The importance of small businesses

The UK’s small businesses account for more than half of the country’s private sector income and three-fifths of all private sector employment. In 2017, small businesses had a combined annual turnover of £1.9 trillion.

While they may be small, these small businesses punch well above their weight.

But how can we help them do even better?

Insights into the UK’s small business economy

As the UK’s most widely used online accounting platform for small businesses, we have been helping small businesses track their key performance data since we launched in 2008. This has helped hundreds of thousands of individual business owners to better understand their company and make more informed decisions.

We now want to bring these insights together in a live, reliable and trustworthy data set to help policy-makers, larger businesses and commentators have better informed discussions and decisions for the small business economy.

That’s why we’ve produced Xero Small Business Insights. It’s going to be updated monthly using anonymised, aggregated data drawn from the hundreds of thousands of small businesses that use our accounting platform in the UK. These businesses represent a cohort of dynamic fast-growing UK firms.

This snapshot tracks the performance of these businesses across five key areas: getting paid, cash flow, hiring people, trading overseas and the adoption of cloud technology.

Going forward, Small Business Insights will be a monthly snapshot of these key performance metrics. This is the first of its kind in the UK within the small business community.

Insights telling a story

Our findings highlight how long, on average, small businesses wait to be paid – and how they cope in a culture where late or non-payment is sometimes the norm. We know that 52% of the small businesses using Xero have their invoices paid late. This is despite the fact that businesses that use Xero are typically paid 33% faster than businesses that don’t.

Within the FTSE 350, particularly slow sectors to pay are food producers (averaging 60 days), construction and materials (averaging 57 days) and household goods (averaging 57 days).  

We investigated what proportion of UK small businesses are cash flow positive each month - just under half - and which periods of the year are tight and which are more abundant.  

Recruitment is another important factor in small business. In 2017, we can see that March shows a high in but how do hiring needs change during the year?

We also assess how small businesses are trading overseas and examine the monthly and yearly fluctuations. We can see that in the year to this February, the year-on-year value of exports by small businesses increased by 5.8%.

Last but not least, we also look at the number of business that adopt cloud technology - an important metric which correlates to business success.

Each month we add new data and deepen our understanding of these key performance metrics within the small business community.  

Closing the productivity gap

The importance of these metrics is that they can also be used to help us to understand the broader challenges that SMEs face around improving productivity, both for themselves and the economy as a whole.

Specifically, we look at:

  • getting paid faster
  • getting funding
  • trading overseas
  • open banking
  • digital taxation

Emma Jones, the founder of Enterprise Nation, a small business support network, said: “Data provides a whole new insight into business trends. When it’s put to efficient use, it can help small businesses gain a far better understanding of their wider context – and how to push for better growth.”

By publishing these insights and considering it in the context of the challenges small businesses face will help the small business community gain a deeper understanding of the collective experience.

We hope that greater collective understanding of the small business economy will help firms, and their suppliers, develop their own economies of scale. This will help them close the gap on larger enterprises which traditionally benefit from those economies.

It will get people talking, creating new ideas and driving for growth – and that is where future success lies.