Finance

What is the average small business turnover in the UK?

Allison S Robinson | 19 October 2021 | 2 years ago

average small business turnover

Small businesses are the backbone of the UK economy. They make a huge amount of money for the country and are responsible for employing millions of people across the UK. Owning your own small business has so many potential benefits can have a lot of benefits, including being able to work when you want, where you want and with who you want. It is an opportunity to realise a dream and be completely responsible for your own livelihood.

But how easy is it to run a small business in the UK? And what is the average small business turnover?

In this article, we will answer these questions and many more to tell you everything you need to know about running a small business in the UK.

Key UK small businesses statistics

There is such a rich landscape of small businesses in the UK operating in every industry, that average turnover does not give a clear picture of what to expect if you start a new enterprise. However, according to various government sources and private research bodies, the reported average turnover of small businesses in the UK was £262,458 a year. This was the most recent pre-pandemic number and so it gives a good guide for small business expectations in “normal” times.

At the start of 2021, there were around 5.5 million small businesses operating in the UK, which is an increase of about 6.5% from the previous year. A small business is defined as being a company that employs less than fifty employees, however with more than 99% of all businesses in the UK being small businesses, and these being responsible for 48% of all private-sector employment, their importance to the UK economy is clear. In fact, small businesses alone account for over £1.6 trillion, which to put into context, is around 36% of the total UK economy.

Average turnover for different types of businesses

To get a good idea of average profit for small businesses there are various factors to consider such as how many employees the business has, its location, and what industry the business is in.

In terms of the number of employees, 2020 statistics showed that the vast majority of small businesses had no employees at all, with an average turnover of just over £70,000 per year. The next biggest group were businesses with between 1 and 9 employees, for which average turnover was £531,799. For businesses with between 10 and 49 employees, the average turnover was just over £3 million. Across the board, for businesses of all sizes in the UK, the average turnover was found to be £156,749.

In terms of location, London businesses had a turnover per employee that was more than 50% higher than the average across the country. The lowest turnover per employee was businesses in Wales although it is notable that Welsh businesses had the third-highest increase in turnover per employee between 2019 and 2020.

What is the average small business profit?

While turnover is important, for business owners, the number that really matters is profit. Again, this is best explained by taking into account the number of employees that different businesses have.

  • For businesses with no employees, the average yearly profit in 2020 was £9,000
  • For those businesses with between 1-9 employees, the average yearly profit was £22,000
  • For those with 10-49 employees, the average yearly profit was £67,000
Getting your initial profit projections right when you first start your business is key because it means you will be able to survive the initial years where profits may be low or you may even be operating at a loss. This can ensure you have the finances in place to mitigate the early performance knowing that everything will take a positive turn soon.

How many small businesses fail in the first five years?

It is widely known that the first five years of a business’s life are when it is most vulnerable and if we take the UK business survival rates between 2014 and 2018, the last years unaffected by Covid-19, this is clear.

For businesses that were started in 2014, the five-year survival rate looked like this:

  • One-year survival rate: 92.2%
  • Two-year survival rate: 75.8%
  • Three-year survival rate: 61.2%
  • Four-year survival rate: 49.3%
  • Five-year survival rate: 42.5%
Businesses started after 2014 saw declining survival rates year on year before the pandemic. While Covid-19 did not significantly affect the rate of new businesses being created, it affected survival rates across every industry.

Many small businesses make a loss within their first five years and this is often because new business owners forget to take into account things like additional costs, wear and tear on equipment and staff training which leads to unsustainable losses. The best way to avoid this happening is by ensuring you create a comprehensive business plan and budget before starting your company. Leave nothing out, no matter how seemingly insignificant, because all the little outgoings can really start to add up and cause major problems down the line.

How can small businesses increase profits?

With the success of the vaccine programme bringing light at the end of the tunnel, UK businesses can now finally start to plan their short-, medium-, and long-term futures. In order to take advantage of the already promising signs of a UK economic bounce back, every small business will need to maximise its profits in the coming years.

In order to do so, here are six potential strategies for small business success in post-pandemic Britain:

1. Cut your costs to bring down prices

The first step to increasing profit is by lowering the cost of each unit you sell. A good way to do this is to cut costs in your business, which will have a knock-on effect on your bottom line.

Every small business should have a fixed cost analysis conducted at least once every six months to identify areas where costs can be reduced. If you are doing certain tasks in-house then consider whether they can be outsourced to a cheaper provider, which will increase your profits by freeing up staff time.

In addition, if you are located in a high-rent area then consider relocating your business to a cheaper location that will reduce overheads and give you more room for profitable growth. Alternatively, there may be some small businesses that are able to switch to either 100% online operations or at least some kind of hybrid setup. This can cut costs enormously, particularly if you have a large office in an expensive area.

Finally, lower prices by increasing competition for your products or services. If you have a monopoly on the market then increase competition by offering discounts and promotions to attract new customers and encourage existing ones to invest in more of your goods/services, which will help bring down overheads and maximise profits.

Of course, not all businesses can easily cut costs, which leads us to our next suggestion…

2. Increase sales through improved or expanded marketing

All businesses should have a marketing strategy that they update regularly and implement every time there is an opportunity to do so. This could be as simple as using your email lists or social media channels more, to running a big marketing campaign that you can afford only every few months.

Even if all you have is an online presence and minimal budget for advertising spend this money on SEO (search engine optimisation) techniques such as link building and content creation. Link building is when you try to get other websites to link back to your website. Content creation is the act of creating unique and high-quality content in order to attract new visitors for free through search engines.

You may also want to consider investing in paid advertising campaigns on Facebook or Google ads, which can target potential customers with laser precision using demographics such as age group, gender, sexual orientation, location, interests and browsing history.

By increasing sales, you will also boost your business’s turnover, which as long as you have kept marketing costs down, will increase your profits. revenue, which will increase profits.

couple and their small business

3. Expand your business into new markets

In some situations, it might make sense to look at increasing sales by diversifying or expanding into new markets. This can be difficult and risky if you don’t have the necessary skills and knowledge but is often a great way of opening up entirely new opportunities for growth that would simply never exist otherwise. Be sure not to overextend yourself though – success in one market won’t automatically translate into success elsewhere.

Expanding your business may mean opening a second store in a nearby town, building a new head office to incorporate more employees, or creating new online sales channels. Whatever expansion route you take, the important thing is to make sure you have researched the market thoroughly so that you know exactly what you are getting into.

4. Increase sales by outshining your competition

Every industry in the UK is incredibly competitive these days and to maximise your chances of success, your small business will need to stand out from the crowd. In order to do so, you need to conduct thorough competitor research. This will tell you what your competition does well, where there are areas you can improve, any weaknesses in their operations or products, and how best to appeal to their customers. Some important things to consider when conducting competitor research are:

  • The price/quality/reputation of their products and services
  • Their most successful marketing strategies are and how they have performed recently
  • Whether there is a gap in the current market that your products or services could fill
  • Their strengths and weaknesses as a business
  • Whether they are currently looking to expand or diversify into new markets themselves
Once you have this information, you will be able to outshine the competition by offering more competitive prices, better quality products or services and innovative marketing campaigns that target their customers and seize on any potential gaps in the market. This can help secure your business life-long loyal customers who will give you an important edge over your competitors.

5. Increase productivity through use of technology

Technology has become an essential part of running a small business. There are many different types of technology you can use to increase productivity, including:

  • Time tracking software – these programmes allow you to track the time employees spend on each task or project and reduce any wasted hours that could otherwise be spent working towards company goals
  • Remote access systems – these will allow your employees who work from home to log into their computers remotely and gain full access as if they were sat at their desk back in the office
  • Business intelligence tools – BI tools can help you to visualise and analyse data so that you will have greater visibility over all aspects of your operations
Choosing the right technology and software solutions is all about streamlining processes, reducing waste, and giving your employees the tools they need to work to their full potential. Small businesses spend an average of 6.9% of their total budgets on IT alone which just shows how crucial the right technology is for success.

6. Raise your prices once your business is well-established

When you are first starting out, it can often be difficult to secure any business at all. This means that your prices will often need to be kept as low as possible in order to generate customers. Once you are well-established and respected in the industry, however, you can then slowly start to raise prices based on the confidence that your customers will go along with you. Increasing prices is all about timing and being able to justify the decision. Get it right, and you can boost your profits enormously while also positioning yourself as a more luxury brand.

woman running small business

Final thoughts

Owning your own small business is such a rewarding experience and can provide you with so many benefits. The average small business turnover is enough to provide a very comfortable life but there is the potential to earn a whole lot more. The important thing is always to plan every aspect of your business in the minutest of details to ensure that you are well-positioned for short-term and long-term success no matter what the business world throws at you.

Topic

Finance

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