Steady trading for SME's in 2005, but employment down

The trading environment for small and medium-sized companies last year was steady but not dynamic, says a survey by the Small Business Research Trust (SBRT), with employment declining slightly in three of the four quarters.

Simon Wainwright, head of small business banking at HSBC Bank, which commissioned the survey, said: "We have over 1200 local commercial managers based in more than 200 commercial centres right across the UK. HSBC's unique combination of global scale combined with local knowledge means that we are ideally placed to help SMEs achieve their full potential in today's increasingly competitive marketplace."

The SBRT survey, carried out by the Management School at the University of Liverpool, showed that over the year sales and investment were up, but employment was slightly down. Sales fluctuated slightly over the four quarters. However, on average about 3% more companies said they had experienced a growth rather than a decrease in sales.

In his foreword to the report, the SBRT Chairman Brian Wolfe challenges the Government to lift the burden of regulation and taxation on small businesses: "When reviewing challenges to growth that smaller businesses have faced, as recorded in our quarterly surveys in 2005, tax and employment regulations have consistently been the main barriers.

The Government's targets for reducing red tape by 25% over the next five years are certainly ambitious. If Government is to achieve these targets, there needs to be a change in their approach to dealing with the regulatory burdens that are surrounding small business.

The outlook for 2006 is uncertain and no-one in business likes uncertainty. The SBRT urges the Government to examine closely the barriers to growth presented in this report."

The SBRT report is based on the biggest survey of small and medium-sized enterprises (SMEs) in the UK, carried out four times a year. The final report for 2005 reveals that, in the three last quarters, about 1.5% more businesses reported employment down rather than up. On average, employment was slightly down for 2005. Investment remained steady, with about 5% more businesses reporting increases than decreases. However, employment, sales and investment were all down compared with the last two quarters of 2004. Over the year the SBRT surveyed 33,000 businesses and the majority reported little change in their business situation.

Wales and Scotland

Scotland and Wales outperformed all of the English regions over 2005. In Wales, an average of 14.75% more businesses reported an increase in sales growth. Investment was also up, with a 29% more businesses reporting higher figures rather than lower for the final quarter of 2005, and an average for the year of 11.5% more. But overall, employment showed little change, though it rose in the final two quarters, with 4.5% and 3% more companies saying employment was up rather than down.

In Scotland, an average of 14.25% more businesses reported sales up rather than down. In fact, sales have shown an increase throughout the year. Employment fluctuated over the year, but on average 6% more businesses reported more employment rather than less. The final quarter of 2005 recorded 10% more businesses saying the number of jobs had grown rather than declined. Investment was up in every quarter, with an average of 8.5% more businesses saying it had increased rather than decreased.

The final report for 2005 reveals that, in the three last quarters, about 1.5% more businesses reported employment down rather than up. On average, employment was slightly down for 2005. Investment remained steady, with about 5% more businesses reporting increases than decreases. However, employment, sales and investment were all down compared with the last two quarters of 2004. Over the year the SBRT surveyed 33,000 businesses and the majority reported little change in their business situation.

The English regions

In London, sales picked up in the final two quarters of 2005, with a figure - the highest for the year - of 6% more businesses reporting increases rather than decreases for the fourth quarter. While 4.5% more businesses reported that investment was up over the four quarters, the employment figures were down throughout the year.

In the North West, more businesses reported increasing rather than decreasing figures for sales, employment and investment over the first three quarters of 2005. However, the final quarter showed 25% more businesses reporting falls rather than increases in sales, 7% more reporting declines in employment, and 2% more a decrease in investment. This was the worst performance among the English regions for the 4th quarter.

Industry sectors

The wholesale and retail sector had a difficult year, with sales down in three of the four quarters and a figure of 27% more businesses reporting a decline rather than increase for the final quarter. Employment also dropped in the final quarter, with 10.5% more businesses reporting less jobs rather than growth. Over the year, investment was down, with 5% more businesses saying it had declined in the final quarter.

More hotels and restaurants recorded increased rather than decreased sales for the final three quarters of the year. However, more businesses reported employment down rather than up over the year; while investment remained balanced, with almost equal numbers reporting increases and decreases.

In manufacturing, the figures for sales and investment were up for every quarter of the year. However with sales the difference was small, with the biggest difference in the number of businesses which recorded sales growth rather than losses at 6% in the last quarter. Investment was up in every quarter, running at a positive average for the year at 4%. But employment was down; and in the first three quarters there were more businesses saying they had cut employment compared with those who had increased employment. However the final quarter showed a difference of 6.5% more businesses reporting increased employment.

Businesses surveyed in the fourth quarter expressed less optimism about the future than previously. Those companies in the wholesale and retail sector were the most pessimistic. However, many companies remained neutral on expected employment and investment. Businesses in Wales were the most optimistic.

Companies continue to cite taxation and National Insurance as the main barriers to growth. However, 11% of companies listed the current economic climate as their main concern. For the small business, with between 10 and 49 employees, employment regulation is seen as the most serious business problem.