There were 5.9 million private businesses in the UK at the start of 2019 – more than 99% of which are small or medium-sized businesses (SMEs) according to the Department for Business, Energy & Industrial Strategy.
SMEs, which are defined as businesses fewer than 250 employees, accounted for 60% of all private sector jobs in the UK, a total of 16.6 million. Make no mistake about it, SMEs are crucial to the UK’s economy and their contribution is increasing every year.
In this article, we’ve collected all of the latest SME stats to summarise the state of UK businesses in one easy read.
This article was last updated in Feb 2020 to incorporate the latest publications by government departments, the ONS and private organisations.
Jump to section:
As previously mentioned, at the start of 2019 there were 5.9 million businesses in the UK, up from 5.6 million the previous year. That equates to more than 200,000 new businesses and a private sector business increase of 3.5% from the previous year. The number of businesses in the UK has increased every year since 2000, except for a small decline (-0.5%) between 2017 and 2018, with an average growth rate of +3%. By the start of 2019, there were 2.4 million more businesses than the start of 2000, marking ann impressive 69% increase.
With over 5.85 million private enterprises employing fewer than 250 people, 99.9% of all private sector businesses in the UK are SMEs. Which means only 0.1% of the country’s entire business population employs more than 250 people and, within the SME bracket, the vast majority are small businesses, too.
Government data shows there were more than 35,600 medium-sized businesses in the UK at the start of 2019 (0.6%) and a further 7,700 large businesses (0.1%). At the same time, there were 5.82 million small businesses, making up 99.3% of the total business population.
Delving further into that small business niche, we can also see that more than 76% are single-person enterprises with no employees (4.458 million). Add this to the 1.155 million micro-business (1-9 employees) and it turns out more than 95% of businesses in the UK employ fewer than 10 people.
That’s quite a lot of statistics we’ve just thrown at you so let’s just have a quick recap of the key figures:
Data Last updated 14 January 2020
We can see that companies with no employees (freelancers, contractors, self employed etc) have increased at a faster rate as other company sizes over 2019 after slowing their growth rate down in 2017-2018. The upward slope of all company sizes in 2019 is encouraging given the Brexit caused from 2016. Leaving the EU on Jan 31st 2019 has finally given some clarity on the direction we are moving and will hopefully give more businesses the confidence to make investments they may have held off doing.
The chart below shows the the change in company numbers by business size since 2000. As you would expect there are many more non-employers given it is much easier to start as a freelancer or contractor. However, what is interesting is the growth in the number of medium sized businesses (50-249 employees) has exceed the growth in small (10-40 employees) and micro (1-9 employees) companies. Let’s see if that orange line in the chart above can stay above the green and red in 2020.
Unsurprisingly, London boasts the highest ratio of SMEs, which is calculated by comparing the number of businesses per 10,000 adult residents in each region of the country. According to the Department for Business, Energy & Industrial Strategy figures, London has 1,544 businesses for every 10,000 adult residents, which is above the national average. In the United Kingdom, there are 1,090 businesses per 10,000 residents and there are three other regions that are above the UK average: the South East, South West and East of England
This leaves eight regions below the national average with the West Midlands, East Midlands, Yorks & Humber, the North West, Northern Ireland, Wales, Scotland and the North East all falling short.
As for the fastest-growing regions, London has also shown the greatest increase since 2010 with a 52% rise while the West Midlands has achieved a 34% growth rate, the South East a 28% and the East of England a 27% increase.
This has helped the UK achieve an average growth rate of 31% since 2010 although this figure is held back by slow growth in Northern Ireland (4%), the East Midlands (17%) and the North East (22%).
This means roughly a third of all UK businesses are located in London or the South East while the South West and East of England also produce a high rate of SMEs.
In 2019, each of these regions enjoyed similar growth rates of between 3-4% but London saw their growth rate drop to just to 0% whilst the East of England surged to 6% growth and the South West stuck at 3%. The highest growth in the number of businesses between 2018 and 2019 was seen in the South East (8%) while Yorkshire & Humber and the West Midlands both achieved 7% year-on-year growth. Meanwhile, there was negative growth in the North East (-7%), Northern Ireland (-6%) and the East Midlands (-3%).
It’s also worth noting that many SME’s have a partial or fully remote workforce so they will straddle multiple regions (see the continued growth of flexible and home working in our 2019 remote working statistics).
|Region||No of Businesses||Employment (thousands)||Turnover |
|No Employees||1-49 |
|Yorshire and the Humber||428,740||2,102||£251,494||75.9%||23.3%||0.7%||0.1%|
|East of England||598,820||2,994||£398,954||76.1%||23.3%||0.6%||0.1%|
The construction industry accounts for the highest number of UK businesses (17.68%) although trails significantly behind Wholesale and Retail Trade when it comes to turnover and number of employees (see chart below).
Within the services industry, there’s the also-very-broad sector of professional and scientific services, which includes anything from legal services and marketing to architecture, veterinary practices and so much more – totalling 14.79% of all UK businesses but accounting for just 8.8% of turnover.
However, retail is the standout sector in this list. Retail companies make up just 9.33% of all UK businesses but employ 18.4% of private sector workers and generate 33.7% of the turnover generated by all UK industries.
That’s pretty incredible.
Now, let’s take a step back to round off this section by looking at how much SMEs contribute to the UK economy. Of course, it’s the big businesses who really rake in the money but there’s no denying how important small businesses are to this country.
When 99.9% of businesses in Britain are SMEs and they generate 51% of all UK business turnover, this tells you how important every company is – even down to the sole traders without any employees.
At the same time, SMEs employ 60% of the working UK population so there’s no claim that smaller businesses aren’t doing their part to provide jobs. And, let’s face it: working conditions are often better at smaller companies anyway.
|Industry||No of Businesses 2019||No of Businesses |
% of Total
|Agriculture, Forestry and Fishing||157,595||2.69%|
|Mining and Quarrying etc*||36,285||0.62%|
|Wholesale and Retail Trade etc **||547,380||9.33%|
|Transportation and Storage||360,485||6.14%|
|Accommodation and Food Service Activities||201,745||3.44%|
|Information and Communication||369,545||6.30%|
|Financial and Insurance Activities||90,730||1.55%|
|Real Estate Activities||113,205||1.93%|
|Professional, Scientific and Technical Activities||867,880||14.79%|
|Administrative and Support Service Activities||512,160||8.73%|
|Human Health and Social Wor Activities||360,670||6.15%|
|Arts, Entertainment and Recreation||289,885||4.94%|
|Other Service Activities||339,830||5.79%|
The average SME with a turnover of less than £25M in the UK makes £8,000 profit per year, according to BDRC Continental’s Q2 2019 SME Finance Monitor report, which surveys 4,5000 SMEs. However, there’s a distinct correlation between the size of businesses and the median annual profit.
Due to the high volume of sole traders and micro-businesses in the UK, even companies without any employees remain very close to that £8,000 average. On average companies with 1-9 employees make more than twice as much profit (£15,000) as those with no employees (£6,000) and the jump in profit for small businesses with 10-49 employees is almost four times as high (£56,000).
As expected, medium-size businesses with 50-249 employees generate the most profit by far with a median annual profit of £294,00 in 2019. These stats highlight the importance of expanding your business over time if you want to significantly increase your profit margins and your chances of actually making a profit (see chart on the right).
In fact, SMEs in the UK have collectively seen their profits drop within each size bracket. Only companies without employees increased or maintained their average annual profit margins between 2014-2019.
There continues to be a clear relationship between the number of employees and the reporting of a profit – more employees means a greater likelihood of reporting a profit.
Delving a little deeper into a survey of 4,500 SME’s with a turnover less than £25m by BDRC we can see that SMEs in the retail and hospitality sectors top the list of average annual profit.
SME companies in property/business services had the highest median profits followed closely by agriculture ,retail and hospitality
At the other end of the scale, businesses in the health and social sector typically generate the lowest profit. However, we need to emphasize these figures are based on a survey of SME’s and not made from annual returns so they won’t represent actual figures for the whole of the UK.
We’ll update this section if we can find more accurate data on how profitable SMEs are by sector.
Securing funds is another major challenge for smaller businesses in the UK and, according to research from UK merchant banking group, Close Brothers, 46% of UK SMEs said in 2016 that they had experienced barriers when trying to access finance, making it difficult for smaller businesses in the country to grow.
Thankfully, the situation does appear to have improved, based on newer research carried out by American Express in 2019. According to the study, 30% of SMEs in the UK find it difficult to access the finance they need, which points towards a notable increase in the number of smaller businesses that are able to access funds.
Looking at the data in more detail, the improved access to funding comes from less traditional methods with a 20% decrease in bank loans between 2017 and 2018.
As American Express explains, “UK SMEs are turning to new sources of finance as they struggle to access funds during challenging times.”
This has lead to the growth in P2P lenders like Funding Circle who are making additional efforts to convince investors that they have solid risk management after the collapse of Lendy.
In BDRC’s SME Finance Monitor report for Q2 2019, the most common source of external funding for British SMEs is bank overdrafts at 22% – a 3% increase since Q4 2018.
Credit cards are the second-most common source of SME funding at 17% and this marks another 3% increase from the previous year. Meanwhile, only 8% of businesses question in the study say they were able to secure loans from major banks but this does, at least, demonstrate a 1% increase since the previous report.
|Al SMEs||Total||0 emp||1-9 emps||10-49 emps||50-249 emps|
|Core products (any)||37%||35%||41%||49%||70%|
|– Ban overdraft||22%||21%||24%||27%||46%|
|– Credit cards||17%||16%||18%||27%||40%|
|– Ban loan||8%||7%||10%||14%||26%|
|– Commercial mortgage||2%||1%||4%||6%||10%|
|– Any other overdraft*||–||–||–||–||2%|
|– Any other loan*||1%||1%||1%||1%||6%%|
|Other forms of finance (any)||14%||11%||22%||28%||39%|
|– Leasing or hire purchase||9%||7%||14%||22%||33%|
|– Loans from directors, family & friends||3%||3%||6%||5%||6%|
|– Equity from directors, family & friends||1%||1%||3%||3%||3%|
|– Invoice finance||1%||1%||1%||4%||6%|
|– Crowd funding / peer to peer*||–||–||1%||1%||1%|
|– Asset based lending*||–||–||1%||1%||4%|
|Selective/single Invoice finance*||–||–||–||1%||1%|
|Any of these||42%||50%||48%||56%||77%|
|None of these||58%||60%||52%||44%||23%|
Given the problems small business owners have reported when it comes to securing finance, it’s no surprise business owners and entrepreneurs are turning to alternative sources of funding, such as crowdfunding and business angels. In fact, “crowdfunding” was the most searched term related to business funding in 2017, which highlights the lack of support small businesses are receiving from banks.
Interestingly, figures show that the survival rate of small businesses who secure funds via crowdfunding is an impressive 79% in the UK – way above the average for new businesses. According to ONS statistics (2019), fewer than 43% of new businesses in the UK last for five years (2013-2018) and this reveals a large disparity between companies who only seek funds through traditional methods and those exploring new avenues.
Of course, we need to be careful about drawing correlations like these. Perhaps business survival isn’t so much related to where you’re sourcing your funds from but how quick you are to react to industry developments and spot new opportunities – the kind of attributes you expect from companies seeking funds from alternative sources.
While the US still leads the race in terms of alternative funding, the UK is the undisputed crowdfunding leader in Europe with 9,200 active campaigns as of 2018 at a total transaction value of $99.5 million (£75.4m), according to figures published on Statista.
The same report calculates that the number of UK crowdfunding campaigns are increasing by 14.9% yoy and the transaction value is up by 6.9% yoy. According to this data, the average crowdfunding campaign in Britain generates $10,868 (£9,743) in 2020 but crowdfunding isn’t the only form of alternative funding rapidly growing in the UK.
Business angels are people constantly on the lookout for enterprises with growth potential to invest in. This has become a major driving factor in the UK startup scene and Oxford Economics estimated that 15,000 angel-backed businesses emerged between 2010-2015. Collectively, these angel backed businesses turned over £9 billion collectively, contributed £4.5bn to GDP and created almost 70,000 jobs.
A study on The UK Business Angel Market by British Business Bank published in June 2018 looks at who these business angels are and what they’re investing in. According to its findings, this is the profile of the average business angel in the UK:
In terms of the businesses these angels are investing in, technology sectors dominate the top of the list. Healthcare and digital health; biotech and pharmaceuticals; financial technology (fintech); software as a service (Saas) and eCommerce take the top fives spots.
If you can innovate some kind tech solution, even a relatively simple one that holds genuine growth potential, it’s likely you’ll be able to find the funds you need.
One final thing we should mention in this section of this article is that there are all kinds of government schemes, grants, contracts and loans designed specifically for smaller businesses. However, government data shows that there’s only a 3% yoy increase in the amount of funds getting pumped into SMEs, despite these initiatives. Part of the problem is small businesses aren’t applying for all of the funding initiatives created for them and SMEs could be set to miss out on £33.5bn worth of government contracts alone by 2020.
When Turnerlittle.com scraped data from Company House for insights on business survival rates it discovered roughly 80% of UK companies fail within their first year.
According to the latest figures from the Office for National Statistics released in November 2019, only 42.4% of businesses started in 2013 were still trading five years later in 2018. Almost half of businesses make it to their fourth year (49.3%) while the percentage of enterprises that survive for two years has dropped to 68.3%
The number of UK business births decreased just 1,000 to 381,000 in 2018, a birth rate of 12.9% in 2018 compared with 13.1% in 2017.
The number of UK business deaths decreased 336,000 in 2018, a death rate of 11.4% in 2018 compared with 12.4% in 2017.
In 2018, the North West had the highest death rate at 13.5% and London had the highest business birth rate at 15.9%.
In 2018, the transport and storage (including postal) industry had both the highest business birth and death rates, at 17.8% and 16.5% respectively.
As you can see in the chart above the Health sector was the only one where more businesses ceased trading in 2018 (13%) than were born (just 8%).
The most competitive industry in Britain is the professional, scientific and technical field with almost 542,000 active businesses in this industry and 62,000 new companies emerging every year. Despite the competitive nature of this field, the death rate for businesses in the industry remains just below the average at 11.3% but this adds up to 61,000 going out of business each year.
Things are also highly competitive in the construction industry, which has 389,000 active businesses with an impressive 10% death rate. While the transport and storage industry has the highest birth rate at 17.8% but also the highest death rate at 16.5%.
At the regional level, almost 100,000 new businesses are born in London every year (15.9%) – by far the highest number of any region in the country. Bearing this in mind, it shouldn’t come as any surprise that the majority of business deaths also occur in London with 78,000 businesses in the capital going bust every year although they don’t have the highest death rate.
The North West holds the honour of having the highest business death rate in 2018 (13.5%).
Scotland is the only region where business deaths exceed business births (11.8% vs 11.1%).
According to a monthly survey of businesses conducted between Feb 2016 and Jan 2018 by Factworks, attracting customers is the biggest challenge for UK SMEs with 79% of businesses surveyed in 2018 listing it as their biggest concern.
Of course, this isn’t a new challenge for businesses but the nature of attracting customers has changed drastically over the past few decades and it’s clear many businesses are still struggling to make the most of new opportunities and overcome new challenges.
A similar report conducted by Plusnet and Startups.co.uk lists attracting customers as the biggest challenge for small businesses in the UK. The same report found 58% of SMEs in the UK spend less than 10% of their revenue on marketing while 27% of small businesses feel their existing strategies are less effective than they hoped.
The latest UK SME Pulse Index from Elavon shows that 53% of UK SMEs are currently selling online while almost a quarter of businesses in this category don’t even have a website. However, research from PayPal suggests the rise in social selling on platforms like Facebook and Instagram is set to double in early 2020, which makes the entry into online selling easier for smaller businesses.
The good news is there are growing opportunities for British SMEs who understand how to use digital marketing channels effectively.
Unfortunately, attracting customers isn’t always enough for businesses because it turns out getting them to pay can be a real problem, too. Research from the Federation of Small Businesses (FSB) indicates that poor payment practices, such as late payments, affects 80% of the UK’s small business community. FSB also calculates that late payments to SMEs costs the UK economy as much as £2.5 billion every year and causes 50,000 small firms to collapse on an annual basis.
Customers aren’t the only obstacle here, either. With contactless payments being the favourite way for UK shoppers to pay in-store and the continued growth of online shopping, small businesses need the right technology on board to accept payments in-store, over the phone and online.
Of course, these digital payment methods don’t come for free and merchant service providers don’t have the best history of looking after smaller businesses. Luckily, this has improved a lot in recent years so be sure to check out our guides and reviews on mobile card readers and the latest payment tech designed for SMEs.
According to the 2019 Intuit Cash Flow Survey, 69% of small business owners say they have been kept up at night by concerns about cash flow.
This really isn’t a good way to get things started. We know that late payments are a major problem for SMEs in the UK but this issue is compounded with the challenges of accurately estimating the running costs of an enterprise – especially in the first year of operation.
According to StartupDonut, the biggest operating cost for businesses are usually premises and staff – but this depends entirely on the nature of your business. If you’re running a staffless eCommerce store, then perhaps neither of these costs apply to you.
That said, here are the most common expenses for small businesses listed by StartupDonut:
It all comes down to research and planning – plus making sure you have some extra funds into the kitty for any unexpected costs. It can be something as simple as needing to hire a new member of staff and coping with the disruption this causes, as well as the cost of hiring again.
According to research from Barclaycard, online shoppers were returning 30% of their purchases to retailers in 2016 with the study saying 60% of businesses had been hurt by the rising trend of online returns. Now, new research from GlobalData tells us that online returns in the UK will increase by 27.3% over the next five years (2018-2023).
The worst part is you’re probably being charged a penalty by your card payments provider every time a consumer returns an item – just one of the many fees buried into the small print of contracts you sign as a business. Take it from us, payment service providers are specialists when it comes to hitting companies with additional costs and this is why we created Merchant Savvy in the first place.
For help with choosing a payment service provider that doesn’t hurt you in the pocket, take a look at our in-depth reviews for UK payment processors.
Payment firms aren’t the only companies with a habit of throwing extra costs into contracts either. Closely related are banks and overdraft fees are a common complaint among business owners but there are other quirky charges you might have to pay – for example, if you don’t have a certain amount in your account or don’t use it often enough.
Any loans you take out will also come with all kinds of small print and additional charges: service fees, guarantee fees, underwriting fees, origination fees and up-front payments are just a few examples of what you could be facing.
Always read the small print.
We already covered this in detail earlier but there’s no getting away from the fact UK SMEs have a problem when it comes to getting access to funds. As we say, make sure you know all of the government support options available to you and look at alternative funding options such as crowdfunding and business angels if you’re not getting the answer you need from banks.
More than 50% of SME owners in the UK say they can’t access all of the funding they need to grow but other issues like underestimating the costs of running their business and not knowing all of the funding options available to them are always going to make this worse.
All the government stats on SMEs show that small businesses are crucial to the UK economy and more should probably be done to help them thrive, let alone survive. Despite all the challenges facing small businesses in this country, the UK business population is steadily increasing and this is largely thanks to a high birth rate of small businesses.
Interestingly, the highest birth rate is among sole enterprises with no employees. However, we can also see a direct correlation between the number of employees and the ability for businesses to increase their profits. Survival remains a major challenge for the majority of UK enterprises and, even for those that go the distance, achieving sustainable growth can be even more difficult.
Getting access to the necessary funds is an obvious barrier for SMEs in Britain and government schemes have largely failed to change this. A growing number of SMEs are turning to alternative finance, such as crowdfunding and business angels to attract the investment they need to grow – and forecasts suggest this will become increasingly common over the next five years.
Finally, figures from the payment firms show small businesses in the UK are still struggling to get paid. Government efforts to reduce the SME late payment deficit are making an impact but there’s still work to be done. Meanwhile, we hope to see more companies like iZettle and Square emerge, who provide affordable and flexible payment options designed specifically for smaller businesses.
Copyright © ALL RIGHTS RESERVED 2021
Merchant Savvy is a division of VUBO Ltd (Company Number 09017066).
Address: Spaces, 9 Greyfriars Rd, Reading, RG1 1NU.