More SMEs than ever but size still matters

Number of small businesses increasing but revenue and profit dominated by larger players

The UK has more small businesses than ever before, but overall profit share still belongs to large players, according to research by the Department of Trade and Industry’s (DTI) Small Business Service (SBS).

The research claimed that 260,000 new firms were created in 2004, with 99 per cent of those SMEs. However, in the IT sector fewer than 1,000 firms were set up.

There was also signs of continued corporate domination. Large firms are responsible for only 0.1 per cent of the market, but still amass £2,400bn in turnover, which is almost half of total turnover for UK firms. Smaller firms had only a 37 per cent share.

Alun Michael, minister for small business at SBS, said: “The rise in businesses comes from a reduction in many of the barriers that have prevented individuals taking those important first steps. With over 12.9 million jobs and £1,200bn in turnover, the SME sector remains vital to the UK economy.”

However, Charles Ward chief operating officer at IT trade body Intellect, warned that smaller IT firms often fail to grow.

“One of the biggest challenges that small businesses face is trying to identify a market that the larger players will not exploit. Often VARs develop applications for a vertical requirement, and then sales reach a limit unless another market is found,” he said.

Mike Lawrence, managing director at reseller Bentpenny, said many new firms are often set up by employees from failed businesses and most end up struggling financially.

“A lot of the new companies do not have the finance to expand and they cave under the pressure. People set-up, get a little business then go and do something else, they never collate into something bigger.

“Resellers will not welcome an increase in competition because as soon as a market saturates the prices drop,” he said.