What is a micro business and is your business one of them?
Posted on by Cindy Yip
Estimated read time: 4 mins
Small and medium sized businesses (SMEs) account for 99 per cent of all enterprises in the UK, approximately 48 per cent of employment and 41 per cent of business turnover. These businesses are the job-creators but often get lost within the business community with seven hundred thousand of these employing between one or four people (1). Micro businesses can range from start-ups with both high and low growth potential, to long-standing family businesses that have been in operation for many years. These businesses will be facing very different problems to larger businesses. This is why it’s so important to find a consistent definition of what a micro business is so that effective government policies can be put in place to support this vital part of the economy.
What are the statistics?
- One in five (18 per cent) of micro businesses across the UK operate on a turnover of less than £50,000
- There are more than 23,500 micro businesses in the UK with a turnover of more than £1 million – showing success is not necessarily tied to size
- The average turnover of the UK’s micro businesses currently stands at £286,879
- The average turnover for small and medium sized enterprises (SMEs) stands at £703,419
- London leads the way with more than 400,000 micro businesses, accounting for 18 per cent of the UK total – meaning it has 47 micro businesses per 1000 people, the highest ratio in the UK
- Followed by the South East and East of England who have 38 and 36 micro businesses for every 1,000 people respectively
- Families in London and the South East area account for more than a third of the nation’s micro businesses. This is unsurprising as families in these areas often seek to gain extra sources of income by turning their hobbies into professions (2).
The problem with defining a micro business
Micro businesses can and often do play a vital role in maintaining the economic viability and social cohesion of many regions in the UK, particularly rural and deprived urban communities. The lack of support for these groups of businesses specifically stems from the inability to find a consistent definition of what a micro business is. The definition devised by the European Union states it is any business employing less than 10 members of staff and has a turnover or balance sheet of less than €2 million (£1.7 million). The problem with this definition is it encompasses 96 per cent of all UK businesses, representing approximately 19.5 per cent of economic activity. The size of this group is too large and too diverse to be able to make effective policies targeted at the very smallest enterprises. The UK could follow in the footsteps of countries such as Australia, Japan and South Korea who have already acknowledged this issue and reduced the size of businesses within their definition of micro businesses making support a lot easier.
There are various benefits that defining a micro business in the UK and finding a consensus across the board can bring. A simpler tax regime could be designed specifically for micro businesses as they have in France to make the calculation of tax easier. Access to finance could be made more accessible by supporting and not over-regulating new lenders into the micro business market. Encouraging exports by ensuring UKTI and other government agencies extend their support more pro-actively to micro businesses. There are clear opportunities for the government to grasp the growth and employment opportunities that micro businesses represent which not only benefit businesses themselves but the British economy as a whole.
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