What is the average small business turnover in the UK?
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.