Small Business Survey Scotland: 2021

Business Performance and Outlook

The survey captures the opinions of SME employers on how they performed in the past 12 months and what they expect for the coming year, in terms of changes in employment size and turnover.

Changes to employment in the last 12 months

Of all SME employers that had been trading for at least one year, 18 per cent employed fewer people than a year previously, in line with the proportion for the UK as a whole (19 per cent). 30 per cent had more employees and 52 per cent employed the same number, broadly similar to the UK as a whole (34 per cent and 47 per cent respectively).

Table 6 below shows the net balance of employment growth by business size. The net balance is described as the overall proportion of businesses that increased employment minus the proportion of businesses that decreased employment, compared to a year ago. Therefore, a positive figure indicates that more businesses within that category increased employment levels than decreased. In 2021, micro, small and medium-sized businesses all showed a positive net balance of employment growth, with medium-sized businesses showing the greatest positive net balance.

Small and medium-sized firms were more likely than average to have employed more people than a year previously. By sector, SME employers in the Construction (22 per cent) and Manufacturing (26 per cent) sectors were more likely than average to have employed more people.

Table 6: Numbers employed compared to 12 months ago (%) by size

Base: all SME employers trading for at least one year, 677 – Base minimum: Medium-sized businesses, 99

Expected Growth in Employees in next 12 months

31 per cent of SMEs in Scotland expect to employ more staff in the next 12 months, with 7 per cent reporting that they expected to have fewer staff over the same time period. This is broadly in line with the UK as a whole (30 per cent and 8 per cent respectively).

Changes to turnover in the last 12 months

Of all SME employers that had been trading for at least one year, 39 per cent increased their turnover (value of sales) over the past year. 31 per cent had approximately the same turnover and 28 per cent had seen their turnover decrease over the past year. These proportions were broadly in line with those in the UK as a whole.

Table 7 below shows the net balance of turnover growth by business size. SME employers of all sizes showed a positive net balance of turnover growth (i.e. higher proportions of firms experienced turnover growth than those that experienced turnover reduction).

Small and medium-sized businesses were more likely than average to have seen their turnover increase over the past year.

Table 7: Changes to turnover compared to 12 months previously (%) by size

Base: all SME employers trading for at least one year, 676 – Base minimum: Medium-sized businesses, 161

SME employers that answered Don’t know/Refused: 5%

Expectations of turnover growth in the next 12 months

52 per cent of SME employers in Scotland expected turnover to increase in the next 12 months and 40 per cent expected turnover to stay approximately the same. The proportion of businesses in Scotland expecting turnover growth is significantly higher than the figure for the UK (46 per cent). 6 per cent of SME employers expected turnover to decrease, broadly the same as the proportion in the UK as a whole (8 per cent).

Medium-sized SME employers were more likely than average to expect turnover to increase (61 per cent).

Profit

74 per cent of SME employers in Scotland generated a profit in their last financial year, in-line with the UK as a whole (73 per cent) and broadly similar to the prior year (70 per cent). The proportion of SME employers generating a profit was broadly consistent across business size-band.

Businesses in the Primary sectors (92 per cent) were more likely than average to have generated a profit, whereas businesses in the Other Services sector were less likely than average to have made a profit (52 per cent).

Figure 18: Whether generated a profit or surplus in the last financial year by sector

Base: all SME employers, 677 – Base minimum: Information/Communication, 18

SME employers that answered Don’t know/Refused to this question: 0%

Major obstacles to the success of the business (Cohort B only)

Respondents were read a list of issues and asked which, if any, represented major obstacles to the success of their business. In line with the UK as whole, the two most commonly reported obstacles by SME employers in Scotland were the Covid-19 pandemic (reported by 76 per cent of SME employers) and staff recruitment and skills (43 per cent).

Other commonly reported obstacles included regulations and red tape (42 per cent), competition in the market (36 per cent) and UK exit from the EU (40 per cent) (Figure 19).  UK exit from the EU has sharply increased as a major obstacle from 26 per cent in 2020.

Figure 19: Major obstacles to the success of the business

Base: SME employers (Cohort B only), 214

Multiple answers allowed to this question.

In a new question for 2021, those SME employers that reported UK exit from the EU as a major obstacle to the success of their business were asked whether they had already experienced or not experienced a number of specific difficulties (Figure 20).

In terms major obstacles already experienced, the most commonly reported answer was an increase in the cost of EU imports (56 per cent of SME employers reporting EU exit as a major obstacle), lower than the UK as a whole (69 per cent).

Decreases in investment/ greater difficulty in raising capital was least commonly cited major obstacle (13 per cent) slightly lower than the UK as a whole (16 per cent.)

Base: all that stated UK exit from the EU as a major obstacle (Cohort B only), 83

Growth ambitions

77 per cent of SME employers stated that they aimed to grow sales over the next three years, broadly the same as 2020 (74 per cent) and broadly in line with the proportion in the UK as a whole (76 per cent). Small (85 per cent) and medium-sized businesses (89 per cent) were more likely than average to have growth ambitions.

Whether plans for growth-related activities have been affected by UK exit from the EU (Cohort B only)

Figure 21: Whether plans affected by EU exit

Base: all SME employers (Cohort B only), 214

Those SME employers were asked whether their plans had been affected by the UK’s exit from the EU. Those SME employers in Scotland with plans to recruit new staff in the UK develop or launch new products/services (15 per cent and 8 per cent respectively) were most likely to have had these plans affected by EU exit.

The proportion of SME employers reporting that none of these growth-related activities have been affected by the UK exit from the EU was 59 percent, sharply down from 2020 (86 per cent) and broadly in line with the UK as a whole (61 per cent).