Big thinking for small businesses

Commentary by Martin McTague, Policy Director, Federation of Small Businesses

Our 5.7 million small businesses are the engine of the UK economy. In the past year of arguably unprecedented uncertainty and spiralling costs of doing business, they have remained resilient. I am proud to represent a broad and eclectic spectrum of smaller businesses – many of which have the aspiration to grow and to scaleup fast.

Access to growth finance in all its forms is an important driver of supporting growth and enhancing productivity. Asymmetries in information on growth finance need to be overcome so smaller businesses can pick the right options that work for them. In relation to equity finance, and notwithstanding the findings of the patient capital review, we would emphasise the importance of seed and early-stage equity financing options, be that angel or crowdfunding platforms. On the supply side, we believe that increasing the number of business angels should help to address the currently pronounced regional variations in the availability of early-stage equity finance. Just as important as equity finance are other growth finance options including venture debt, mezzanine funds, peer-to-peer lending and growth loans.

Small businesses need to innovate – but this does not always need to be new-to-market innovation. Indeed, there is an argument that it is not so much that businesses are innovating less but rather that this innovation is not being ‘diffused’ in the wider business ecosystem as it once was. Alongside the focus on the Grand Challenges within the Industrial Strategy, which will help many of our disrupter small businesses, for example, in the care and clean energy sectors, we also want to see a strong focus on supporting new-to-firm innovation amongst SMEs.

Recent events, including the collapse of Carillion, brought into sharp relief the pernicious effect of poor payment practice and late payments. Good supply chain practice is a broad church covering everything from supporting suppliers to innovate, for example, through technological change, through to engaging in good payment practice. Meaningful change needs to come from the top i.e. at board level. We are calling for a requirement to appoint a single non-executive director (NED), with a specific duty to report on behalf of the company suppliers, presenting their findings to their executive board and, subsequently, including them in the company’s annual report.

With Brexit on the horizon, small businesses are looking to capitalise upon new and exciting trade opportunities with global markets, as well as continuing to benefit from frictionless trade with the EU. However, our research has consistently shown that trading with non-EU markets is less ‘easy’ than trading with the EU single market. It’s is essential that the Department for International Trade’s Global Growth Pilot, which has been piloted for medium-sized businesses, is also rolled out to small and micro businesses.

Policy makers must not fall into the trap of thinking that small businesses think in terms of the discrete policy constructs of innovation, exporting, accessing growth finance. They look at strategic growth in the round and that is why it is important that there is a compelling business support offer to support small businesses looking to grow and become more productive. The end of EU funding provides a unique opportunity to re-energise the business support landscape across the whole of the UK.