Micro-businesses failing year on year despite contributing £820bn to economy
Micro-business owners with less than ten employees are being warned to avoid mistakes of businesses past.
Insurance experts from Suited Insure are urging SMEs and owners of micro-businesses of ten employees or less to avoid failure due to common mistakes.
This comes after it is revealed micro-businesses suffered their worst contraction in 2022, falling from £953bn per year to £820bn.
The fall out from Covid and the cost of living crisis are partly responsible for this contraction, but there are other reasons according to the experts.
They say this £133bn loss for the UK economy could be pinned down to some of the most common small business failures.
Despite this, micro-businesses still contributed more than small and medium sized companies of up to 50 employees, showing there is potential for the smallest of companies across the UK when managed correctly.
Most common reasons for failure include lack of a strategic business plan, failure to attract and retain talent, and falling at the first hurdles of sustainability.
Jana Kejvalova, of Suited Insure said: “Small and micro-businesses account for the majority of employment creation and social and environmental impacts, making them the lifeblood of the economy.
“Unfortunately, small business failure is common and the life expectancy of many micro-businesses with less than ten employees is shrinking year on year. We want to make SMEs aware of the steps they can take to avoid mirroring the failures of previous businesses.
“To learn micro-businesses are contributing to the UK economy the most out of all small businesses is very promising and shows there is a need for these companies.
“Following advice to secure your company’s future may just make the difference when it comes to creating a long-lasting business.”
Here are the five top reasons small businesses fail
- Business plan execution
Poor planning is the number one failure for many businesses. Inability to plan for short and long term events leads to money and other resources wasted. A strong and effective business plan should be filled with measurable results, and position your company over the next few months and years. You should always have someone experienced to look over your business plan and be open to feedback, criticism and tough questions.
- Purchasing intentions
Product-based small businesses may have experienced a substantial slow in sales due to the ongoing cost of living crisis. Especially for those companies selling non-essential items, many households do not have the disposable income to treat themselves throughout the year. A lot of these companies will experience a hike in popularity during seasonal sales periods, but may struggle to keep up at other points in the year. The question SMEs should ask before they create an offering is why customers buy products, rather than what they are buying.
- Failing to attract and retain talent
Micro businesses are those made up of nine employees or less. This makes staff recruitment and retention even more important than with small or medium businesses with up to 50 people, as small teams have less room for error. Successful companies are often the ones which take time to develop the right culture and prioritize diversity within their staff. They are also implementing management structures which allow employees to feel good about their work. You should aim to create a culture which attracts potential employees, it’s cheaper in the long run and will help you to thrive.
- Failing in sustainability
Today, SMEs are increasingly facing pressures to manage their impact on the environment. Consumers and investors alike are demanding accountability from businesses when it comes to the sustainability of their product and practices. Many consumers are making purchasing decisions based on the environmental impact of the product or company, meaning those SMEs failing to assess and manage their environmental impact could see sales slow down. Transparency is also key, only make claims about the sustainability of a product or service if it can be backed up. Expert your ways to be scrutinized as soon as you experience growth or attract larger customers.
- Failure to insure
A poll we conducted found a third of small businesses are not adequately insured, leaving them vulnerable against claims. This could be a big problem for many SMEs, but particularly those operating as sole traders as they could end up losing everything they have, including their homes if a claim is made against them when something goes wrong. Business owners could face litigation if their service or product leads to an injury or financial loss to a customer. They could also be sued by employees if they suffer an injury while working. This is why all SMEs must seek advice on professional indemnity and public liability cover.
Business cover can also come with helpful extras such as telephone helplines offering qualified help on tax, legal matters and more. This can be an incredibly cost effective resource to SMEs who can’t/won’t pay for professional services.
