BEIS Longitudinal Small Business Survey 2017 Key Findings

ERC-BEIS Longitudinal Small
Business Survey Dissemination
Event
Funded by

BEIS LONGITUDINAL SMALL
BUSINESS SURVEY
2017
SME Employers

Background
• ASBS and subsequently SBS run by SBS, DTI, BERR, BIS and subsequently BEIS
since 2003.
• Designed to provide data on SME performance and the factors that affect this.
• Decision taken in 2015 to establish a longitudinal SBS, a resurvey of the same
businesses each year for five years.
• Separate reports for SMEs with and without employees are published here:
• https://www.gov.uk/government/collections/small-business-survey-reports
BEIS LONGITUDINAL SMALL BUSINESS SURVEY
2017 SME EMPLOYERS

Survey design
• Sampled from IDBR (registered business/employers) and D&B (unregistered businesses with no
employees). Sample stratified by country (x4), size of business (x6) and sector (x14).
• Unregistered non-employers 12%
• Registered non-employers 15%
• Micro (1-9) 33%
• Small (10-49) 25%
• Medium (50-249) 14%
• Telephone survey (average length 25 minutes). Fieldwork undertaken between July 2017 and
January 2018.
2017 SME EMPLOYERS
Type of respondent Employment
Total sample size Panel Top-ups Employers Non-employers
2015 15,501 15,501 N/A 11,146 4,355
2016 9,221 7,252 1,969 6,987 2,234
2017* 6,596 5,292 1,304 4,771 1,825
*Panel number includes those interviewed in 2015 and 2017, but not in 2016

Survey content
• SECTION A: ABOUT THE BUSINESS
• SECTION B: EMPLOYMENT
• SECTION C: EXPORTS
• SECTION D: SOCIAL ENTERPRISES
• SECTION E: ENERGY USAGE
• SECTION F: TAXATION
• SECTION G: OBSTACLES
• SECTION H: FINANCE
• SECTION I: NATIONAL LIVING WAGE
• SECTION J: INNOVATION
• SECTION K: BUSINESS SUPPORT
• SECTION M: PAYMENT
• SECTION N: TRAINING
• SECTION P: TURNOVER
• SECTION R: FUTURE INTENTIONS
2017 SME EMPLOYERS

Change in employment compared with 12 months earlier
• Overall net increase in employment among panelists, but the margin was less than in
2016 (37% increased employment in 2017, compared with 45% in 2016).
• 37% of SME Employers had more staff than a year previously, whilst 31% had fewer
and 32% showed no change.
2017 SME EMPLOYERS
45%
27% 28%
37%
32% 31%
0%
10%
20%
30%
40%
50%
Increase in employment No change Decrease in employment
2016
2017

Turnover compared with 12 months previously
• Similar proportions to 2016; 36% reported increasing turnover during the preceding
year with 19% reporting a decline. 43% reported no change in turnover.
2017 SME EMPLOYERS
40%
38%
34%
36%
39%
41%
44% 43%
18% 17%
20% 19%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2014 2015 2016 2017
Increase
in turnover
No
change
Decrease
in turnover

Expectations of future performance – employment
• One quarter of SME employers expected to increase the size of their workforce over
the next year, just one in ten expect to experience a contraction.
• The proportion expecting to increase employment is 2ppts lower than those reported
in 2015-16.
• Larger SMEs have greater expectations for employment growth.
2017 SME EMPLOYERS
24%
65%
10%
21%
67%
11%
33%
61%
6%
42%
50%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
More than now Same as now Fewer than now
Total
1-9
employees
10-49
employees
50-249
employees

Expectation of future performance – turnover
• Two fifths of SME Employers (40%) expected to increase their turnover in the coming
year.
• The proportion is the same as those seen in 2016, but lower than in 2014-2015.
2017 SME EMPLOYERS
40% 39%
45%
56%
47% 48%
44%
34%
11% 12%
9% 8%
0%
10%
20%
30%
40%
50%
60%
Total 1-9 employees 10-49 employees 50-249 employees
Expect
turnover to
increase
Expect
turnover to
stay the
same
Expect
turnover to
decrease

Ambitions for growing future sales
• 62% reported that they aimed to increase their sales over the next three years,
compared with 73% in 2014 and 74% in 2010.
• The decline in growth ambition is most evident among the micros (59%, down from
63% in 2016).
2017 SME EMPLOYERS
74%
68%
73%
69%
66%
62%
56%
58%
60%
62%
64%
66%
68%
70%
72%
74%
76%
2010 2011 2012 2013 2014 2015 2016 2017

Exporting
• One in five SME Employers (20%) had exported goods or services in 2017. This
proportion was 2ppts higher than in 2016, but the proportion has remained relatively
unchanged since 2012.
• Compared with 2017, there were higher proportions of exporters in the primary and
administrative sectors (both up 6%).
2017 SME EMPLOYERS
20%
18%
25%
37%
11%
9%
17%
26%
12% 12%
14%
17%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Export
goods or
services
Export
goods
Export
services

Innovation
• Two in five of SME Employers reported undertaking any form of innovation over the
previous 3 years (new or significantly improved goods, services or processes). The
proportion is similar to that seen in 2016, but 9ppts lower than in 2015.
• Breaking it down further; 16% had innovated goods, 29% services and 20%
processes.
2017 SME EMPLOYERS
50% 48%
55%
61%
39% 37%
47%
55%
41% 40%
45%
55%
0%
10%
20%
30%
40%
50%
60%
70%
2015
2016
2017

Access to finance
• In 2017, just 13 percent of SME Employers sought finance over the year. This is the
same proportion seen in 2016, half the 2010 level.
• Compared to 2016, businesses were more likely to seek finance for investment (46%
vs. 41%) than working capital (57% vs. 66%).
• 77% obtained any finance and 58% obtained all they wanted (compared with 75% and
47% in 2016, respectively).
2017 SME EMPLOYERS
26%
24%
19%
17%
13% 13%
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013 2014 2015 2016 2017

Major obstacles to the success of the business
• More major obstacles to the success of the business reported in 2017.
• The biggest increases were in the proportions mentioning recruitment (+7ppts) and EU exit
(+6ppts).
2017 SME EMPLOYERS
15%
17%
18%
20%
21%
30%
30%
36%
42%
47%
18%
18%
20%
21%
27%
33%
37%
41%
46%
51%
0% 20% 40% 60%
Obtaining finance
Availability/cost of premises
National Living Wage
Workplace pensions
UK exit from the EU
Late payment
Staff recruitment and skills
Taxation, VAT, PAYE, NI,…
Regulations/red tape
Competition in the market
2017
2016

Use of business support
• 29% of SME employers sought information or advice.
• This proportion is 3ppts higher than in 2016, but the long-term trend is downwards.
2017 SME EMPLOYERS
49%
45% 44%
33%
26% 29%
46%
42% 43%
31%
24%
27%
59% 59%
51%
40%
34%
38%
68% 68%
61%
50%
45% 46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010 2011 2012 2013 2014 2015 2016 2017
Total
10-49
employees
1-9 employees
50-249
employees

Training
• Just under half of SME Employers had arranged some form of training over the
previous year, and one in three had provided any management training.
• Over time, there is a downward trend in the proportions of businesses providing
training
2017 SME EMPLOYERS
60% 60%
57% 55% 55%
49%
56% 54% 52% 50% 48%
43%
85% 86%
80% 80% 82%
77%
94% 92% 89% 89% 91%
85%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017
Total
50-249
employees
10-49
employees
1-9
employees

• Overall, SME employers appear quite stable in terms of performance
i.e. numbers employed and turnover.
• However, there may be concerns that many SMEs are not investing
in the future – for example, downward trends over time in
innovation, ambition for growth, use of business support, seeking
finance and training.
• The 2018 (Year 4) LSBS will start fieldwork in July. This will have a
significant boost of new top-ups, and the overall sample size will be
15,000.
• Of these, c. 3,700 are predicted to be full panellists (interviewed in
2017), c. 350 previous panellists, and c. 10,950 top-ups.
BEIS LONGITUDINAL SMALL BUSINESS SURVEY 2017
SME EMPLOYERS

LSBS Longitudinal report: 2018
- a look back through the first three waves of the survey
Stephen Roper and Areti Gkypali

LSBS – timing of the first three waves
Source: ONS Quarterly GDP growth (IHYQ) and £:Euro exchange rate

Cross-section and panel
• Of the 15,000 firms in
the original (2015)
survey 4165 responded
in all three years
• This is pretty much what
was anticipated in the
original attrition
projections
• But… the panel is not
typical of the original
pattern of respondents
(unweighted)
• Panel firms seem
‘better’ on a number of
strategic criteria
Non-
panel Panel
N=11336 N=4165
Aiming to grow turnover (3 years) 67.7*** 72.7
Women-owned firm 23.4*** 19.8
BAME-owned firm 5.1 4.0
Exporting firm (%) 20.4*** 24.5
Innovating firm (%) 41.6*** 48.0
Accessing business support (%) 34.2*** 41.6
Accessing external finance (%) 18.6*** 20.7
Providing training (%) 73.9*** 77.1

Export persistence
• One key features of the LSBS panel is our ability to track firms’
activity through time. Here what happened to those exporting in
2015?
• 1:5 firms drop out of exporting in 2016. 1:3 of these resumed
exporting again in 2017
• What do these patterns mean for performance?

Persistence in ambition
(employment growth, one year)
Persistence of ambition
seems a bit weaker with
around two thirds of firms
with growth ambition in
2015 keeping this in 2016
Some firms return to
having growth ambition in
2017
But…. relatively few firms
go from having growth
ambition to anticipating
falling employment

Thinking high growth…
• 7.6 per cent of firms in longitudinal sample are high growth (OECD
definition) in terms of employment
• 7.6 per cent of firms in longitudinal sample are also high growth (OECD
definition) in terms of turnover
• But these are not the same firms. Only 1:4 of the ‘employment high
growth firms’ are also in the ‘turnover high growth group’.
• It is also interesting to consider ‘small high growth firms’ and we do so
over the next couple of slides

Exploring high growth:
Characteristics of high growth firms
Employment definition Turnover definition
Non-high
growth
High-
growth
Non-high
growth
High-
growth
Employment 2015 21.2 28.9 20.1 41.1
Exporting firm 2015 24.3 27.5 24.5 24.7
Innovator 2015 47.1 58.0 47.0 59.5
Women-owned business 19.7 20.8 19.4 24.5
BAME owners or directors 3.8 6.0 3.8 7.0
Business support use 2015 40.6 53.2 40.7 52.8
External finance use 2015 19.8 31.5 20.1 27.2
Provided staff training 75.6 89.1 75.6 89.3

Predicting high (OECD) growth…
(Firms with 10+ employees in 2015)
Employment
definition
Turnover
definition
Employment
definition
Turnover
definition
Unweighted Unweighted Weighted Weighted
Employment 2015 -0.001 0.003*** 0.005*** 0.008***
Exporting firm 2015 0.01 -0.071 0.133 0.113
Innovator 2015 0.162** 0.098 0.131* 0.084
Women-owned business 0.024 0.093 0.036 0.065
BAME owners or directors 0.016 0.036 0.051 0.171
Business support use 2015 0.056 0.139* 0.073 0.137*
External finance use 2015 0.170** 0.009 0.183** -0.033
Provided staff training 0.451*** 0.313*** 0.512*** 0.378***
No of observations 2262 2262 2262 2262
Chi2
60.082 78.235 87.885 74.64
R2
0.04 0.056 0.074 0.091
BIC 1609.226 1497.585 733.881 689.517

Predict high growth among smaller firms
(Firms 1-9 employees, add 8 employees)
Unweighted Unweighted
Employment 2015 0.062** 0.090***
Exporting firm 2015 -0.206 -0.431**
Innovator 2015 0.372** 0.502**
Women-owned business 0.104 0.246
BAME owners or directors -0.188 0.091
Business support use 2015 0.227 0.107
External finance use 2015 0.108 -0.132
Provided staff training 0.16 -0.067
No of observations 1022 1022
Chi2 22.535 64.265
R2 0.077 0.118
BIC 421.416 320.875

Link to the report:
Read more at:
https://www.gov.uk/government/statistics/small-business-
survey-2017-panel-report

The Public Value Business School | Yr Ysgol Busnes Gwerth Cyhoeddus
Management capability, business support and
the performance of micro-businesses in the UK
Andrew Henley,
Cardiff Business School and ESRC Productivity Insights Network
Meng Song,
Cardiff Business School

• Background
– Micro-business numbers have been growing fast, particular in
metropolitan areas
– We know relatively little about their performance, its potential
contribution to the UK productivity gap, and how this might correlate
to business capabilities and access to support
– Analysis uses the sole-trader and micro-business sub-sample from
Waves 1 and 2 to address these questions

a) changes in self-
employment across
Great Britain 2009-2016
b) changes in micro-business
population across Great Britain
2010-2016

• Research questions
• Is the performance of micro-businesses associated with
– better self-perceived management capability?
– business planning practice?
– awareness and use of business support?
• Three performance domains
– Innovation activity
– Exporting activity
– Productivity (turnover per employee)

• Context
– Within a resource-based view of SMEs, access to external advice and support can
fill skills deficiencies and improve capabilities to access and utilise knowledge
– Improved awareness of support may indicate increased entrepreneurial intention
and growth orientation
– Formal business planning can facilitate goal achievement and raise performance
(although it may also confer misplaced over-confidence)

• Data
– 7279 businesses in Waves 1 and 2 of BEIS LSBS
– 3883 of these were micro-businesses (49% sole-proprietors)
– 161 (4.1%) grew to 10+ employees by Wave 2
– Innovation: 49.5% had engaged in some form of product/process/service
innovation in past 3 years; 17% had developed new-to-market
products/services/processes
– Exporting: 9% had exported products in past year (accounting for 23% of sales);
13% had exported services (27% of sales)
– Mean turnover per employee (2015) £150k (median £80k)

• Data
– Business capabilities (2015, 5 point item scales):
• 58% report strong or very strong capability for developing and implementing a business plan and
strategy
• 55% for developing and introducing new products or services
• 39% for access to external finance
• 66% for operational improvements towards industry best practice
– Business support
• 61% report awareness of a range of UK government business advice/information schemes but
only 32% report using a source of advice for operational or strategic purposes in the past year. This
falls to 23% in 2016. Vast majority report using support for operational rather than strategic
purposes.
– Business planning
• 36% report having a formal business plan, rising to 47% in 2016

• Modelling (1)
– Multivariate regression to explain innovation (logit), export intensity (Tobit),
productivity (semi-log)
– Covariates:
• perceived business capabilities, size, age, location, sector,
• Innovation (for exporting models)
• Innovation, exporting, lagged performance (for productivity model)
– Exploits longitudinal data by using behaviours in 2015 to explain performance in
2016, to address potential causality concerns

• Modelling (2)
– Matching models/treatment analysis to address potential self-selection concerns
• Average treatment effect on the treated (ATT) can be expressed as:
𝐸 𝑤1 − 𝑤0 𝑡𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 = 1
= 𝐸 𝑤1 𝑡𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 = 1 − 𝐸 𝑤0 𝑡𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 = 1
• propensity score matching:
Pr 𝑡𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡𝑖 = 1 = Φ(ℎ(𝑋𝑖))
– 3 treatments:
• gaining awareness of business support (Aware)
• acquiring external advice or information (Advice)
• using a formal business plan (Plan).

• Findings (1) - regression
– Having a business plan or use of business support raises likelihood of innovating
by 12%, and of having new to market innovation by 4-5%
• Some evidence that general advice on growth/marketing/employment is more effective that
specific innovation support
– Awareness of government business support raises raises likelihood of innovating
by 3% and likelihood of exporting by 5%
– Further effects on exporting and productivity performance are indirect, via
improved innovation and exporting:
• having innovation raises export sales share by 3-4%;
• being an exporter raises productivity by 9%.

Summary of the results (arrows indicate significantly positive effects)

Treatment:
Aware of
business support
Treatment:
Formal
Business Plan
Treatment: Use
external Advice or
information
Whether or not has product/service/process
innovation
0.038 0.118 0.127
Whether or not has new to the market innovation
(products/services/processes)
0.029 0.041 0.061
Whether export goods 0.027 0.011 0.009
Export sales from goods 1.721 0.875 -0.362
Whether export services 0.032 0.015 0.020
Export sales from services 0.980 -0.848 0.289
Whether export goods and/or services 0.052 0.024 0.032
Turnover per employee in logarithm form 0.042 -0.012 0.103
Semi-parametric Kernel matching: Average Treatment Effect for the Treated (ATT)
BOLD denotes that treatment effect is statistically significant at <5%

• Findings (2) – treatment effects
– Awareness of business support raises both likelihood of new-to-market
innovation and exporting by 3%, and a 1.7% uplift to goods export sales
proportion
– Use of a business plan raises likelihood of innovation by 12% and new-to-market
innovation by 4%
– Use of business support raises likelihood of innovation by 13% and new-to-
market innovation by 6%

• Conclusions
– Both methods of analysis produce very similar conclusions
– Micro-businesses seem (over)optimistic about business capabilities which is not
entirely borne out by performance outcomes
– Support for innovation in micro-businesses is key – this in turn yields second
order benefits for exporting activity and productivity
– Supports other research showing international business exposure raises SME
productivity
– Micro-business productivity policy should focus on identifying and supporting
potential innovators, especially where that innovation has export-enhancing
potential. In other cases business support/planning may not have much effect.

BEIS Longitudinal Small Business Survey 2017 Key Findings

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