The SME Market: One Size Does Not Fit All

Shiona Davies, Director of Financial and Business to Business Research at BDRC Continental, and author of the SME Finance MonitorAs covered last time, the SME Finance Monitor reports on more than just applications for finance. It also reviews other business activities to provide context to the financial analysis. This article reports on some of these other business activities, such as innovation and business planning, and how they vary by size and sector. More than 20,000 interviews were conducted in 2012, with analysis shown in the summary table and key headlines as follows:

Innovation

Four out of ten SMEs have been innovative – they either introduced a new product or service, or significantly improved an aspect of their business in the previous three years, with the latter (35%) twice as common as the former (17%). Bigger businesses were more likely to have been innovative (70% of those with 50-249 employees compared to 36% of 0 employee businesses), and by sector the most innovative was the Health sector (51%) with Construction bringing up the tail at 27%.

Total Quality Management

Fewer than one in five SMEs say that they use Total Quality Management or work to a recognised quality standard (18%), though this also varies by size with half of the largest SMEs using such standards (52%). Two sectors were less likely to use such standards – Transport and Other Community – both 12%. In all other sectors around one in five worked to such standards, and here Construction led the way at 23%.

Business Planning

Just over half of businesses (55%) undertake some form of planning activity. 41% produce regular management accounts and 33% have a business plan, and these have both been shown to make a contribution to success when applying for bank finance. There are notable differences by size – whilst only half of 0 employee businesses plan (49%), almost all of those with 50-249 employees do (96%). Businesses in the Construction sector were less likely to plan (44%) while the most likely was the Hotel and Restaurant sector, where two thirds (68%) plan.

Financial Qualifications

As with business planning, a qualified person looking after the finances has a positive impact when applying for bank finance. A quarter of SMEs have someone in charge of the finances with some form of financial training or qualification, but even amongst the biggest businesses this is not universal (76% of those with 50-249 employees). Also like business planning, companies in the Construction sector were less likely to have a qualified person in charge of the finances (19%) compared to a third of those in Property and Business Services (32%).

SME Finance Monitor: Other business activities 2012

All

0    emps

1-9 emps

10-49 emps

50-249 emps

Innovation (any)

40%

36%

49%

60%

70%

New product/service

17%

15%

22%

29%

42%

Made an improvement

35%

32%

44%

55%

64%

Business Planning (any)

55%

49%

68%

88%

96%

Management Accounts

41%

34%

56%

82%

92%

Business Plan

33%

29%

41%

57%

73%

Total Quality Management

18%

16%

22%

36%

52%

Financial qualifications

25%

22%

31%

51%

76%

Source: BDRC Continental sme finance monitor

HR Issues

Excluding the 0 employee businesses where this is less relevant, a third of SMEs with employees say they have a written HR policy (33%), while 14% offer performance-related pay. A written HR policy is more common amongst SMEs with 50-249 employees, but it is not universal. Only two thirds (66%) have one, while 32% of these larger SMEs offer performance related pay. By sector the exception is Agriculture, where 16% have an HR policy and 8% offer performance-related pay.

Business Groups

The final business activity in the report is membership of a business group or organisation. This question was asked for the first time in Q4 2012, when a quarter of SMEs (26%) said the owner/MD belonged to such an organisation. There was less variation by size than for some other aspects of the business: between 24% and 29% of businesses with 0 to 49 employees belong to such a group, increasing among the largest businesses to 39% of those with 50-249 employees. SMEs from three sectors were more likely than the others to belong to such a group: Construction, Property/Business Services and Health.


Shiona Davies is the Director of Financial and Business-to-Business Research at BDRC Continental and author of the SME Finance Monitor.

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