Small Business Survey Scotland: 2018

1. Introduction and Key Results 

Introduction 

This report sets out the findings from the Longitudinal Small Business Survey (LSBS) 2018 for Scotland^[1]. It focusses on small and medium-sized enterprises with at least one employee (SME employers). It outlines the key characteristics of SME employers in Scotland and provides an overview of their perceptions on a range of themes including innovation, fair work and access to finance. In addition, the report provides an insight into business performance and outlook.

As at March 2018, there were an estimated 344,410 SMEs operating in Scotland, of which those with employees represented 31 per cent (106,000 enterprises)^[2]. SMEs with employees accounted for 42 per cent of total Scottish employment and 36 per cent of turnover.

Survey method and reporting

The survey for Scotland is part of a UK-wide large-scale telephone survey of 15,015 owners and managers of SMEs, commissioned by the Department for Business, Energy and Industrial Strategy (BEIS) and was conducted between July 2018 and January 2019. The survey is the latest of a series of annual and biennial Small Business Surveys dating back to 2003. From 2015 onwards, the survey introduced a longitudinal tracking element and is now carried out on an annual basis. The longitudinal element of the survey established a ‘panel’ of businesses that might be resurveyed in subsequent years. This is to allow for analysis of how combinations of factors affect business performance over time. 

This report provides a snapshot of the state of SMEs with employees (defined as businesses with between one and 249 employees) surveyed in Scotland between July 2018 and January 2019. Enterprises with no employees have been excluded from the dataset on which this report is based. This is consistent with the reporting of the survey from 2015 onwards.

In 2018, 836 SMEs with employees took part in the survey in Scotland^[3]. 481 businesses in Scotland had taken part in prior year surveys (“panellists”)^[4] and 355 businesses were new to the survey in 2018 (“top ups”). The survey sample is stratified^[5] by business size (micro businesses with 1-9 employees, small businesses with 10-49 employees and medium-sized businesses with 50-249 employees) and by sector (defined by Standard Industrial Classification (SIC) 2007).

The sample breakdown is presented in Table 1 below:

Table 1: Sample Breakdown by Sector, Longitudinal Small Business Survey 2018, Scotland

The data have been weighted to ensure that the results are representative of the overall Scottish SME population. Because of changes in terms of sampling and changes to the questionnaire in 2018, data cannot always be compared with previous editions of the Small Business Survey Scotland. 

Table 2: Sample Breakdown by Cohort, Longitudinal Small Business Survey 2018, Scotland and UK

In order to reduce the average interview length and therefore boost response rates, three cohorts (A, B and C) were created for the 2018 survey (Table 2). Respondents were randomly assigned to one of the three cohorts and some questions were only asked of one cohort although most questions went to all three cohorts. Throughout the report, it is made clear where questions have been asked to one of the cohorts only or the full sample.

Where possible, the report provides results disaggregated by size band (micro, small and medium-sized businesses) and sector and provides comparisons with the UK as a whole and prior year findings. Where comparisons are drawn between sub-groups (e.g. size band), findings are reported in terms of differences between a particular sub-group (e.g. micro firms) and the overall finding (SMEs as a whole). Due to smaller sample sizes for sub-groups, the survey's estimates may be affected by sampling errors and therefore apparent differences of a few percentage points between sub-samples may not reflect real differences in the population. Therefore, sub-group comparisons (e.g. Scotland vs. UK; 2018 results vs. 2017 results; size band; and sector) in the report are displayed only when the difference with the overall finding is statistically significant at 95 per cent confidence level^[10]. 

Key Results 

Business Demographics 

• 63 per cent were urban-based while 37 per cent of SME employers were rural-based.
• 28 per cent of SME employers were home-based.
• 15 per cent of SME employers were women-led.
• 73 per cent of SME employers were family-owned.
• Two per cent of SME employers were Minority Ethnic Group (MEG)-led.

Trade Activities  

• 14 per cent of SME employers had exported goods or services outside of the UK in the last 12 months, unchanged from the prior year. 
• The proportion of SME exporters exporting to EU countries (77 per cent of SME exporters) and non-EU countries (73 per cent) was broadly similar. 20 per cent of SME exporters exported to EU countries only.
• 44 per cent of SME employers had sold goods or services to the rest of the UK.
• 21 per cent of SME employers had directly imported goods or services from countries outside the UK in the previous 12 months.
• A higher proportion of SME employers imported from EU countries (18 per cent) than non-EU countries (10 per cent). 
• 57 per cent of SME employers imported goods or services from the rest of the UK.

Business Practices 

• 21 per cent of SME employers had engaged in process innovation (i.e. introduced new or improved processes for producing or supplying goods or services) in the last three years.
• 48 per cent of SME employers had arranged or funded training in the past 12 months.

• Eight per cent of SME employers offered formal apprenticeships in the past 12 months.
• 19 per cent of SME employers expressed an interest in, or bid for, any contract advertised by the public sector in the previous 12 months. 28 per cent had actually done business for the public sector in the previous 12 months.
• 28 per cent of SME employers had used external information or advice on matters affecting their business in the past 12 months.
• 78 per cent of SME employers paid all their employees aged 18 or over (excluding volunteers, apprentices and interns) the Living Wage as defined by the Living Wage Foundation.
• 1 per cent of SME employers were signed up to the Scottish Business Pledge and a further 16 per cent were aware of it but not signed up. 

Access to External Finance 

• 70 per cent of SME employers in Scotland were currently using external finance at the time of the 2018 survey.
• The most common forms of external finance currently used by SME employers were credit cards (40 per cent of SME employers) and bank overdraft facilities (34 per cent).
• 17 per cent of SME employers had sought external finance in the last 12 months.
• Nearly two thirds of SME employers that had applied for finance (64 per cent) did so for working capital or cash flow reasons.

• The most common forms of external finance applied for were bank overdraft facilities (38 per cent of SME employers that applied for finance) and loans from banks and other financial institutions (32 per cent).
• 79 per cent of SME employers that applied for external finance were successful in obtaining at least some of the finance sought while 12 per cent did not obtain any.
• 12 per cent of SME employers were discouraged borrowers (i.e. they had a need for external finance in the last 12 months that they did not apply for).

Business Performance and Outlook 

• 21 per cent of SME employers that had been trading for at least one year had employed more people than a year previously. 66 per cent employed the same number and 12 per cent employed fewer. 
• 23 per cent of SME employers expected to employ more people in 12 months’ time, 68 per cent expected to employ about the same number and nine per cent expected to employ fewer.
• Of all SME employers that had been trading for at least one year, 34 per cent increased their turnover over the past year. 42 per cent had approximately the same turnover and 19 per cent had lower turnover.
• 38 per cent of SME employers expected turnover to increase in the next 12 months, 45 per cent expected turnover to stay approximately the same and 13 per cent expected turnover to decrease.
• 77 per cent of SME employers generated a profit in their last financial year.
• The most commonly reported obstacles to the success of the business were competition in the market (46 per cent) and regulations/red tape (45 per cent of SME employers). UK exit from the EU was noted as an obstacle by 28 per cent of SME employers.
• Of those SME employers that reported UK exit from the EU as a major obstacle to business success, an increase in the cost of EU imports was the most commonly reported difficulty already experienced (21 per cent) and the most commonly reported difficulty they expected to experience (34 per cent).
• 70 per cent of SME employers aimed to grow sales over the next three years, a ten percentage point increase from the prior year (60 per cent).