A study of recent Office for National Statistics (ONS) data on SME survival rates has provided uncomfortable news for owners. According to the figures, following four consecutive years of growth up to – and including – last year, SME numbers have fallen from 5,687,230 to 5,660,000: a decline of more than 27,000.
But that is not to say that our demand for their services has shrunk. Indeed, on the bright side, total turnover among UK SMEs has reached an all-time high of £2 trillion: up from £1.9tn in 2017 and £1.2tn three years ago. In 2015, SMEs contributed a third of the total turnover generated by UK firms. Now, that stands at a robust 51%.
The ONS figures were analysed by Independents’ Day – a group that campaigns to raise awareness of the services that SMEs provide.
Spokesman Howard Robinson told the Business Matters website [1]: “Our analysis proves that SMEs have never been more important to the British economy – not only in terms of their output, but also as employers. SMEs offer choice, diversity of product and service, tradition as well as innovation, and a more personal service to customer. These businesses are under pressure – they have never needed our support more.”
He added: “Such a significant drop in the amount of SMEs operating across Britain suggests that small and medium-sized businesses need more support from policymakers. A decline this sharp over the course of a year is a warning sign to all of us: use SMEs – or lose them.”
However, other recent research indicates that SME owners are often unsure of themselves. According to business bank Aldermore, [2] around two thirds of SME leaders have no clear plans in place for when key staff head off for pastures new. And an academic study from three universities [3] found that optimism often clouds SME owners’ judgment – with their more pessimistic counterparts earning around 30% more.
With all this in mind, what are the key warning signs that SME leaders should watch out for and address in order to keep their firms in business?
The Institute of Leadership & Management's head of research, policy and standards Kate Cooper says: “Small businesses fail because they are unable to win over enough customers to support their existence. Simply put, their product or service is not meeting a need. That failure to meet a need can stem from a variety of factors, such as shortcomings in the initial market research phase, and/or ineffective marketing messages. But whatever the cause, there’s some sort of mismatch between the leaders’ expectations of the function the business will fulfil, and the public’s desire to adopt the fruits of its efforts.
“Alternatively, the business may be getting its product or service right, and ensuring that its marketing message hits the spot – but the leaders aren’t properly in control of the finances. They’re not managing growth, stocks or expansion, so they’re disappointing people by not fulfilling orders, or not providing their services in a timely fashion.”
Cooper notes: “in each case, the fault will lie with the owner: the very person who came up with the concept behind the business. For many owners whose firms’ existences are under pressure, the solution will be to buy in talents who can fill the relevant gaps. To hire people who will say, ‘I know you think that your product is great – but how do we get that across to other people?’ Or, it will be a case of finding someone who can manage the finances, so that the business can focus upon smooth and timely delivery.”
She adds: “it’s never too early for an SME to draw up a risk register. And one of the biggest risks that owners will ever face – if they haven’t made adequate provisions for succession planning – is the effect of someone leaving. Any firm with a small number of staff will arguably feel the hit of a key talent’s departure more than a larger firm. So, the warning signs are: firstly, beginning to suspect that you do not have the skills to cover every aspect of your firm’s operations; and secondly, failing to ensure that there is someone ready to step into an impending vacancy, if a critical hire has decided to move on.”
For further thoughts on developing talent, check out these learning resources from the Institute