rises are seen in other countries. Perhaps surprisingly, considering its proximity, Portugal only 63% of SMBs had a website, compared to Germany, with 87% in 2018. Technology is helping SMBs start and grow, a big difference from 2009.
Country Specific analysis
By far the largest section at forty pages, this looks at each set of statistics from a country and analyses them. This section breaks down the data by country and provides a wealth of information. The UK data uses ONS statistics, and while it demonstrates the surge in Information and Technology SMBs, it does not provide a complete breakdown of industries. The regional breakdown is complete, with London and the South West performing strongly, and Northern Ireland declining between 2007 and 2022.
It closes with a mini case study from Tree Tops Caravan Park, whose owner, Andrew Walker, said, “As a family, we have owned businesses since the 1950s and been through many challenging times, from swine fever as farmers, to a global financial crisis and a pandemic. We have built our business from nothing and worked hard to weather the various storms. The fact that the number of UK SMBs are expected to increase during what will no doubt be a tough few years is a hugely positive sign for the wider small business community and really shows the resilience of SMBs. Our plan for today is to take stock and to continue to watch the business environment closely – there’s a lot to consider but it’s a great time to realign our objectives and we have ambitious plans for the future.”
The European countries provide a wealth of statistics, but no case study exists for each country, which is a slight disappointment. The US and Canadian sectors have a short partner and customer case study, respectively. Zeb Khandwala, CEO of Bay Polymers, cited business uncertainty as a key concern, leading to layoffs. As the economy has recovered, recruiting has also been an issue with inflation driving up wages. Rising wages may also have impacted costs such as logistics. Technology has introduced efficiencies in the organisation.
Enterprise Times: What does this mean
There is growth potential. However, it will need some catalysts, such as technology and perhaps government support for small businesses. The bullish forecast for Europe and North America may still prove valid, but without further investment to help boost the economy and small businesses, especially failure rates could increase and offset some of the growth of SMBs.
FSB National Chair Martin McTague commented, “The UK lost 400,000 SMBs during the pandemic and now our economy is lagging behind others due to a likely recession in 2023, anaemic growth in 2024 and EU trade barriers. This research shows the potential for growth if SMBs are supported in the right way.
“We need a new focus on economic growth and productivity because small firms rely on being able to trade seamlessly across borders. Global institutions, such as the World Trade Organisation, are becoming aware that small businesses should be central to trade policy. We need policymakers to keep the momentum going to make trade a reality for all, by supporting the introduction of Small Business Chapters as default part of trade deals and ensuring that technological solutions can be fully exploited by SMBs. Boosting trade and digitisation for SMBs across the world will help to tackle poverty, generate wealth, and support the UK economy to not just recover, but grow.”
Government support, issues such as late payments from larger firms should also be put back on the legislative table. While large enterprises steal most of the news, whether that is huge deals or job losses, it is the small businesses that drive the global economy.
