Scottish Government

Fiona Neathey, Jennifer Hurstfield, Becci Newton, Peter Bates
(Institute for Employment Studies)

ISBN 0 7559 3988 3

This document is also available in pdf format (192k)

In late 2003 the Scottish Executive sponsored a survey of 1,000 small and medium sized businesses in Scotland as part of a larger UK-wide survey commissioned by the Small Business Service. This follows similar surveys in Scotland in autumn 2001 and 2002.

Main Findings

• Nearly half (49 per cent) of respondents said their business was doing either very well or quite well. Fewer than one in ten (8 per cent) felt themselves to be doing badly or were concerned about their chances of survival.
• Nearly 40 per cent of employers had experienced employment growth in the past year or expected to increase employment in the coming year.
• Seventy-seven per cent of respondents would encourage someone else to start a business.
• The three most frequently cited obstacles to the success of the business were competition, regulations and the economy. When asked to rank obstacles, the greatest obstacle, cited by over 15 per cent of respondents was regulations.
• About a quarter of respondents had raised external finance (compared to just over a fifth in England). Of those who had sought finance the most common reason for doing so was working capital/ cash flow requirements.
• Two-thirds of businesses had not sought any general business advice at all. When advice was sought, it was generally seen as positive, more so when from informal sources or professionals and less positive when from regulatory and other state bodies.
• Within the area covered by Scottish Enterprise eighty per cent of respondents were aware of the Business Gateway, and 27 per cent had used it.

Aims of the Survey

In late 2003 Databuild interviewed a representative sample of 1,000 small or medium sized firms in Scotland, as part of a UK wide survey carried out in collaboration with the Small Business Service and the Welsh Assembly. The aims were to:

• find out more about characteristics of small firms;
• investigate the concerns of small businesses, and what they perceive to be obstacles;
• examine awareness, of public services that support small businesses;
• act as a screening survey for other research such as surveys of sub-groups of the small business population.

Although the survey included businesses without employees, the reported findings concentrate on those with 1-249 employees. Where appropriate the results are compared with the findings for the UK as a whole. On the whole the findings for Scottish SMEs are broadly similar to those for the UK.

Method

The stratified sample was selected at random from a sample that, in turn, had been randomly selected from the Dun and Bradstreet database of enterprises in Scotland. The results were weighted to reflect the distribution of firms by size in Scotland using the Inter Department Business Register ( IDBR).

The questionnaire was developed to investigate core topics in the Small Business Service Strategy with additional questions added for Scotland by the Scottish Executive ETLLD. The survey was carried out by telephone and the questionnaire completed by the interviewer using CATI (Computer Assisted Telephone Interviewing) software.

Characteristics

Over half (57 per cent) of all respondents (including 61 per cent of employers) reported that their business was family owned. This was lower than for the UK as a whole where 67 per cent of businesses were found to be family-owned.

Less than one-fifth of employers did at least some business outside the UK. However, for most of these exports constituted only a minority of their turnover and only 4 per cent said that most of their sales were abroad.

Twelve per cent of businesses in the survey were either managed solely by women, or had women as a majority of directors. This was similar to the UK as a whole. A further 22 per cent of respondents said that there were equal numbers of men and women on the management team.

Only 3 per cent of businesses had at least half the directors from an ethnic minority.

One-third of Scottish businesses were a member of a trade-association with the most common membership being the Federation of Small Businesses with 12 per cent of respondents being members.

Business Objectives and Growth

58 per cent of employers said that their business was doing very well or quite well. A further 32 per cent said they were doing adequately. Under one in ten (8 per cent) felt themselves to be doing badly.

12 per cent of businesses were experiencing 'sustained' growth, where employment grew in the past year and was expected to do so in the next one.

A further eight per cent were experiencing 'contained' growth where employment had grown in the past year but was not expected to do so in the next year. While 20 per cent expected to increase employment in the coming year although it had not increased in the past year.

Altogether nearly 40 per cent of employers had experienced employment growth in the past year, or expected to experience it in the future year.

The proportion classed as having sustained growth was higher exporters, larger firms, registered companies and businesses aged three years or less.

Looking at growth more widely defined in the coming two or three years:

• 59 per cent of employers proposed to grow;
• 24 per cent were not proposing growth, mostly because they were happy with their current size;
• 7 per cent wanted to grow but felt constrained by the size of the market (this was more common in the primary sector); and
• 10 per cent wanted to grow but faced resource constraints.

The proportion expecting to grow was particularly high among firms aged less than four years.

Barriers and Obstacles

Respondents were asked to identify obstacles to the success of their business. In line with findings for the UK as a whole, the obstacles cited by the largest proportion of respondents (around two-fifths in each case) were competition, regulations and the economy. Each obstacle was mentioned less frequently by those businesses without employees.

Those who had identified obstacles were then asked which was the greatest obstacle. Employers identified regulations (15 per cent), taxation (14 per cent) and competition (13 per cent) as the greatest obstacle most often.

The proportions citing regulations were high in Highlands and Islands (25 per cent) and in primary industries (42 per cent).

Among the 36 per cent of respondents who mentioned tax as an obstacle, the most frequently mentioned tax was VAT.

Finance

Overall 24 per cent of employers managed to raise external finance (compared with 21 per cent in England).

28 per cent of employers (and 17 percent of zero employee businesses) had sought finance in the past twelve months. Employers in Scotland were slightly more likely to have sought external finance, than were employers in England (24 per cent).

Businesses in the production industries were most likely to have sought finance, with over 46 per cent having done so once or more in the past year.

Only 11 per cent of women-led businesses had sought finance in the previous 12 months.

Nearly three-quarters of employers who had sought finance had no difficulty obtaining it from the first source.

The most common reason for seeking finance was for working capital/ cash flow, cited by more than a third (36 per cent) of employers. This was followed by capital equipment/vehicles.

Half of those seeking finance (52 per cent; or 11 per cent of the survey respondents as a whole) said that they had sought a bank loan, while a fifth had sought a bank overdraft. Only 3% of employers had sought equity funding - but this was higher than for the UK.

Business Advice and Support

Only 42 per cent of employers had sought any advice or information about the general running of their business in the previous year. The most commonly cited source (14 per cent) was an accountant.

In the area covered by Scottish Enterprise just over half (51 per cent) of respondents were aware of the service provided by Business Gateway. This rose to 82 per cent after prompting. About a quarter of all respondent (30 per cent of employers) said that they had used the service. Use was higher among younger businesses, women led businesses and growing businesses.

59 per cent of users said they were fairly or very satisfied.

Other Issues

Seventy-seven per cent of respondents said they would be likely to encourage someone else to start a business.

When asked directly about crime, 17 per cent of respondents said it was a problem. This was higher in the most deprived wards where it was cited by 32 per cent of respondents. However, altogether more than twice as many did not view crime as a problem at all.

Two-fifths (41 per cent) of employers had introduced a new product or service in the previous year. For a fifth of these the innovation was new to market not just the business.

A similar proportion of employers (42 per cent) had introduced a new process or way of working in the previous year. This is much higher than for the UK as a whole (34 per cent). For 13 per cent of these the innovation was new to the market as well as the business.

Nearly a quarter of businesses had expressed an interest in public sector work. Of these, 91 per cent had actually undertaken work for the public sector.

If you wish further copies of this Research Findings or have any enquiries about social research, please contact us at:

Tel: 0141 2420262
Fax: 0141 242-5455
Email: socialresearch@scotland.gsi.gov.uk
Website: www.scotland.gov.uk/socialresearch

If you wish a copy of "Annual Survey of Small Businesses Scotland 2003" the research report which is summarised in this research findings, please send a cheque for £5:00 made payable to:

A report on the UK is available at: www.sbs.gov.uk/content/analytical/annualsbssummary.pdf

Tel: 0131 622 8283 / 0131 622 8258
Fax: 0131 622 8258
Email: business.edinburgh@blackwell.co.uk

This document (and other Research Findings and Reports) and information about social research in the Scottish Executive may be viewed on the Internet at: http://www.scotland.gov.uk/socialresearch

The site carries up-to-date information about social and policy research commissioned and published on behalf of the Scottish Executive. Subjects covered include transport, housing, social inclusion, rural affairs, children and young people, education, social work, community care, local government, civil justice, crime and criminal justice, regeneration, planning and women's issues. The site also allows access to information about the Scottish Household Survey.