The importance of small businesses to the UK economy

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.

There are a huge number of small and medium sized enterprises across the UK; from local garages to online papoose sellers, they come in all shapes and sizes but as a collective they are the backbone of the entire UK economy.

All together, there are around 5.9 million registered SMEs in the UK, accounting for an overwhelming 99.9% of the business population. And according to the Federation of Small Businesses, 2019 saw a 3.5% increase in the business population with more than 200,000 business starting out.

What is an SME?

Any independent business in the UK and Europe that hires fewer than 250 employees and has an annual turnover of less than £40 million is classified as a SME.

They can be generally defined into two categories; the traditional cottage or household industries or that of a modern SME where they introduce a new concept or provide creative solutions to existing problems.

How SMEs affect the UK economy

Job Creation

SMEs make a huge contribution towards the employment rate in the UK, with 16.3 million people working in small businesses. That number accounts for around 60% of all private sector employment. Without SMEs and their role in job creation, the UK would have far fewer jobs to go around.

Generate competition

New startups are constantly shaking up their given industries by introducing new technologies, skills and most importantly – new ideas. Without new SMEs diversifying current industries, the UK economy would plateau; companies would stagnate and the economy would not receive that push in the right direction to encourage growth.

Small business turnover

Because SMEs make up such a large percentage of the UK economy, their joint successes and failures have a huge impact on the economy as a whole. This makes them the driving force behind real change across the UK in terms of industry and the possibility for growth on a small scale that has a large impact.

We want to make sure that every SME has the best chance to succeed. To do this we have partnered with a leading business finance broker to give you access to a number of business finance quote comparisons including merchant cash advances and invoice finance. Invoice finance is a way for small businesses to sell off their own client’s outstanding invoices for immediate capital.

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