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Home » The Health Of Welsh SMEs Revealed In New Data

The Health Of Welsh SMEs Revealed In New Data

Gathering data on small to medium-sized enterprises (SMEs) over time that accurately reflects the state of the sector over several years is vital in developing the policies required to support entrepreneurs as economic conditions change.

That is why the Longitudinal Small Business Survey (LSBS) from the Office for National Statistics, which has been undertaken since 2015, is so valuable in providing insights on business performance and the factors that affect this.

The latest report, examining those SMEs that are employers and which was released a few weeks ago, represents the first survey conducted when there were no restrictions on businesses due to the Covid-19 pandemic.

In that respect, the data it presents signifies a return to normality, although there are also signs of a lingering impact from the coronavirus in some areas.

In terms of changes in levels of employment, just over a quarter of SMEs employed more people than in 2021, with 19% reporting a decrease and 54% experiencing no change.

In Wales, the proportion of those hiring more staff was slightly behind Scotland but ahead of both England and Northern Ireland.

In contrast, SME employers in Wales saw a higher growth in turnover than England and Scotland, although the proportion of those generating profit or surplus was lower than the UK average.

With the majority of Welsh businesses experiencing growth, it is encouraging that this is set to continue, with nearly three-quarters aiming to increase sales in the next three years, although this is slightly down from 2021.

Innovation and international activity are both significant contributors to overall economic performance, not only in generating prosperity and jobs but also in raising levels of competitiveness in the economy.

Unfortunately, the business community in Wales continues to disappoint on both fronts.

For example, Wales had a lower-than-average proportion of exporters at 14%, suggesting that improving exporting performance must be a key focus going forward to unlock numerous opportunities for Welsh businesses and strengthen their competitive position in an increasingly globalized world.

While one in five UK SMEs had innovated processes in the last three years, this proportion was significantly lower in Wales (16%) and had fallen considerably since the last survey. Again, this needs to be addressed, as innovation is vital to regional economic development and competitiveness, and should make a greater contribution to enhancing Wales’s prosperity and resilience.

When asked about barriers to business success, major concerns from UK SMEs included energy prices, market competition, and staff recruitment/skills. In Wales, concerns over taxation, regulations, late payments, and the national living wage were more prominent.

If not addressed properly, such factors could create a less favourable business climate in Wales, potentially discouraging entrepreneurship and investment, while also affecting the competitiveness of Welsh businesses compared to other parts of the UK.

As a result, job creation might be slower, and profitability could be impacted, potentially limiting resources available for innovation and international expansion, as highlighted in the survey.

In terms of funding, Wales had the highest proportion of SMEs that had used some form of external finance, with eight out of ten doing so in 2022, although this was a slight reduction from the previous year.

The most popular form of external finance used by SMEs was credit cards, bank overdrafts, and leasing or hire purchase. However, only 13% of businesses in Wales had actively sought new finance in the preceding 12 months, with the median amount of funding required being £45,000.

Regarding business support, around a quarter of SME employers in Wales had sought external information or advice, and a further 45% had arranged or funded training, up by 2%.

Welsh SMEs were also the most likely to have a business plan in the UK, and half were using technology or web-based software.

Interestingly, two-thirds of Welsh SME employers had taken steps to reduce their environmental impact, placing them at a higher position than England.

Therefore, the LSBS data on SMEs in Wales highlights the nation’s strengths and challenges in driving economic growth. While employment and turnover growth is positive, there is room for improvement in innovation, international activity, and addressing specific barriers to business success although the active engagement in sustainability efforts is a promising sign for the future as Welsh SMEs take the climate change challenge seriously.

Hopefully, these valuable insights will be of use to policymakers and stakeholders aiming to support and enhance the performance of businesses in Wales over the next few years.