Business development · 20 July 2015

North–South divide to hit small business revenue over the next ten years

More can be done to develop the small business network outside of London

Where to base your business is a big concern for all small firms and the latest research from e-lender Everline and the Centre for Economic and Business Research has found those based outside the capital may have reason to be concerned. The gap between London and the North looks set to double in the next ten years.

Over 500 small business decision makers were surveyed as part of the Everline Small Business Tracker and it found London businesses were most optimistic about their growth prospects, expecting revenues to increase over the next ten years by an average of 44 per cent – £162,000 to £528,000 in 2025. This is more than double the turnover expected by small businesses in the North, anticipating growth of 33 per cent – or £65,000 to £263,000 in the same period. A fifth don’t expect to see any increase at all.

Interestingly, it’s those in the South, who look to be most pessimistic about their growth prospects, as nearly a quarter predicted zero turnover by 2025. The average small business in this region only expects 33 per cent or £61,000 growth. Small businesses in the Midlands expect to see growth of 31 per cent (£63,000), while those in Scotland expect to see 37 per cent (£80,000).

Sectors which looked particularly lively included media, marketing, PR and sales, with an expected revenue hike of 45 per cent by 2025, which could see turnover rising by £330,000. The finance and accounting sector, as well as the IT and telecoms sector also looked set for a good period of growth – anticipating a 43 per cent increase in revenue.

Russell Gould, COO of Everline, said: “With the average turnover of small businesses in London already more than 80 per cent higher than that of other regions, businesses in the capital look set to move further ahead of the rest of Britain, with revenues set to increase by around £162,000 by 2025 compared to the £82,000 increase expected around the country as a whole.”

The government has reiterated its commitment to establishing a Northern Powerhouse, with George Osborne promising to invest £7bn in the region, saying “the once hollowed-out city centres are thriving again, with growing universities, iconic museums and cultural events”.

George Osborne has pledged to develop a Northern Powerhouse

As well as £235m going towards a new science institute and a devolution deal of £1bn, the chancellor said the Northern Powerhouse would be established “for a truly national recovery”.

Gould said that the government’s commitment to devolving more powers to the regions and creating small business hubs outside the capital was “particularly telling”. While small business growth has “increased dramatically in the last ten years,” he said it was clear from the tracker that “more needs to be done to encourage a similar decade of growth and instil confidence in our small business network, especially outside of London”.

The disparity may in part be due to lack of digital development. Over a third of small firms in the North dedicate only a fraction of their financial resource to digital activities, such as buying and selling online. They also plan to keep online expenditure flat over the next ten years – or even intend to reduce it. In London, this was a lower figure of 26 per cent.

Sam Alderson, economist at Cebr, said: “A few years ago small businesses could be forgiven for thinking that sophisticated technologies were only within the reach of larger corporations who could afford the up-front investments. However, while there is still more that can be done to reduce the costs, digital technologies are becoming increasingly accessible to smaller businesses.”

Those that do sell online make an average of £810,000 through this channel, meaning over 1.5m small firms across the UK are missing out on a significant potential revenue boost by failing to capitalise on the ecommerce marketplace.

Alderson added that “given the multitude of benefits that technologies can bring, from shaving time off everyday tasks to broadening a customer base, more could be done to promote and support the uptake of digital technologies”.

Digital isn’t the only issue however – access to the right resources is still a problem, with another Everline survey indicating half of small business decision makers had cash flow problems at least a couple of times a year, while a lack of working capital was deemed to be the biggest obstacle when trying to grow a business. Some 42 per cent said it was detrimental to their prospects.

Similarly, the skills shortage has been a widely-discussed issue and Everline found that the economy is losing out on around £18bn due to the 520,000 job vacancies that small businesses are unable to fill due to lack of relevant skills.

Image: Shutterstock

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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