Largest report of its type undertaken by AXA to paint a
detailed picture of SMEs in modern Britain

• 51% of business owners under 35 said helping people in need was a key priority for their business during COVID-19, compared to 40% of over-35s.
• The age of business owners had significant impact on reported loss of turnover during the pandemic. The oldest decision makers (55-64) faced, on average, a 29% decrease, but this fell to 12% amongst 25-34-year-olds and to only 7% in businesses with decision makers aged between 18-24.
• The pandemic’s impact on turnover also differed from business to business. 8% of SMEs faced 80-100% reduction whilst the most common decrease was between 10-49% – experienced by 25% of businesses.
• Fewer businesses started up during the pandemic, although the -1.1% average monthly drop is perhaps lower than expected and shows many aspiring business owners weren’t put off by the economic uncertainty caused by the pandemic
• The national business survival rate up to and including 2020 stood at 42.5%. Regional differences are clear with survival rates at their highest in the South West of England at 45.9% and lowest in London at 39.2%.
• 49% of female-run SMEs turned to family and friends as a source of finance during the pandemic, well above the 39% of male-run businesses.

Today, AXA UK has released a report into the landscape of small and medium-sized enterprises (SMEs) across the United Kingdom. The ‘Small Businesses: Big Picture’ report explores a range of factors influencing the nation’s SMEs, including owner motivations, the impact of the pandemic and some of the biggest challenges and opportunities on the horizon.

Through a combination of new research, economic modelling, and detailed analysis of existing primary and secondary data, the report – developed by AXA and the Centre for Economics and Business Research (CEBR) – provides a comprehensive view of the experiences of small and medium-sized firms during the COVID-19 pandemic and beyond.

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“SMEs are the backbone of the British economy and, as such, a key strategic focus for AXA. In further honing this focus we wanted to take a detailed and comprehensive look at the recent experience of small businesses to better understand our SME customers so we can service their needs and ambitions.

“I am full of admiration for the resilience and stamina of small businesses, especially while facing the challenges of COVID-19. We have witnessed these businesses having to adapt swiftly to new restrictions and ways of working and this report demonstrates their agility, adaptability and drive. It is our ambition to build on the lessons learned from this unprecedented period to develop and adapt products and services that continue to support the changing needs of SMEs across the UK.” Claudio Gienal, Chief Executive Officer, AXA UK & Ireland

“This is an important piece of research that we have undertaken with CEBR to get a genuine picture of the reality facing SMEs today. Understanding the current and potential future outlook for SMEs means organisations like AXA can develop products and services that really help them in a rapidly changing landscape. The findings of our report demonstrate the extraordinary resilience, perseverance and motivation that drives the owners and leaders of these businesses, and they give us cause for optimism as we work together to make the most of the opportunities and face the challenges to come.” Deepak Soni, Director of Commercial, AXA UK

“The findings of this report highlight how pivotal SMEs are for the UK’s economy. Accounting for more than half of all UK business turnover, the economy would not be able to function without them. The strength of SMEs is likely to improve as time goes by, with the growth rate of employment in small and medium businesses outstripping that of large businesses over the last decade. Although larger businesses may be more financially resilient to shocks such as the COVID-19 pandemic, the dynamism of smaller businesses will allow them to bounce back strongly.” Josie Dent, Managing Economist at CEBR

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The report has unearthed some interesting findings on the methods SMEs used to stay in business throughout the pandemic, the differences felt by regions and the demographic splits that have impacted business birth and death rates, their growth and evolved focuses.

When looking at financial support during the pandemic, the research shows that nearly half of all female-run businesses turned to friends and family compared to around 40% of male-run SMEs. Additionally, younger business owners were less likely than those aged over 35 to rate the effectiveness of the furlough scheme highly despite seven in 10 utilising it.

The research also explored the motivations behind starting and running a business, showing that flexibility and self-determination were paramount despite a clear generational difference in terms of what drove them to launch their business in the first place. Concerns over burnout and work-life balance were also common amongst all decision makers.

Looking ahead, those same decision makers spoke about what they saw as the main challenges and opportunities facing their business. Debt, rising costs, and the legacy of the pandemic were common concerns. However, despite their worries they looked forward to welcoming customers back and to making the most of new opportunities from technology and new ways of working post-pandemic.

PLEASE FIND THE FULL REPORT HERE

Stats In Brief:

A new breed of owner

• 51% of business owners under 35 said helping people in need was a key priority for their business during COVID-19, compared to 40% of over-35s. 46% of SMEs run by under-35s introduced new products and services during the pandemic, compared to 40% of over-35s doing the same.
• The age of business owners had a major impact on reported turnover reduction. The oldest decision makers (55-64) faced, on average, a 29% decrease, but this fell to 12% amongst 25-34-year-olds and to only 7% in businesses with decision makers aged between 18-24.
• In some sectors SMEs dominate. In Agriculture, small businesses represented 90% of total turnover in 2020, in Real Estate some 74%. However, only 33% of UK manufacturing turnover in 2020 came from small and medium-sized businesses.
• 45% of businesses agreed that helping people in need had been an important part of their business during the pandemic. 43% of SME business owners had a newfound appreciation for their local community and other local businesses.
• When looking at reasons for starting a business, 48% of Baby Boomers felt they had unique skillsets to draw from. Among Generation X, 58% of them felt it was something they’d always wanted to do. 54% of Millennial business owners saw flexibility as their main reason for starting an SME. Gen Z were the most likely to have started their own business because of family traditions – but had the most diverse range of answers compared to other generations of business owners. 

Fewer businesses started up during the pandemic

• The average monthly number of new businesses starting up has declined across the country, sitting at -1.1% during the pandemic, when compared to 2019 – which was a record year for birth rates
• This drop is perhaps lower than expected and shows that rather than being put off by the economic uncertainty caused by the pandemic, many people may have used it as an opportunity to start a business, or been forced to do so following redundancy.
• The national business survival rate stood at 42.5%. Regionally, London has seen 41% growth in total SME numbers since 2010. However, an SME based in London has the lowest regional five-year business survival rate (39%) in the country.
• SMEs set up in the South West of England may face less opportunities for new business, with only 24% growth in the SME population since 2010. However, South West SMEs have the strongest five-year business survival rates (46%) in the UK.
• Business birth rates across the UK during the pandemic ranged from lows of 10.4% in Northern Ireland and 10.7% in the South West of England to a high of 15.7% in London.
• We can expect SMEs in the Construction industry to enjoy particular success as the UK recovers from the impact of the pandemic. CEBR forecasts that Construction industry growth will hit 16.9% and 4.9% in 2021 and 2022, respectively.

Fresh funding

• The scale of the impact on turnover during 2020 compared to previous years differed from business to business. The worst hit 8% of SMEs faced 80-100% reduction in turnover whilst the most common decrease was of between 10-49% – experienced by 25% of businesses.
• Not all SMEs have seen their turnover decrease over the course of the pandemic. One in five of the businesses surveyed reported that turnover had risen – although for the majority of these (40%) this rise was by only 10% or less.
• Over half of all businesses surveyed made use of furlough during the pandemic and, of those, 76% found it useful for supporting their business – the highest of any available support.
• SMEs with decision makers aged 35 or older were especially likely to highly rate the scheme. 84% of this group saw it as useful, compared to 70% of under-35s.
• 53% of female-run businesses turned to credit card loans – higher than the still substantial 49% of male-run businesses that made use of them.
• 49% of female-run SMEs also turned to family and friends as a source of finance, well above the 39% of male-run businesses.

New motivations

• Many SME businesses focused on supporting their local community during the pandemic, resulting in 41% of SMEs experiencing a rise in revenue from local customers – only 21% saw revenue from these customers fall. Businesses in Financial & Business Services (48%) and Construction (45%) were particularly likely to have seen an increase in revenue from local customers. SMEs in the South West of England saw the greatest rise – with 50% reporting an increase.
• Along with this focus on community, consumer loyalty has risen. 57% of SMEs said that more of their customers were repeat customers over the past 12 months. This has been driven by a significant rise in local customers – with 49% of SMEs reporting that more of their customers were from within the local community. Female-led businesses saw the greatest positive impact, with more local customers and more first-time customers compared to male-led SMEs.
• Almost half of the business owners we spoke to said starting a business was something they’d always wanted to do. The next most common reason for starting a business, at 43% of people asked, was the flexibility that running your own business can bring for both you and those close to you.
• Those in London and the South of England were most likely to have started their business because it is something they have always wanted to do (49%) or because they have a unique skillset (47%). Those in the Midlands were most likely to have started a business for the flexibility it offered them and their family (51%). In the North of England, decision makers were most likely to have started their business because they saw a clear gap in the market (34%).
• Businesses in the Midlands were most likely to have started a business for the flexibility it offered them and their family (51%).
• The fear of not having anyone to hand over to during sick leave or maternity/paternity leave was a major concern – with 40% of women and 38% of men sharing this worry. Struggles with burnout and with separating work and personal lives were also a common answer. Long hours were also reported as a challenge – especially amongst male business owners (43%).

Looking ahead

• High levels of debt accumulated during the pandemic is the most common worry, with 24% of decision makers concerned. 18% are concerned that the pandemic will have resulted in lasting changes to consumer behaviour.
• When it comes to the next 12 months, concerns over the impact of the pandemic remain high up in business owners’ thoughts. Future restrictions due to COVID-19 or other diseases remain a worry for 18% of SMEs.
• 19% of businesses are worried about continued weak domestic demand for their goods or services. For 18% of SME decision makers the rising cost of labour was a concern.
• The return of clients is the main opportunity decision makers are hoping to benefit from over the next three years. More established firms were particularly likely to select this option.
• New ways of working, including homeworking, are seen as an opportunity for growth by 27% of SMEs. A fifth of businesses believe that new technology will bring efficiencies in the near future. New domestic clients and the chance for expanded local business figured in 26% of answers.
• Microbusinesses in the Information Technology sector are a key example. They saw strong pre-pandemic growth – turnover rose by 79% between 2010 and 2020. They’re now uniquely placed to take advantage of changes in where and the way in which the UK goes to work, helping businesses and employees adjust to new technologies.
• In Retail & Wholesale, larger SMEs have continued to be efficient during the pandemic. Despite making up 46% of total sector employment in 2020, they contributed 52% of turnover, likely due to shifting focus to online selling. With customers returning to stores, they should be in a strong position to make the most of pent-up and new demand.