Official Statistics

Longitudinal Small Business Survey: SME Employers (businesses with 1 to 249 employees) – UK, 2023

Published 26 September 2024

1. Headline Findings:

• This edition of the Longitudinal Small Business Survey (LSBS) is the 9th Wave that has been completed since 2015. The report covers a broad range of topics that provide insights on small and medium enterprise (SME) performance and the factors that affect this. This report presents results for businesses with employees.
• Following the economic shock of the COVID-19 pandemic in 2020 which resulted in some businesses temporarily ceasing or significantly reducing trading, there has been a return to levels of expected growth and aims for growth last seen prior to 2020.
• In terms of obstacles to growth, while high energy and other prices continue to be significant factors, fewer SME employers now mention the UK’s exit from the EU in this context, and have returned to citing more traditional challenges, such as competition, taxation and regulation.
• Fewer SME employers now than 12 months ago highlight uncertainty in price increases as an issue potentially hindering their plans for growth. This too suggests that in 2023 they feel they have been operating within a more settled, stable environment than in 2021 and 2022.

2. Summary of highlights from sections:

2.1 Business Performance

• The survey shows that in 2023, a higher proportion of SME employers reported an increase than a decrease in the number employed (28% compared with 19%). The percentage reporting an increase was higher than in 2022 (up two percentage points) but lower than in 2021 (down six percentage points), suggesting a return to a steadier state following the immediate post-coronavirus (COVID-19) pandemic recovery period.
• SME employers’ expectations of employment growth echoed those reported in 2022, and as such also indicated a steadier, more consistent picture, with 25% expecting to increase their number of staff in the next year (30% in 2021, 26% in 2022) while 10% expected to employ fewer people in a year’s time (8% in 2021, 11% in 2022).
• The picture regarding sales (turnover) growth also suggested a more settled business environment in 2023 compared with the immediate post-pandemic recovery period. However, SME employers continued to be more likely to report sales growth over the preceding 12 months than they were pre-pandemic (40%; 18% in 2020, 39% in 2021 and 46% in 2022). SME employers continued to be positive about growth in the next 12 months and were more likely than in 2022 to expect an increase in sales in 12 months’ time (38%; 36% in 2022).
• There was little change in the propensity for SME employers to aim for growth in 2023, although it remained the aim of the majority (75%, 74% in 2022). As well as the expansion of sales, sales growth can be the consequence of inflationary price increases imposed by the SME employers themselves, and potentially ‘real’ growth may be hindered by the inflationary price increases that SME employers may be subject to from their suppliers. More than half of SME employers with plans to undertake growth-related activities in 2023 (55%) reported plans had been affected by issues relating to rising costs (as in 2022).
• 78% of SME employers generated a profit or surplus in their last financial year. This ends the upward trend that was reported between 2020 and 2022, with a one percentage point decrease against 2022. However, it remained significantly above 2020’s level of 67%.

2.2 Exporting

• The proportion of SME employers that exported goods or services in the last 12 months has not changed since 2021 - 18% have done so. In 2023, as previously, it varied by business size, from 17% of micros to 23% of small to 30% of medium-sized SMEs. The majority of exporters sell to customers in European Union countries (75%), but in 2023, this proportion was five percentage points lower than in 2022. There continued to be growth in exporting to non-EU countries however, with 73% of exporters selling to customers in non-EU countries in 2023 compared with 67% in 2019, 68% in 2020, 70% in 2021 and 72% in 2022.
• Over the next few years 55% of exporters expected to increase their level of exporting, which echoes expectations in 2022 (down one percentage point). There was little change in the proportion of SME employers who were non-exporters planning to start exporting (4% of all SME employers, up one percentage point on 2022). This tends to change little year on year because the majority of non-exporters (64% in 2023) do not have a product or service suitable for export. There was, however, an increase in the proportion of SME employers that exported that have made overseas sales every year since they started exporting in 2023 (79% - up 11 percentage points on 2022).
• In 2023, fewer SME employers directly imported goods or services than in 2022 (20%, compared to 23%), and they were less likely than in 2022 to import from both EU countries (16%, compared to 19%) and non-EU countries (12%, compared to 14%).

2.3 Access to Finance

• Three-quarters of SME employers (73%) were using some form of external finance. Compared with pre-2020 (pre-coronavirus (COVID-19) pandemic), use of external finance remained significantly higher (10 percentage points higher than in 2019) but was lower than in 2022 (75%) and 2021 (74%). Government or local grants or schemes or loans from financial institutions directly related to coronavirus measures were much less significant than in the previous three years (13%, compared with 20% in 2022 and 28% in both 2021 and 2020), however, the proportion of SME employers who continued to use loans from a bank, building society or other financial institution directly related to coronavirus remained at similar levels to 2022 (21%, 22% in 2022). This suggests that these loans were medium to long term arrangements.

2.4 Innovation Activity

• There was little change in the propensity of SME employers to innovate – introduce new and improved processes, goods or services – with 21% innovating processes, 15% innovating goods and 26% innovating services in 2023 (21%, 15% and 25% respectively in 2022).

2.5 Social Enterprise

• While 90% of SME employers stated that financial goals were important to them, around a third of SME employers stated that other objectives, including offering solutions to environmental problems (36%) and/or working to enhance civic and community engagement (35%) were important. It is estimated that 7% of all SME employers can be classified as ‘social enterprises’ (as in 2021) – a business (not a charity) which trades (obtaining at least half of its income from trading activity) for a social or environmental purpose and reinvests its profit or surplus in that social or environmental purpose.

2.6 Major Obstacles to the success of the business

• In 2023 the main reported obstacle to growth for SME employers was, as in 2022, the level of energy prices (56%, 60% in 2022). Competition was the next most frequently mentioned obstacle (48%, 41% in 2022), followed by taxation (45%, 41% in 2022). Also significant were regulations/red tape (41%, 39% in 2022) and staff recruitment and skills (40%, as in 2022).
• Over the last three years, around a third of SME employers have cited the UK’s exit from the EU as an obstacle to growth (30% in 2023, 32% in 2022 and 34% in 2021), and an increase in the cost of EU imports continued to be the most frequently cited difficulty experienced by those citing the EU exit as an obstacle (62%, 69%, in 2021 and 2022).

2.7 Business Support

• Following a significant increase in face-to-face delivery of information and advice in 2022 compared with the previous two years, it has increased again in 2023 (45%, a four percentage points increase on 2022, a 17 percentage points increase on 2021 and a 23 percentage points increase on 2020). This will reflect the low level of face-to-face delivery of services during the 2020/21 COVID-19 pandemic when social restrictions were in force.

2.8 Training

• The percentage of SME employers that had arranged or funded training in the previous year has increased by one percentage point each year since 2021 and now stands at 45%.

2.9 Business Practices

• In 2023, there was an increase in SME employers using technologies or web-based software to sell to customers or manage the business (61%, 50% in 2022). They were more likely to be using these technologies for managing the business than for selling to customers online (54% and 27% respectively), and there was particularly high growth in the use of such software for managing the business (up nine percentage points on 2022).

2.10 Future plans

• Among those with plans to undertake specific growth-related activities, the impact of the UK’s exit from EU has continued to lessen over time. Businesses with plans to increase export sales or begin selling to new overseas markets were particularly  likely to report the plans having been affected by the UK’s exit from the EU (31%; 35% in 2022, 43% in 2021).
• More than half of SME employers with plans aimed at growing their business reported these plans having been impacted by rising costs (55%) and in 2023, these were more likely to be cost increases other than energy costs (76%). Uncertainty with regard to cost increases was less of an issue in 2023 than in 2022 (18%; 37% in 2022). Rising costs were most likely to have affected plans for capital investment in the UK (44% of those with these plans that cite an impact), staff recruitment (35%) and developing and launching new products/services (35%).

2.11 Women-led businesses

• 15 per cent of SME employers were women-led (18% in 2022, 19% in 2021). While this was lower than in previous years, there were slightly more SME employers with a management team that represented men and women equally (25% in 2023, 23% in 2022, 24% in 2021). Those entirely male-led have remained at a consistent level at 44% in 2023, 2022, and 2021). The sectors most likely to have women-led businesses were health, education, arts and entertainment, other services and accommodation and food.

2.12 Minority Ethnic Group-led businesses

• 7 per cent of SME employers were led by a management team with at least half of its members from minority ethnic groups (MEG-led). This compared to 6% in 2022 and there has been little change since 2015.

3. What you need to know about these statistics

The Longitudinal Small Business Survey (LSBS) is a telephone survey of UK businesses in the private sector with fewer than 250 employees. (This definition treats full-time and part-time employees equally.) This report summarises key findings from the 2023 survey (Year 9). It focuses on those businesses with between 1 and 249 employees (‘SME employers’), with a separate report on businesses without employees.

Separate reports are published because we use two separate sampling frames and because the estimates for businesses with no employees include a large proportion of businesses which are not registered for VAT or PAYE. For the SME employers we use the Interdepartmental Business Register from the Office for National Statistics, which has complete coverage of the population from VAT and PAYE records, whereas for the sample of business with no employees we use both the IDBR and a commercial database provider to include businesses not registered for VAT or PAYE. 

The coverage of the unregistered business population is less well understood and small business who rely on word of mouth or platforms such as Facebook or Instagram are unlikely to be included in either of the sampling frames and therefore this should be considered when making comparison between the two reports. There is some guidance at the back of the report on the uncertainty that arises because we are using a sample of the UK SME population rather than collecting data from all of them. We refer to micro businesses which have 1-9 employees; small businesses which have 10-49 employees; and medium-sized businesses which have 50-249 employees.

In this report when we refer to business size this is defined entirely in terms of number of employees. Levels of turnover (sales) or assets are not part of our definition, though there are other definitions of business size which include these.

‘SMEs’ stands for ‘small and medium enterprises’ – but this is always taken to include micro businesses and non-employers too. The LSBS covers all SMEs, not just small businesses, though this report only covers SME employers.

This is a longitudinal survey as we try to re-interview businesses (SME employers and businesses with no employees) each year – 460 businesses have taken part in all nine years of the survey so far (‘panellists’), and another 6,177 businesses in 2023 had taken part in at least one previous survey. In addition, there were 3,504 businesses new to the survey (‘top-ups’). The overall LSBS sample in 2023 was 9,681, including 7,819 SME employers, of which 21 were large employers (250+ employees) and are not included in the sample of 7,799 SME employers that this report is based on.

Throughout the report, where figures sum to less than 100% when you expect them to sum to 100% (because they cover all possibilities) the shortfall will be due to businesses saying they did not know the answer, refusing to answer or might be due to rounding of estimates to the nearest whole percentage.

Our respondents were each randomly assigned to one of three cohorts and some questions were only asked of one cohort (though most questions went to all three cohorts). The underlying data tables that accompany this report group cohort questions separately, so the report and charts make clear when they are covering cohort questions, to allow you to find the corresponding data table if required.

4. Business performance

4.1 Changes in the levels of employment

In the data tables accompanying this publication, table 37 shows how many employees businesses had on their payrolls 12 months ago across all UK sites and table 38 shows how the size of the workforce has changed over the last 12 months.

In 2023, 28% of SME employers employed more people than a year previously, a higher percentage than in 2022 (up two percentage points) but lower than in 2021 (down six percentage points).

19% reported a decrease in employment, the same percentage as in 2022 and 2021.

53% stated they had made no change, one percentage point lower than in 2022, and a higher percentage than in 2021 (up six percentage points).

Figure 1: Change in employment compared to 12 months previously (2015 to 2023; based on all SME employers trading for at least one year) ^{[Note 1]}

[Note 1]In the 2016-17 LSBS reports figures were only shown for ‘panellists’ (those that had taken part in the previous year’s survey), based on the actual number of employees reported in the survey year, and the previous year. This was because those who did the survey for the first time in these years (‘top ups’) tended to approximate employment numbers more, and the datasets were not compatible. Between 2018 and 2023, as in 2015 and before, the ‘perceived’ change in employment question was asked of all respondents.

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By business size, for micro businesses, compared with a year ago, 25% had increased employee numbers, 17% had fewer employees, and 59% had approximately the same number.

For small businesses, 43% had more employees, 26% had fewer, and 31% had the same.

For medium-sized businesses, 50% had more employees, 27% had fewer and 23% had the same number.

By sector, those in education (35%) and arts and entertainment (34%) were the most likely to have increased employee numbers. Those in health (25%) and accommodation and food (23%) were most likely to have reduced employee numbers.

By nation, there were similar levels of employment growth. In England and Wales, 28% of SME employers had more employees (an increase of two percentage points on 2022 in England, no change on 2022 in Wales), while in Scotland, 27% reported more employees (down two percentage points on 2022). SME employers in Northern Ireland were more likely than those in other nations to report increases in employment (31%, up three percentage points on 2022) and less likely to report a reduction in employee numbers (16%, down three percentage points on 2022) compared with those in England (18%, (down two percentage points on 2022).

4.2 Expectations for employment growth

In the data tables accompanying this publication, table 39 shows how many employees the business expects to have on the payroll in 12 months’ time and table 40 shows how they expect the size of the workforce to change over the next 12 months.

Looking ahead, 25% of SME employers expected to employ more people in a year’s time (down one percentage point on 2022, and down five percentage points on 2021). 64% expected to employ the same number (up two percentage points on 2022 and 2021) and 10% expected to employ fewer people (down one percentage point on 2022, an increase of two percentage points on 2021).

By size, 22% of micro businesses expected to increase the number of employees, compared to 39% of small businesses and 49% of medium-sized businesses. Micro businesses were more likely than small and medium-sized businesses to expect to have reduced employment in 12 months’ time (11%, compared with 8% of small and 8% of medium-sized businesses).

By sector, expectations for employment growth were most likely in administration (37%), health (32%), transport and storage (31%) and manufacturing (30%).

By nation, 26% of SME employers in Scotland, Wales and Northern Ireland and 25% of those in England were confident that employment numbers would increase, while SME employers in Wales were most likely to expect a reduction in the number of employees (12%), followed by those in Scotland (11%), England (10%) and Northern Ireland (8%).

Figure 2: Expectations for employment in 12 months’ time, by year

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4.3 Changes in levels of turnover

In the data tables accompanying this publication, table 137 shows the change in turnover compared with 12 months ago.

Compared to 2022, a lower proportion of SME employers reported turnover growth over the previous 12 months (40%, six percentage points lower than in 2022), although this was closer to 2021 (just one percentage point higher than in 2021). For the last three years, the proportion of SME employers reporting turnover growth has been higher than pre-2020 levels, reflecting ongoing recovery post-2020 (coronavirus pandemic – when some businesses paused trading), as in 2020 more than half of SME employers reported a decrease in turnover compared with 12 months previously.

A higher proportion of SME employers reported a decrease in turnover in 2023 than in 2022 (27%, up four percentage points on 2022), but this was a lower proportion than in 2021 (three percentage points lower) and 2020 (29 percentage points lower).

Micro and small businesses were more likely than medium-sized businesses to have experienced a decrease in turnover in the last 12 months (29%, 22% and 19% in 2023 respectively). The corresponding figures reporting an increase were 38%, 46% and 56% respectively.

Figure 3: Current turnover compared to 12 months previously, by year (based on SME employers trading for at least one year)

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The sectors most likely to report turnover growth were manufacturing (44%) and arts and entertainment (44%), while those most likely to report a fall in turnover were transport and storage (34%), information and communication (33%) and professional and scientific (30%).     

By nation, SME employers in Scotland (44%) and Wales (42%) were more likely to have reported a growth in turnover than those in Northern Ireland (40%) and England (39%). Those in England (28%) and Wales (26%) were more likely to report a fall in turnover than those in Scotland (24%) and Northern Ireland (18%).

4.4 Expectations of turnover in 12 months’ time

In the data tables accompanying this publication, table 141 shows the expected change in turnover in 12 months’ time.

Expectations of turnover increasing in 12 months’ time were higher than in 2022 (38%, compared with 36%), but lower than in 2021 (down eight percentage points), which reflected expectations of recovery post-2020 (coronavirus pandemic). Most of the remaining SME employers expected turnover to stay the same over the next 12 months (46% - down one percentage point on 2022, a four percentage points increase on 2021 and a ten percentage points increase on 2020), while a lower proportion of SME employers than in 2022 expected turnover to decrease (13%, down one percentage point on 2022 and a five percentage points increase on 2021). 

By size, 36% of micro businesses expected turnover to increase, compared with 45% of small businesses and 56% of medium-sized ones.

The sectors most likely to think that turnover would increase were health (45%), arts and entertainment (45%), information and communication (44%) and administration (42%).

Figure 4: Expectations of turnover in 12 months’ time, by year

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By nation, there was little variation, with 39% of businesses in Wales, 38% of businesses in England and 36% of businesses in both Scotland and Northern Ireland expecting turnover to grow. 

4.5 Profit

In the data tables accompanying this publication, table 147 shows whether SMEs generated a profit or surplus in the last financial year

When asked about generating a profit or surplus, 78% of SME employers stated they had done so in their last financial year. This is down one percentage point on 2022, but still five percentage points higher than in 2021 and 11 percentage points higher than in 2020.

Whether a profit or surplus was made increased with business size; 78% of micros made a profit (down one percentage point on 2022, but up six percentage points on 2021).This compares with 80% of small businesses (down one percentage point on 2022, but up three percentage points on 2021) and 84% of medium-sized businesses (this time up one percentage point on 2022, and up three percentage points on 2021).

By sector, those most likely to have made a profit or surplus were SME employers in the following sectors: professional and scientific (86%), finance and real estate (84%) and construction (84%).

With a relatively high proportion of not-for-profit enterprises among their numbers, the sectors least likely to have made a profit or surplus were other services (65%) and health (65%), while accommodation and food (67%) and arts and entertainment (68%) were also less likely than average to have done so.

Figure 5: Generated a profit or surplus in the last financial year, by year

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By nation, 78% of SMEs have made a profit or surplus in Scotland and England (down four percentage points and one percentage point on 2022 respectively), compared with 80% in Northern Ireland (a two percentage points decrease on 2022), and 77% in Wales (no change on 2022).

5. Exporting

5.1 Sales of goods or services outside the UK in the last year

In the data tables accompanying this publication, tables 41 to 46 and 50 show whether businesses exported goods or services, and the extent to which exports contribute to total sales

Overall, 18% of SME employers exported goods or services in the last year. This is the same proportion as in 2022 and 2021.

Figure 6: Whether sold goods or services, or licensed products outside the UK in the last 12 months, by year

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By sector, similarly to previous years, exporters were most likely in manufacturing (47%, a one percentage point increase on 2022), information and communication (41%, down one percentage point on 2022), retail and wholesale (29%, up three percentage points on 2022) and professional and scientific (27%, down one percentage point on 2022).

The sectors least likely to have exported were health (1%), accommodation and food service (2%), construction (4%), finance and real estate (6%), other services (8%) and primary (11%).

By employment size band, 17% of micro businesses were exporters, compared with 23% of small businesses and 30% of medium-sized businesses. These figures were similar to those reported in 2022 (16%, 23% and 31% respectively) and 2021 (16%, 23% and 29% respectively).

By nation, the highest proportion of exporters was found in Northern Ireland (32%, up one percentage point on 2022). This is consistent with the National Survey of Registered Businesses where a higher proportion of Northern Ireland businesses exported to Ireland with which it shares a land border. The proportion of exporters was lower than average in Wales (14%, as in 2022) and Scotland (15%, up two percentage points on 2022), while SME employers in England were more likely than those in Scotland and Wales to report having exported in the last 12 months (19%, up one percentage point on 2022).

Of all SME employers, 10% exported services and 10% exported goods (as in 2022 and 2021, although service exporting is up one percentage point on 2021). Services exporters were most likely to be in the information and communications (35%, down one percentage point on 2022) and professional and scientific (25%, as in 2022) sectors. Goods exporters were most likely to be in the manufacturing (44%, down one percentage point on 2022), and wholesale and retail sector (28%, up four percentage points on 2022).

Exports accounted for less than a quarter of turnover for 63% of exporters, between a quarter and half for 11%, between half and three-quarters for 9% and over three-quarters for a further 12% (8% did not know). This is broadly in line with the previous three years.

When focusing specifically on exports to the EU, exports accounted for less than a quarter of turnover for 78% of all EU exporters (down two percentage points on 2022) equivalent to 61% of all exporters (down three percentage points on 2022), between a quarter and half for 10% (up one percentage point on 2022), between half and three-quarters for 4% (3% did not know) as in 2022, and over three-quarters for a further 4% (as in 2022). This was also broadly in line with 2021 and 2020.

5.2 Destinations of exports

In the data tables accompanying this publication, tables 48 and 49 show the destination of exported goods or services

Of UK SME employers that exported in the last year, 75% exported to European Union countries (down five percentage points on 2022) and 73% exported outside the EU, including to EFTA (European Free Trade Association) countries, which was up one percentage point on 2022)

Figure 7: Destination of exports in the last year, by year (based on SME exporters only)

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In terms of exports to non-EU markets, the USA was the most common, with 45% of exporters selling goods or services there, 24% sold to EFTA countries, 22% to Canada, 11% to China, 11% to India, 8% to Turkey, 7% to South Korea, and 49% to the rest of the world.

Overall, 81% cent of exporters sold to either EU or EFTA countries (four percentage points down on 2022), and 70% to countries outside the EU and EFTA (as in 2022).

5.3 Plans to increase levels of exports, start exporting and intermittent exporting (Cohort C)

In the data tables accompanying this publication, tables 3, 6, 7, and 8 (cohort C) show plans to increase, or to start, exporting goods or services in the next few years

Of those UK SME employers that exported in the last year, 55% reported planning to increase their level of exports over the next few years (down one percentage point on 2022, up 10 percentage points on 2021).

By employment size, the larger the business the more likely they are to have plans to increase their levels of exports; 70% of medium-sized businesses, compared with 53% of micro and 58% of small businesses.

Of those UK SME employers that did not export in the last year but have a product or service that is suitable for export, 24% reported planning to start exporting over the next few years (11% in the next 12 months; 13% further into the future). This equates to 4% of all UK SME employers (one percentage point up on 2022).  However, 64% of all UK SME employers reported that they did not have a product or service suitable for export.

Of SME employers that have exported for two years or longer, 79% have had overseas sales every year since they started exporting (up 11 percentage points on 2022, up six percentage points on 2021). Some 19% have had some years without overseas sales (down 12 percentage points on 2022, down six percentage points on 2021).

5.4 Purchases of goods or services from outside the UK in the last year (Cohort A)

In the data tables accompanying this publication, table 2 shows whether they directly imported goods or services

Overall, 20% of SME employers directly imported goods or services in the last year – 16% from suppliers based in the EU; 12% from suppliers based in non-EU countries. This compares with 23% in 2022 (19% from the EU and 14% from non-EU countries).

6. Access to finance

6.1 Types of external finance currently used

In the data tables accompanying this publication, table 80 shows the types of external finance currently being used.

Overall, 73% of SME employers were using some form of external finance. This was two percentage points lower than in 2022 and one percentage point higher than in 2021 and 2020. Compared with pre-2020 (pre-coronavirus (COVID-19) pandemic), it remained significantly higher (10 percentage points higher than in 2019).

By employment size, 71% of micro firms used finance (down two percentage points on 2022), compared with 82% of small businesses (down one percentage point on 2022) and 86% of medium-sized businesses (down three percentage points on 2022).

The forms of external finance being used have begun to revert to those that were most common pre-coronavirus (COVID-19) pandemic. Government or local authority grants or schemes directly related to coronavirus measures were of much less significance than during the last three years (13%, compared with 20% in 2022 and 28% in both 2021 and 2020). However, in 2023 SME employers using loans from a bank, building society or other financial institution directly related to coronavirus remained at similar levels to 2022 (21%, 22% in 2022) although at a lower level than in 2021 (28%).

The most used form of external finance in 2023, as it was in 2021 and prior to 2020, was credit cards (37%, down one percentage point on 2022)).  Next most used were bank overdrafts (28%, up one percentage points on 2022) and leasing or hire purchase (24%, as in 2022).  Loans from a bank, building society or other financial institution not directly related to coronavirus were more widely used in 2022 than in the last three years (21%, up 10 percentage points than in both 2022 and 2021), while government or local authority grants or schemes not directly related to coronavirus were being used by 5% of SME employers (down one percentage point on 2022). 

Figure 8: Forms of external finance currently used by SME employers - percentages

‘*’ Third year as a prompted response option.  ‘Loan from bank etc. directly related to coronavirus’ was spontaneously mentioned by less than half a percent in 2020

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By nation, 78% of SME employers in Wales used some form of external finance (down one percentage point on 2022, down two percentage points on 2021 but down five percentage points on 2020), compared with 70% in Northern Ireland (down seven percentage points on 2022, down eight percentage points on 2021 but up 10 percentage points on 2020), 76% in Scotland (up one percentage point on 2022, down two percentage points on 2021, up one percentage point on 2020) and 73% in England (down two percentage points on 2022, down one percentage point on 2021 and up one percentage point on 2020).

By sector, SME employers in primary sectors (88%), manufacturing (83%) and transport and storage (83%) were most likely to use external finance.  Construction (80%) was also more likely than average to use finance. Use of finance was below average in education (62%), other services (63%), health (63%) finance and real estate (66%), professional and scientific (66%), information and communication (68%) and accommodation and food services (69%).

Different sectors use different types of external finance to suit their needs:

• credit cards were most likely to be used in primary (47%), manufacturing (45%), construction (45%), and wholesale and retail (39%)
• bank overdrafts were particularly likely to be used in primary (56%), transport and storage (34%) and manufacturing (33%)
• leasing/hire purchase was used most within primary (48%), transport and storage (41%), manufacturing (35%) and construction (35%)
• bank loans directly related to coronavirus were most likely to be used in transport and storage (27%), manufacturing (25%), construction (25%), administration (25%) and accommodation and food (24%)
• business partner/directors/owner’s loans were most used in wholesale and retail (21%) and manufacturing (21%)
• government grants directly related to coronavirus were most used in construction (20%)
• government grants other than those related to coronavirus were most used in primary (22%), arts and entertainment (17%), health (15%), education (12%) and other services (9%)
• bank loans not related to coronavirus were most common within primary (38%)
• commercial mortgages were most used in primary (22%) and accommodation and food (11%)
• loan from family/friend were most used in primary (10%), manufacturing (9%) and accommodation and food (7%)
• factoring/invoice discounting was most used in manufacturing (8%), administration (8%) and transport and logistics (6%)
• equity finance was most likely to be used in finance and real estate (4%) and information and communication (3%)

Small and medium-sized businesses were more likely than micro businesses to use many types of finance, with the exception to this being bank overdrafts, Government or local authority grants whether directly related to coronavirus or not, loans from a bank, building society or other financial institution directly related to coronavirus, and loans from peers or business partners/directors/owners, or family/friends. 

The use of any form of so-called ‘alternative finance’ (refers to equity, factoring/invoice discounting, peer-to-peer loans and some forms of ‘other finance’), not originating from banks, the public sector, or people known to the business, was reported by 7% of SME employers (down one percentage point on 2022).

By employment size, 6% of micro businesses used alternative finance, compared with 12% of small businesses and 19% of medium-sized businesses. Alternative finance was most likely to be used in manufacturing (13%), administration (11%) and transport and storage (10%) sectors.

6.2 Whether sought external finance in the last 12 months

In the data tables accompanying this publication, table 83 shows whether the business tried to obtain external finance in the past 12 months.

In 2023, 13% of SME employers had sought external finance in the preceding 12 months; two percentage points higher than reported in 2022 and five percentage points higher than in 2021.

Figure 9: Percentage of SME employers that sought external finance in the preceding 12 months, by number of employees and year

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The propensity to have sought external finance increased with business size, from 13% of micro businesses to 16% of small and 21% of medium-sized businesses. Compared with 2022, there has been an increase in micro and small SME employers seeking finance in the previous 12 months, with an increase of three percentage points among micro businesses and two percentage points among small businesses, while there has been a decrease of one percentage point among medium-sized businesses.

By nation, 19% of SME employers in Wales sought finance in the preceding 12 months (up six percentage points on 2022), compared with 15% in Scotland (as in 2022), 13% in England (up two percentage points on 2022) and 11% in Northern Ireland (up one percentage point on 2022). 

SME employers in the primary sectors (27%) and manufacturing (17%) were most likely to have applied for finance in the last year.

Figure 10: Percentage of SME employers seeking external finance in the preceding 12 months, by sector and year

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Of those SME employers that sought external finance in the last 12 months, 23% had done so for the first time. By employment size, micros were more likely to be applying for finance for the first time than small and medium-sized SMEs (26%, 16% and 8% respectively). Compared with 76% of all SME employers who had sought finance in the last year, those within primary (98%), transport and storage (85%) and retail and wholesale (84%) sectors were most likely to have had previous experience of applying for finance.

Compared to 2022, SME applications for finance increased in health (14%, an increase of seven percentage points), transport and storage (15%, an increase of five percentage points), manufacturing (17%, an increase of four percentage points), construction (15%, an increase of four percentage points), arts and entertainment (12%, an increase of four percentage points) and primary sectors (27%, an increase of three percentage points). 

Fewer SME employers sought finance in just one sector, that of accommodation and food (14%, down one percentage point). 

Of those SME employers that sought finance, 9% sought it once in the previous 12 months, and 5% sought it more than once. SME employers in primary sectors (10%), health (8%) and transport and storage (8%) were most likely to have sought it just once.

6.3 Type of external finance sought

In the data tables accompanying this publication, tables 85 and 91 shows the types and amount of external finance sought in the last 12 months

The types of external finance that were sought in the previous 12 months were as follows(While in 2021 SME employers were asked not to include COVID-19 related finance when thinking about external finance sought, this was not mentioned in 2022 and 2023 because COVID-19 related finance was no longer being made available to businesses during the period covered by the questioning):

• bank loans (38% of those that applied for any, a decrease of two percentage points on 2022)
• bank overdraft (37% of those that applied, a decrease of two percentage points)
• leasing/hire purchase (19%, a decrease of one percentage point)
• credit cards (17%, a decrease of one percentage point)
• loan from family/friend (13%, as in 2022)
• loan from business partner/director (13%, as in 2022)
• government or local authority grant or scheme (7%, down two percentage points)
• commercial mortgage (6%, up one percentage point)
• loan from a Peer to Peer (P2P) platform (5%, an increase of two percentage points)
• factoring/invoice discounting (3%, as in 2022)
• equity finance (2%, a decrease of one percentage point)

The mean amount of finance sought(for those that sought bank overdrafts, this includes the size of the overdraft facility, even if it was not used) was £476,000. This mean was £277,000 for micros, £626,000 for small businesses, and £3.7 million for medium-sized businesses. It should be noted that the mean can be affected by a relatively small number of large values and so might not be very reliable as an estimate.

The median, which better represents the amount that the typical business sought, was £40,000. This was £30,000 for micros, £110,000 for small businesses, and £700,000 for medium-sized businesses.

By nation, the median amount of finance sought was £40,000 for businesses in England, £50,000 for businesses in Scotland and Northern Ireland and £20,000 for those in Wales.

6.4 Intentions to apply for external finance in the next three years

In the data tables accompanying this publication, table 150 shows the likelihood that the business will approach external finance providers in the next 3 years.

When asked whether they would approach external finance providers in the next three years, 21% of SMEs said it was likely they would do so, an increase of one percentage point on 2022, including 10% very likely (one percentage point up on 2022) and 11% fairly likely (as in 2022).  

By employment size, 40% of medium-sized businesses said they would be likely to approach external finance providers, compared with 26% of small businesses and 19% of micro businesses (33%, 27% and 18% respectively in 2022).

6.5 Trade credit and late payment (cohort A)

In the data tables accompanying this publication, table 9 (cohort A) shows whether they gave their customers trade credit. Table 12 (cohort A) outlines whether they have a problem with customers paying later than expected business terms.

In 2023, 47% of SME employers reported that they give their customers trade credit. This was one percentage point lower than in 2022 and 2021.

Larger SMEs were more likely to give customers trade credit: 64% of medium-sized businesses gave trade credit (up three percentage points on 2022), compared with 55% of small businesses (up four percentage points), and 45% of micro firms (down two percentage points).

Whether credit was given varied considerably according to sector, ranging from 79% of SME employers in manufacturing, 74% in transport and storage, 67% in information and communications down to 12% in finance and real estate, 15% in accommodation and food, 20% in arts and entertainment, 21% in other services and 27% in health.  

Late payment was considered a problem by 59% of those that gave trade credit (two percentage points up on 2022). This equates to 28% of all SME employers (up one percentage point on 2022).

By employment size, late payment was more likely to be a problem for small (63%) and medium-sized (71%) than micro (58%) businesses (as proportions of those that gave trade credit).

By sector, late payment was most likely to be considered a problem by those that gave trade credit for administration (68%) and professional and scientific (66%) sectors.

7. Innovation activity

7.1 New or significantly improved processes in the last three years (cohort C)

In the data tables accompanying this publication, table 19 (cohort C) shows whether the business has introduced any new or significantly improved processes in the last three years.

Among SME employers, 21% had innovated processes for producing or supplying goods or services in the last three years (as in 2022, but two percentage points higher than in 2021, 2020 and 2019).  

The percentage was higher for medium-sized businesses (32%) than small (30%) and micro (19%) businesses. 

By sector, SME employers in manufacturing (33%), information and communication, professional scientific (both 29%) and administration (28%) were most likely to have innovated processes in the last three years.

By nation, the proportion was higher in Wales (22%) and England (21%) than in Scotland and Northern Ireland (both 19%). Compared with 2022 there was no change in England, but there was a six percentage points increase in Wales, and six percentage points decreases in both Scotland and Northern Ireland.     

7.2 New or significantly improved goods or services in the last three years

In the data tables accompanying this publication, tables 102, 103 and 104 show whether the business has introduced any new or significantly improved goods or services in the last three years.

In the last three years, 15% of SME employers had introduced new or significantly improved goods – no change compared with 2022.  This proportion increased with employment size, from 14% of micro businesses to 19% of small businesses, and to 22% of medium-sized businesses. 

The equivalent figure for the introduction of new or significantly improved services was 26% - a one percentage point increase on 2022. Again, the propensity to have done so increased with employment size: 25% of micro businesses, 29% of small businesses and 30% of medium-sized businesses had innovated in this way.

Overall, 33% of SME employers had innovated goods or services in the last three years (up one percentage point on 2022 and 2021), suggesting a continued upward trend in this activity since 2020 (29% then) when a decrease was reported against 2019 (32%).

Figure 11: Percentage of SME employers which have introduced new or significantly improved goods or services in the last three years - by size of business, 2023

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Innovation in respect of goods was similar across nations, 17% in Wales (a one percentage point increase on 2022), 15% in England (as in 2022), Scotland (14%, a one percentage point decrease on 2022) and 13% in Northern Ireland (a four percentage points decrease).

In respect of service innovation, SME employers were most likely to innovate in Scotland (31%, a three percentage points increase on 2022) and lowest in Northern Ireland (24%, a two percentage points increase on 2022), compared with England and Wales (25% in each case – the same as 2022 in England but a one percentage point decrease in Wales).   

Figure 12: Percentage of SME employers which have introduced new or significantly improved goods or services in the last three years - by sector, 2023

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By sector, SME employers in manufacturing (37%), information and communication (25%) and retail and wholesale (20%) were the most likely to have innovated goods.

Those in information and communication (44%), education (43%), arts and entertainment (41%), professional and scientific (35%), health (33%) and administration (31%) were the most likely to have innovated services.

7.3 Process- innovations which were new to the industry (cohort C)

In the data tables accompanying this publication, table 21 (cohort C) shows if the processes were new to the industry or business

Of those SME employers that had innovated processes in the last three years, these processes were new to the industry for 19% of them, with the remainder introducing processes that were new only to the business (79%) (as in 2022).

By employment size, medium-sized businesses were more likely than micro and small businesses to have introduced processes that were new to the industry (27%, 19% and 18% respectively).

7.4 Goods and services innovations which were new to the market or industry

In the data tables accompanying this publication, table 105 shows whether the goods or services innovations were new to the market or business

Of those SME employers that had innovated goods and/or services in the last three years, these were new to the market (or industry) for 32%, with the remainder new only to the business (67% - 1% were unsure/refused to say ). Compared with 2022, the proportion introducing goods and services that were new to the industry increased by one percentage point (four percentage points compared with 2021).

By size, the proportion of SME employers introducing goods and/or services new to the industry was higher in medium-sized businesses (38%) than in small and micro businesses (30% and 32% respectively).

Based again on those SME employers innovating new goods and/or services, these were most likely to be new to the industry in manufacturing and information and communication (both 52%), and professional and scientific (36%) sectors.

7.5 Investment in R&D in the last three years (cohort C)

In the data tables accompanying this publication, table 22 (cohort C) shows whether the business invested in R&D in the last three years, and table 23 (cohort C) shows how much has been invested. Table 113 in the main tables shows annual turnover for those who invested in R&D in the last three years and was used to calculate the percentage of turnover invested.

Among SME employers 16% had made any investment in R&D in the previous three years (a three percentage points decrease on 2022, but back to the level seen in 2021), This increased with employment size from 14% of micros to 24% of small businesses to 37% of medium-sized businesses.

Figure 13: Investment in R&D in the preceding three years by sector and by year - percentages

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Investment in R&D was most likely in the information and communications (45%), manufacturing (38%), education (35%) and professional and scientific (22%) sectors.

Of those investing in R&D, the mean amount spent over the previous three years was £315,000. Means are affected by high values and can be misleading as a measure of the investment in R&D by a typical SME employer. This figure has been calculated only using responses with the exact amount of R&D spending stated, so it excludes the respondents who gave an estimated figure within a range. The amount spent by a typical SME is better reflected by using the median.

The median amount invested over the previous three years was £30,000. This was £24,000 for micro businesses, £80,000 for small businesses, and £300,000 for medium-sized businesses.

The mean annual sales turnover for SME employers that invested in R&D was just over £2,700,000. The mean amount spent on R&D per year was around £105,000 (calculated by dividing the mean amount spent on R&D over three years, £315,000 by three). Assuming constant sales turnover over three years, this suggests that the average SME employer that invests in R&D spends 4% of its annual turnover on R&D.

7.6 Applications for R&D tax credits in the last three years (cohort C)

In the data tables accompanying this publication, table 24 (cohort C) shows whether the business applied for or received R&D tax credits in the last 3 years

Around 7% of SME employers had applied for R&D tax credits in the previous three years (two percentage points lower than in 2022, back to the level reported in 2021). This proportion was higher for medium-sized businesses (25%), than for small businesses (16%) and micro businesses (4%). By sector, applications were most likely in information and communication (27%) and manufacturing (23%).

8. Social enterprises

In the data tables accompanying this publication, tables 55 and 56 show whether SME employers consider various business goals as important,  and the relative importance of social or environmental goals. Table 65 presents how SMEs are classified with regard to social enterprise.

A social enterprise is defined as a business (not a charity) which trades for a social or environmental purpose and reinvests its profit or surplus in that social or environmental purpose. To distinguish it from a charitable organisation, it must obtain at least half its income from trading activity. Section D relating to social enterprises and social or environmental goals is included in the survey every other year.

When asked about a variety of business goals, 90% of SME employers stated that financial goals were important to them.

The propensity to consider financial goals as important increased slightly with business size: 89% of micros, 94% of small and 95% of medium-sized business.

Offering solutions to environmental problems, such as climate change or food waste was reported as of important by 36% of all SME employers. This proportion is highest in primary sectors (61%), as well as being higher than average in the accommodation and food sector (50%).

Working to enhance civic and community engagement was important for 35% of SME employers. The sectors most likely to rate this as important were health (71%), arts and entertainment (63%), education (63%) and accommodation and food (57%).  

Fighting economic and/or social exclusion was reported as important by 29% of all SME employers, and particularly within health (75%), education (71%), arts and entertainment (55%) and other services (44%) sectors.  

Offering solutions to problems of health and/or aging was important for 22% of all SME employers, particularly, again, those in health (64%) and, to a lesser extent, arts and entertainment (42%) and other services (36%) sectors.

Of those SME employers who cited goals other than financial ones as important, 2% considered social or environmental goals as their only concern, 13% considered these goals their primary concern, 29% considered them to be equal to financial or other goals and 47% considered them to be secondary to financial or other goals.

Where social or environmental goals were important to SME employers, those in arts and entertainment (42%), transport and storage (40%), health and education (both 34%) sectors were most likely to report that these goals were equal to financial and other goals. Those in other services (34%), health (31%) and arts and entertainment (30%) sectors were most likely to report that these goals were their business’ primary concern, while those in the health sector were most likely to report that they were their only concern (6%).

Questions asked in this year’s survey sought to determine whether SME employers could be classified as social enterprises.

Based on whether social and environment goals were important, whether those social and environmental goals were at least as important as financial goals, and whether at least half of profits or surpluses were invested to further these non-financial goals, 7% of all SME employers (as in 2021) were classified as ‘social enterprises’. This proportion is highest within health (22%), arts and entertainment (19%), education (15%), primary (10%) and accommodation and food (10%) sectors.

9. Major obstacles to the success of the business

9.1 Overview of main obstacles (cohort B)

In the data tables accompanying this publication, table 1 (cohort B) shows the major obstacles to the success of the businesses interviewed.

In 2023, the most frequently mentioned major obstacle to business success was the level of energy prices (56%, down four percentage points on 2022). Competition in the market was the next most frequently mentioned obstacle (48%, up seven percentage points on 2022), followed by taxation (45%, up four percentage points).

Regulations/red tape (41%, up two percentage points on 2022), closely followed by staff recruitment and skills (40%, as in 2022) were the next most frequently mentioned potential obstacles.    

Other major obstacles included: late payment (32%, up three percentage points on 2022), the UK’s exit from the EU (30%, down two percentage points) and other issues related to costs (not related to energy prices) (30%, down two percentage points).

The coronavirus (COVID-19) pandemic was taken off the list of potential obstacles that SME employers may have faced in 2023. 

Figure 14: Percentages of SME employers citing each major obstacle to the success of the business (cohort B only)

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Medium-sized employers, with their larger number of staff, were more likely than micro and small employers to cite staff recruitment and skills as an obstacle to business success: 68% of medium-sized businesses (down three percentage points on 2022), compared with 60% of small (down four percentage points) and 35% of micro (as in 2022) businesses.

The National Living Wage was mentioned by 44% of small (up nine percentage points on 2022) and 42% of medium-sized businesses (up eight percentage points), compared with 23 per cent of micro businesses (up two percentage points).

Small businesses were more likely than medium-sized and micro businesses to cite the level of energy prices (63%, 59% and 54% respectively, compared with 67%, 65% and 59% respectively in 2022).

Medium-sized businesses were more likely to cite competition in the market (54%, up six percentage points on 2022) than small (51%, up 12 percentage points) and micro (47%, up five percentage points) businesses. They were also more likely to mention the UK’s exit from the EU (40%, down three percentage points) than small (34%, down one percentage point) and micros (29%, up eight percentage points). 

There was some sectoral variation in the obstacles SME employers cited:

• the level of energy prices was most likely to be considered an obstacle in accommodation and food (89%, 88% in 2022), manufacturing (71%, 72% in 2022), primary (69%, 76% in 2022) and other services (68%, 69% in 2022) sectors
• other issues relating to costs were most likely to be cited by SME employers within primary (41%, 36% in 2022) and accommodation and food (39%, 48% in 2022) sectors
• competition was most likely to be an obstacle for those in retail and wholesale (58%, 49% in 2022) and transport and storage (56%), 51% in 2022)
• taxation was most likely to be an obstacle in accommodation and food service (68%, 65% in 2022) and manufacturing (53%, 36% in 2022)
• regulations were most likely to be considered an obstacle in finance and real estate (70%, 60% in 2022) and the primary sector (66%, 61% in 2022)
• staff recruitment and skills were most likely to be considered an obstacle in education (55%), health (50%, 57% in 2022), and accommodation and food (52%, 50% in 2022)
• late payment was most likely to be viewed as an obstacle in transport and storage (46%,32% in 2022), manufacturing (45%, 30% in 2022), construction (43%, 35% in 2022), administration (42%, 47% in 2022) and professional and scientific (40%, 35% in 2022) sectors
• the UK’s exit from the EU was most likely to be considered an obstacle in retail and wholesale (40%, 43% in 2022) and manufacturing (39%, 45% in 2022) sectors
• the National Living Wage was most likely to be viewed as an obstacle in accommodation and food service (58%, 50% in 2022) and health (42%, 41% in 2022)
• obtaining finance was most likely to be considered an obstacle in health (38%, 35% in 2022), education (33%, 27% in 2022) and arts and entertainment (30%, 33% in 2022) sectors
• the availability and cost of suitable premises was most likely to be viewed as an obstacle in education (39%, 34% in 2022), administration, health and manufacturing (all 27%, compared with 17%, 29% and 18% respectively in 2022)
• workplace pensions were most likely to be viewed as an obstacle in education (22%, 10% in 2022)

Mentions of the level of energy prices was high across all nations, but at lower levels than in 2022. This was more frequently cited in Wales (67%, 63% in 2022), Northern Ireland (64%, 75% in 2022) and Scotland (62%, 72% in 2022), than in England (54%, 59% in 2022).

After energy prices, SME employers in Northern Ireland were most likely to mention taxation (48%), staff recruitment and skills (47%) and competition in the market (47%), while, alongside those in Scotland, more likely than elsewhere to mention the UK exit from the EU (43% in both Northern Ireland and Scotland).

SME employers in Wales were also most likely to mention staff recruitment and skills (55%), taxation (54%) and competition in the market (50%), and more likely than SME employers in other nations to mention the National Living Wage as an obstacle to the success of their business (36%).

Within Scotland, alongside taxation (47%) and staff recruitment and skills (43%), SME employers were also most likely to mention the UK exit from the EU (43%) and regulations (42%). They were less likely than those in other nations to mention competition (38%) and the National Living Wage (21%).

9.2 Whether experienced difficulties as a result of the UK’s exit from the EU (cohort B)

In the data tables accompanying this publication, tables 2-7 (cohort B) show the specific major obstacles relating to the UK’s exit from the European Union (EU) to the success of the businesses interviewed.

Since 2018, those SME employers that considered the UK’s exit from the EU a major obstacle to the success of their business have been asked if they had experienced a number of specific difficulties. Their responses are compared across each year in Figure 15.

Figure 15: Whether experienced difficulties as a result of the UK’s exit from the EU (cohort B only)

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In terms of difficulties that SME employers were most likely to have experienced already, 62% of SME employers that cited the UK’s exit from the EU as a major obstacle mentioned an increase in the cost of EU imports, which was also the case in previous years, at its highest in both 2021 and 2022 (69%) and, in 2023, still 29 percentage points higher than in 2020.  

10. Business Support

In the data tables accompanying this publication, table 107 shows whether information or advice was used in the last 12 months

In 2023, 26% of SME employers reported seeking external information or advice in the preceding 12 months - defined as more than just a casual conversation. This was one percentage point higher than in 2022, but the same as reported in 2021.

Figure 16: Percentage of SME employers that sought external information or advice in the last year, by employment size and year

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Larger SMEs were more likely to have sought external information or advice: 44% of medium- sized businesses sought it (a two percentage points increase on 2022), compared with 34% of small businesses (also a two percentage points increase) and 23% of micro businesses (as in 2022). Although the propensity to seek external information and advice is on an upward trend amongst small and medium-sized businesses, there has been little change among micro businesses, and all business sizes continue to be less likely to seek external information or advice compared with 2015.

By nation, SME employers in Scotland were most likely to have sought external information and advice (29%, although this is a one percentage point decrease on 2022), followed by SME employers in England (26%, a one percentage point increase). Those in Wales and Northern Ireland were less likely to have done so (22% and 17% respectively), which represents a small (one percentage point) decrease against 2022 in Wales, but a larger decrease in Northern Ireland (a five percentage points decrease on 2022, and a 12 percentage points decrease on 2021).  

Businesses which sought information and advice were most likely to be in primary (44%), education (40%), arts and entertainment (38%), finance and real estate (35%), health (34%), information and communication, and professional and scientific (both 31%) sectors.  SME employers in construction (16%), accommodation and food (17%) and retail and wholesale (21%) sectors were least likely to have sought information and advice.

10.1 Purpose of information and strategic advice sought

In the data tables accompanying this publication, table 109 shows the purpose of information and advice sought

The most common reason for seeking information and/or advice cited by those that had sought it was advice on business growth (25%, compared with 21% in 2022, 19% in 2021 and 20% in 2020), followed by finance, specifically accounting, for the general running of the business (24%, 22% in 2022, 23% in both 2021 and 2020), and then legal issues (15%, 12% in 2022, 19% in 2021, 15% in 2020). 

Figure 17: Purpose of information and advice in the last year (Only responses >1% are shown in the chart)

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Some differences in the type of information and advice sought by size and sector, are as follows:

• advice on business growth was more likely to be sought by SME employers in education (36%) and administration (34%) sectors
• financial advice for the general running of the business was more likely to be sought by those with the professional and scientific sector (28%)
• legal advice was more likely to be sought by small (18%) and medium-sized businesses (28%) than by micro businesses (13%), and within finance and real estate (25%) and health (20%) sectors
• advice on tax and national insurance law and payments was more likely to be sought by medium-sized businesses (17%) and micro businesses (15%) than by small businesses (11%), and more likely to be sought within the professional and scientific (22%) sector
• advice on improving business efficiency/productivity was less likely to be sought by SME employers in the health sector (7%) and most likely to be sought in arts and entertainment (19%) and administration (18%) sectors
• advice on marketing was more likely to be sought by micro (10%) than by small and medium-sized businesses (7% and 6%), and within the education (24%) sector
• advice on employment law and redundancies was more likely to be sought by small (15%) and medium-sized (19%) than by micro (7%) businesses, and within the health sector (17%)
• financial advice on how and where to get finance was more likely to be sought by those within education (25%), arts and entertainment (20%) and other services (17%) sectors, and by SME employers in Scotland (13%)
• advice on health and safety was more likely to be sought by small and medium-sized businesses (both 12%) than by micro businesses (5%) and most likely to be sought in the construction (18%), administration (12%) and manufacturing (11%) sectors
• advice on regulations was more likely to be sought within financial and real estate (28%) and health (13%) sectors.

10.2 Sources of external information and strategic advice

In the data tables accompanying this publication, table 111 shows sources of external information and strategic advice

SME employers that sought information and advice were most likely to have approached consultants and business advisers (36%, an increase of one percentage point on 2022), while 35% obtained advice from an accountant (a decrease of two percentage points on 2022).  These were the most common sources of information and advice: this has changed little over the years. Business networks/trade associations were used for information and advice by 19% of SME employers that sought information and advice (an increase of two percentage points on 2022), followed by solicitors/lawyers (13%, as in 2022), the GOV.UK website (6%, as in 2022), local council/authority (6%, an increase of one percentage point), and/or a specialist financial adviser (5%, a one percentage point increase). The Internet/google/other search engine was mentioned by 7% of SME employers that sought information and advice (a decrease of three percentage points on 2022).

Figure 18: Who provided information and strategic advice in the last year

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Small and medium-sized and small businesses were more likely than micro businesses to have sought information and advice from consultants or general business advisers (47%, 51% and 32% respectively), and the same was true in respect of using solicitors and lawyers (16% and 30% respectively, compared to 11%).  Compared to small and medium-sized businesses, micro businesses that sought information and advice were slightly more likely to have sought it from business networks and trade associations (20% compared to 17% for both small and medium-sized businesses).

By sector, SME employers that sought information and advice in transport and storage, and construction were most likely to have sought it from accountants (46% and 45% respectively), while those in primary sectors were most likely to have used consultants or general business advisers (51%). Those in other services, and arts and entertainment were more likely than those in other sectors to have sought information and advice from business networks/trade associations (29% and 28% respectively). The local council or authority were particularly likely to have been the source of information and advice for SME employers within arts and entertainment (18%), education (17%) and health (14%) sectors.  SME employers that sought information and advice in administration (19%) and finance and real estate (18%) were more likely than average to have sought it from solicitors/lawyers.

10.3 How information and strategic advice was delivered

In the data tables accompanying this publication, table 113 shows how the information and strategic advice was delivered

Following a significant increase in face-to-face delivery of information and advice in 2022 compared with the previous two years, it has increased again in 2023 (45%, a four percentage points increase on 2022, a 17 percentage points increase on 2021 and a 23 percentage points increase on 2020). This will reflect the low level of face-to-face delivery of services during the 2020-2021 COVID-19 pandemic when social restrictions were in force.

In 2023, the use of email and phone as modes of delivery of information and advice have remained at steady levels compared with 2022. Email was the mode of delivery for 22% of SME employers who had received information and advice in 2023 (a decrease of one percentage point on 2022 and a four percentage points decrease on 2021), while phone was the mode used for 17% (a one percentage point increase on 2022, a four percentage points decrease on 2021). 

By sector, face-to-face delivery was most common in primary (63%, as in 2022), and arts and entertainment (57%, a 10 percentage points increase on 2022) sectors, and email was most common in the finance and real estate sector (38%, an increase of five percentage points).

By nation, SME employers who sought information and advice in Northern Ireland were the most likely to have received it face-to-face (55%, an increase of 11 percentage points on 2022 and 24 percentage points on 2021), and those in England least likely to have done so (44%, an increase of 22 percentage points on 2022 and a decrease of 19 percentage points in 2021). SME employers in Scotland and Wales were equally likely to have received information and advice face-to-face (both 52%, an increase of 16 percentage points in Scotland and an increase of 13 percentage points in Wales on 2022).

Contrary to last year’s findings, when by nation they were most likely to have received information and advice by email, SME employers in Scotland were the least likely to have received information and advice by email in 2023 (16%, a decrease of 12 percentage points on 2022, and 28 percentage points on 2021). Those in Wales were only slightly more likely than those in Scotland to have received it this way (17%, a decrease of five percentage points on 2022 and eight percentage points on 2021), and those in England were most likely to have done so (22%, as in 2022, a decrease of three percentage points on 2021).

10.4 Paying for information and advice (England and Wales only)

In the data tables accompanying this publication, table 123 shows if SMEs had ever paid for external information or advice

Of SME employers in England and Wales that received information or advice in the last 12 months, 65% paid for it (as in 2022, a one percentage point increase on 2021).

Medium-sized businesses were more likely to have paid for information and advice (85%, a four percentage points increase on 2022 and 2021) than small (74%, as in 2022, a two percentage points increase on 2021) and micro businesses (61%, a decrease of one percentage point on 2022 and 2021).

By sector, those in finance and real estate (79%) and information and communications (75%) sectors were most likely to have paid for information and advice; while those in other services (41%), arts and entertainment (47%) and retail and wholesale (58%) sectors were the least likely.

11. Training

11.1 Arrangement or funding of staff training and development

In the data tables accompanying this publication, table 132 shows training or development offered for employees

The percentage of SME employers that had arranged or funded training in the previous year has increased by one percentage point each year since 2021 and now stands at 45%.

Figure 19: Percentage of SMEs that arranged or funded training or development for staff in the year, by year and employment size

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Provision of any training is much more likely for larger organisations with 82% of medium-sized businesses providing training, but in 2023 it has remained at the same level as in 2022 (a two percentage points increase on 2021), while there has been a three percentage points increase in small businesses providing training in 2023 compared with 2022 (73%), which followed a three percentage points increase between 2021 and 2022, and a one percentage point increase in provision of training for employees among micro businesses (39%), which followed a similar increase between 2021 and 2022.

In 2023, 12% of SME employers offered formal ‘off-the-job’ training only, and 11% offered informal ‘on-the-job’ training only, with no change in ‘off-the-job’ only training since 2022, and a slight increase in ‘on-the-job’ only training (one percentage point), while 23% offered both (an increase of one percentage point on 2022 and three percentage points on 2021).

Figure 20: Percentage of SMEs that arranged or funded training or development for staff in the year, by sector

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The most likely sectors to have provided training were health (72%) and education (67%). Arts and entertainment (56%), finance and real estate (52%) and construction (49%) were also more likely than average to have provided training.

Training was least likely to be provided in the retail and wholesale (33%), information and communication (39%) and accommodation and food (40%) sectors.

By nation, training was most likely to have been provided by SME employers in Scotland (54%, as in 2022 and a seven percentage points increase on 2021), compared to Wales (46%, an increase of one percentage point on 2022, up three percentage points on 2021), England (45%,  an increase of two percentage points on 2022 and three percentage points on 2021) and Northern Ireland (39%, a decrease of one percentage point on 2022 and 2021).

12. Business practices

12.1 Business plans

In the data tables accompanying this publication, table 66 shows whether businesses have a formal written business plan.

In 2023, 39% of SME employers had a business plan (no change on either 2022 or 2021). This proportion increased with employment size from 36% of micro businesses, to 55% of small (both a one percentage point increase on 2022) and 66% of medium-sized businesses (a decrease of one percentage point on 2022) having a business plan.

Figure 21: Whether have a business plan, by year and number of employees

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By sector, business plans were most common in health (67%), education (62%), arts and entertainment (62%) and finance and real estate (53%). They were least likely to be used in the construction (30%), retail and wholesale (32%), transport and storage (33%) and accommodation and food (33%) sectors.

By nation, SME employers in Scotland were most likely to have had a business plan (43%, a decrease of one percentage point on 2022), while those in Wales and Northern Ireland were next most likely to have had a business plan (both 40%, a six percentage points decrease on 2022 in Wales and an eight-percentage point increase in Northern Ireland). Compared with 2022, there was no change in England (39%).

Around 74% of SME employers with a business plan reported keeping it up to date, which is the same proportion reported in 2022 and 2021.

12.2 Dispute resolution (cohort A)

In the data tables accompanying this publication, table 11 (cohort A) shows whether they feel they can satisfactorily resolve a payment dispute with a larger business

SME employers in cohort A were asked if they felt they could satisfactorily resolve a payment dispute with a larger business (that is, one with 50 or more employees). The question was only asked if they gave or received credit and had less than 50 employees themselves.

Seventy-four per cent of SME employers felt that they could resolve such a dispute (a decrease of two percentage points on 2022 and three percentage points on 2021). This proportion varied slightly by employment size. Some 73% of micro businesses thought they could resolve the dispute (a decrease of two percentage points on 2022 and three percentage points on 2021), compared to 82% of small businesses (an increase of two percentage points on 2022, back to the level reported in 2021).

By nation, micro and small SMEs in Wales were the least likely to feel they could resolve such a dispute (70%, a decrease of 13 percentage points on 2022, but an increase of one percentage point on 2021), compared with 80% in Northern Ireland (an increase of three percentage points on 2022 but a decrease of one percentage point on 2021), 75% in England (a decrease of one percentage point on 2022 and three percentage points on 2021) and 72% in both Scotland and England (a decrease of four percentage points on 2022 and six percentage points on 2021).

12.3 Taxation

In the data tables accompanying this publication, tables 68, 72, 76 show how businesses with employees keep records for taxation

When asked about methods for managing records specific to VAT, 83% of SME employers that paid VAT stated they used record keeping software (an increase of three percentage points on 2022 and five percentage points on 2021), 45% used spreadsheets (an increase of seven percentage points on 2022 and six percentage points on 2021) and 46% used paper-based records (an increase of four percentage points on 2022 and six percentage points on 2021).

Use of record keeping software increased with employment size and increased across the board compared with 2022, with 95% of medium-sized businesses having reported using it (an increase of three percentage points), compared to 92% of small businesses (an increase of five percentage points) and 81% of micro businesses (an increase of three percentage points).

Use of spreadsheets, such as Excel, also increased with employment size and increased across the board compared with 2022, with 60% of medium-sized businesses reporting using them (an increase of nine percentage points), compared to 53% of small businesses (an increase of 12 percentage points) and 43% of micro businesses (an increase of seven percentage points).

With respect to managing records relating to income tax self-assessment, 61% of all SME employers that pay income tax through self-assessment  reported using record keeping software (an increase of five percentage points on 2022, but the same as in 2021), 43% used spreadsheets (an increase of 11 percentage points on 2022, an increase of six percentage points on 2021) and 58% used paper-based records (an increase of four percentage points on 2022 and eight percentage points on 2021).

Again, use of record keeping software increased with employment size, from 60% of micro businesses (an increase of six percentage points on 2022) to 74% of small (an increase of seven percentage points) to 82% of medium-sized businesses (a decrease of five percentage points). 

For keeping records of company tax, 78% of all SME employers reported using record keeping software (an increase of seven percentage points on 2022 and six percentage points on 2021), 45% used spreadsheets (an increase of seven percentage points on both 2022 and 2021) and 41%% used paper-based records (an increase of three percentage points on 2022 and five percentage points on 2021).

Micro businesses (75%) were less likely to report using record keeping software for company tax, than small (87%) and medium-sized businesses (91%) (69%, 80% and 83% respectively in 2022).

Figure 22: Ways in which SME employers keep records, 2023  

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12.4 Technology (cohort C)

In the data tables accompanying this publication, tables 17 and 18 (cohort C) show which businesses use technologies or web-based software to sell to customers or to manage the business, and which technologies they use

In 2023, some 61% of all SME employers used technologies or web-based software to sell to customers or to manage the business, (11 percentage points higher than in 2022 and, six percentage points higher than in 2021). The remainder, 38%, did not know.

Medium-sized (69%, an increase of two percentage points) and small (68%, an increase of seven percentage points on 2022) businesses were more likely to use technologies or web-based software than micro businesses (60%, an increase of 13 percentage points on 2022).

SME employers in Northern Ireland (51%, an increase of three percentage points on 2022) were less likely to use technologies or web-based software to sell to customers or to manage the business than businesses in Wales (68%, an increase of 19 percentage points on 2022), England (62%, an increase of 12 percentage points) and Scotland (54%, an increase of four percentage points).

SME employers in the information and communications sector (78%, an increase of 10 percentage points on 2022) were most likely to use technologies or web-based software, particularly to manage the business (75%), while those in primary (38%, an increase of one percentage point) and construction (49%, an increase of eight percentage points) sectors were least likely to use them.

In terms of what they used it for, SME employers were more likely to use technologies or web-based software for managing the business than for selling to customers online (54% and 27% respectively). There was a nine percentage points increase in the use of such software for managing the business and a four percentage points increase in respect of selling to customers online compared with 2022. 

SME employers in arts and entertainment (45%, an increase of three percentage points on 2022) and retail and wholesale (44%, an increase of 10 percentage points) sectors were most likely to use technologies or web-based software to sell to customers online, while those in information and communications (41%, up seven percentage points) and education (39%, up one percentage point) were also more likely than average to do so.

Among SME employers who used technologies or web-based software to sell to customers or manage the business, accountancy software (89%, an increase of one percentage point on 2022) and electronic invoicing (68%, an increase of one percentage point) were most commonly used.

Some 98% of medium-sized and 96% of small and businesses used accountancy software, compared to 87% of micro businesses, and larger SME employers were also more likely to use electronic invoicing (75% of medium-sized, 74% of small, and 66% of micro businesses). This also applied to the less commonly used technologies of Customer Relationship Management (CRM) software (30% of SME employer using technologies; 48% of medium-sized and 40% of small, compared to 27% of micro businesses).

13. Future plans

13.1 Growth ambitions

In the data tables accompanying this publication, table 148 shows whether or not SME employers aim to grow sales over the next three years

About 75% of SME employers aimed to grow sales over the next three years, a one percentage point increase on 2022 and a two percentage points decrease on 2021. Small and medium-sized businesses were more likely to report this intention (85% and 92%) than micro businesses (72%). Since 2021, there has been little change in this respect: 87% of small, 90% of medium-sized and 72% of micro businesses reporting this intention in 2022; compared with 86% of small, 89% of medium-sized and 73% of micro businesses in 2021.

Figure 23: Percentage of SME employers that aim to grow sales of the business over the next three years, by employment size and year

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SME employers in the retail and wholesale (83%), manufacturing (80%) and administration (80%) sectors were most likely to aim to grow.  Those in the health (63%), other services (65%), professional and scientific (67%), primary (69%) and finance and real estate (70%) sectors were least likely to be aiming to grow.

Figure 24: Percentage of SME employers that aim to grow sales of the business over the next three years, by sector

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By nation, growth ambition was higher in Northern Ireland (82%, up two percentage points on 2022) than in Scotland (76%, down one percentage point on 2022), England (75%, up one percentage point) and Wales (72%, down two percentage points).

13.2 Plans to undertake growth-related activities over the next three years (cohort B)

In the data tables accompanying this publication, table 8 (cohort B) shows what plans SME employers have for the business over the next three years

SME employers were asked about plans to implement various growth-related activities over the next three years. Of all SME employers:

• 67% planned to increase workforce skills (two percentage points down on 2022)
• 56% planned to recruit new staff in the UK (one percentage point down on 2022)
• 44% planned to work towards a target to reduce carbon/greenhouse gas emissions/other emissions,new to list in 2022 (one percentage point down on 2022)
• 41% planned to increase the leadership capability of managers (one percentage point down on 2022)
• 40% planned to introduce new working practices (three percentage points down on 2022)
• 40% planned to develop and launch new products or services (one percentage point down on 2022)
• 33% planned to invest in premises, machinery or other types of capital investment in the UK (three percentage points up on 2022)
• 25% planned to invest in R&D (two percentage points up on 2022)
• 17% planned to increase export sales or begin selling to new overseas markets (two percentage points up on 2022)
• 4% planned to recruit new staff in overseas offices (as in 2022)
• 3% planned capital investment overseas (as in 2022)
• 1% planned to transfer staff from the UK to overseas offices (one percentage point down on 2022)
• 1% planned to decrease export sales or reduce the number of overseas markets they sell to (as in 2022)

Figure 25: Percentage of businesses undertaking specified growth-related activities, by type of activity (cohort B only)

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Micro businesses were less likely to plan any type of growth-related activity than small and medium-sized businesses, in particular (excluding staff-related activity), working towards a target to reduce carbon/greenhouse gas emissions (41%, compared with 55% and 68% respectively), and investing in R&D (23%, compared with 31% and 44% respectively).

There was some variation in the intentions of SME employers across sectors:

• those in education (89%), arts and entertainment (79%) and health (75%) were most likely to plan to increase the skills of the workforce
• plans to recruit new staff in the UK were particularly common within education (67%), administration (66%) and manufacturing (64%) sectors
• those in primary (59%) and accommodation and food (58%) sectors were most likely to plan to work towards a target to reduce carbon/greenhouse gas emissions/other emissions
• those in education (65%) were most likely to plan to increase leadership capability
• Those in arts and entertainment (64%) and education (59%) were most likely to plan to introduce new working practices
• those in education (64%), information and communication (61%) and manufacturing (57%) were most likely to plan to develop and launch new products and services
• those in manufacturing (53%), primary (50%) and transport and logistics (45%) sectors were most likely to plan to make capital investments in the UK
• those in manufacturing (48%) and information and communication (46%) were most likely to plan to invest in R&D
• those in manufacturing (36%) and information and communications (34%) were most likely to plan to begin selling to new overseas markets

13.3 Whether plans for growth-related activities have been affected by UK exit from the EU (cohort B)

In the data tables accompanying this publication, tables 12-24 (cohort B) show whether plans have been affected by the UK’s exit from the EU

The following section concerns SME employers that planned to undertake specific growth- related activities. Only cohort B were asked these questions.

Those with plans were asked if those plans had been affected by the UK’s exit from the EU. Firstly, considering trade with customers overseas, of those with plans to increase export sales or begin selling to new overseas markets, 31% reported these plans had been affected by the EU exit (35% in 2022, 43% in 2021 and 30% in 2020), while there was a downward trend in this respect among those with plans to reduce export sales or the number of overseas markets they sell to (8% in 2023, 28% in 2022, 53% in 2021, 56% in 2020).

With regard to recruitment and skills, 13% of SME employers with plans to recruit new staff in the UK (17% in 2022, 19% in 2021 and 10% in 2020), 7% of those with plans to develop skills among existing UK employees (9% in 2022, 10% in 2021 and 8% in 2020) and 6% of those planning to increase leadership capability of managers (as in 2022, 9% in 2021 and 8% in 2020) reported plans being affected by the UK’s exit from the EU.

With regard to staff overseas, 12% of SME employers with plans for the transfer of existing staff from UK to overseas offices reported that these plans were affected by the UK’s exit from the EU (22% in 2021 and 25% in 2020), while 18% of those with plans for recruitment of new staff to overseas offices reported these plans had been affected (32% in 2021 and 22% in 2020). 

With regard to investment, 24% of SME employers with plans for capital investment in overseas markets reported that these plans have been affected by the UK’s exit from the EU (20% up 2022, 27% in 2021, 17% in 2020), higher than the equivalent figure for those planning capital investment in the UK (8%, 11% in 2022, 16% in 2021, 13% in 2020).

Concerning innovation, of those SME employers with plans to develop and launch new products and services, 13% (14% in 2022, 17% in 2021, 14% in 2020) reported plans affected, while lower proportions of those with plans to invest in R&D (12%, 10% in 2022, 16% in 2021 and 11% in 2020) and those with plans to introduce new working practices (7%, 10% in 2022, 12% in 2021, 11% in 2020) reported that these plans had been affected by the UK’s EU exit.

Compared to 2022, a similar proportion of SME employers that had plans to work towards a target to reduce carbon/greenhouse gas/other emissions reported that these plans had been affected by the UK’s exit from the EU (10%, 11% in 2022).

Figure 26: Plans affected by EU exit activity (based on SME employers that plan to undertake each growth-related activity, cohort B only) – UK-based activities, where an unweighted base >50 only

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13.4 Whether plans for growth-related activities have been affected by rising costs (cohort B)

In the data tables accompanying this publication, tables 25-28 (cohort B) shows whether plans have been affected by rising costs

Again, the following section concerns SME employers planning to undertake specific growth-related activities. Only cohort B were asked these questions.

More than half of SME employers (55%) with plans to undertake growth-related activities reported plans had been affected by issues relating to rising costs (as in 2022). This percentage increased with employment size from 53% of micros to 60% of small to 61% of medium-sized businesses. Wales was higher than elsewhere in the UK at 63% (up seven percentage points on 2022), compared to 58% in Scotland (up four percentage points), 56% in Northern Ireland (up seven percentage points) and 54% in England (down one percentage point).

SME employers in the accommodation and food (75%) and primary (74%) sectors were most likely to report plans being affected by rising costs.

When asked about the specific issues relating to rising costs that had affected plans, those reporting to being affected were most likely to point to cost increases other than increased energy costs (76%, up four percentage points on 2022), while just under half cited increased energy costs (47%, down nine percentage points on 2022). Around one in five reported that their plans had been affected by expectations of cost increases (21%), and/or uncertainty relating to cost increases (18%). Both were at lower levels than in 2022 (down 10 percentage points and 19 percentage points respectively).

Among SME employers citing specific plans for growth-related activity, those with plans for capital investment within the UK were most likely to report these plans affected by rising costs (44%), followed by those planning to recruit new staff in UK, those planning to develop and launch new products/services (both 35%) and then those planning to work towards a target to reduce carbon/greenhouse gas emissions (34%).

Less likely to have been affected by rising costs were plans to introduce new working practices (21%) and those looking to increase the skills in the workforce and those looking to recruit new staff in overseas offices (both 25%).

14. Profiles of SMEs

This section provides a snapshot of SME employers in terms of their characteristics and ownership.

14.1 Changes in the organisation in the last 12 months (panel only)

In the data tables accompanying this publication, table 4 outlines the changes in the business in the last 12 months.

SME employers that were panellists - that is those that had also taken part in 2022 - were asked whether a number of changes had occurred in the last 12 months. The changes and the percentage of respondents reporting that such changes had occurred are given here:

• 8% had gained or lost directors in day-to-day control of the organisation
• 4% had opened or closed a new branch, site or office
• 4% had changed their ownership structure
• 1% had moved their head office
• 1% had changed their legal status
• 1% had changed the principal activity of their business
• less than <1% became VAT registered for the first time
• less than <1% had de-registered for VAT
• for 84%, none of these changes had occurred

14.2 Number of sites

In the data tables accompanying this publication, table 6 provides detail on the number of sites operated from by SME employers.

The majority of SME employers reported operating from a single site (88%) and 12% reported operating from multiple sites. The percentage of SME employers operating from a single site was two percentage points higher than in 2022.

Unsurprisingly, the proportion of SME employers operating from multiple sites increases as the number of employees within the enterprise increases, with 50% of medium-sized businesses reporting multiple sites, compared with 23% of small and 9% of micro businesses. These were similar proportions to 2021 (50%, 22% and 7%, respectively).

SME employers operating in the health (18%, up one percentage point on 2022), transport and storage (18%, five percentage points higher than in 2022) and wholesale and retail (15%, up three percentage points on 2022) sectors were most likely to have multiple sites.

14.3 Business premises in residential settings

In the data tables accompanying this publication, table 21 shows whether they have a separate business premises or work from home premises.

Around 29% of SME employers have business premises in their home or the home of the business owner. This is five percentage points higher than in 2022, back to the level reported in 2021. This increased significantly between 2020 and 2021, by nine percentage points, remaining high following the coronavirus (COVID-19) pandemic when social distancing measures resulted in social and trading restrictions and some businesses moved to remote, home working.

By employment size, 34% of micro businesses worked out of a domestic address (a five percentage points increase on 2022, a return to the level reported in 2021), compared to 5% of small businesses (up one percentage point on 2022, down four percentage points on 2021) and 1% of medium-sized businesses (as in 2022, a two percentage points decrease on 2021).

By sector, the proportions of SME employers that work from a domestic address are highest in primary (56%, 55% in 2022), construction (43%, 38% in 2022), professional and scientific (46%, 34% in 2022), information and communication (42%, 35% in 2022) and administration (37%, 28% in 2022) sectors.

Those in retail and wholesale (9%, up one percentage point on 2022), manufacturing (11%, up four percentage points), other services (14%, down two percentage points), health (13%, up two percentage points) sectors were least likely to be home based.

Home-based businesses were at similar levels in England (29%, a five percentage points increase on 2022, back to the 2021 level), Northern Ireland (29%, one percentage point lower than in 2022 and 2021 and Wales (28%, four percentage points higher than in 2022, three percentage points lower than in 2021) and Scotland (26%, one percentage point higher than in 2022, two percentage points lower than in 2021).

14.4 Age of business

In the data tables accompanying this publication, table 17 shows the summary age of the business.

Amongst all SME employers, 13% had started trading within the preceding five years, that is between 2017 and 2022 (a one percentage point increase on 2022). As has been the case since 2018, 16% had started trading between 6 and 10 years previously, and 28% had started trading between 11 and 20 years previously (up one percentage point on 2022). Some 43% have been established 21 years or more (down two percentage points on the figure reported from 2018 to 2022).

Small and medium-sized businesses tended to be older than micro businesses. Some 15% of micro businesses were aged between zero and five years (13% in 2022, 12% in 2021), compared with 7% of small businesses (8% in 2022 and 2021) and 6% of medium-sized ones (as in 2022 and 2021). At the other end of the scale, 41% of micro businesses were aged 21 or more years (down two percentage points on 2022 and 2021), compared with 55% of small businesses (up two percentage points on 2022 and 2021), and 60% of medium-sized businesses (down two percentage points on 2022 and up one percentage point on 2021).

By sector, those most likely to be aged between zero and five years were in transport and storage (20%), construction (19%) and accommodation and food services (18%). Those most likely to have been trading 21 years or more were in primary (74%) and other sectors (61%).

By nation, SME employers in Northern Ireland (23%) were more likely to be aged between zero and five years than those in Wales (15%) and England and Scotland (both 13%).

14.5 Legal status

In the data tables accompanying this publication, tables 15 and 16 show the legal status of the SME employer.

73% of SME employers in our survey were private limited companies, limited by shares (a four percentage points increase on 2022, a one percentage point decrease on 2021), 7% were sole proprietors (a two percentage points decrease on 2022, a four percentage points decrease on 2021), 7% were partnerships (as in 2022 and 2021), 6% were private companies limited by guarantee (CLGs) (a one percentage point increase on 2022 and 2021), and 1% were limited liability partnerships (LLPs) while 2% were charitable incorporated organisations (CIOs) (both as in 2022).

Micro businesses were more likely than larger businesses to be sole proprietorships. Around 8% of micros were sole proprietorships, compared with 3% of small and 1% of medium-sized businesses. Small (72%) and medium-sized (77%) businesses were more likely than micro (61%) businesses to be private companies limited by shares.

Not-for-profit enterprises often had alternative legal statuses, tending not to be limited by shares, sole proprietors, or any form of partnership. They were mainly CLGs, although others were IPS (Industrial and Provident Societies), CIOs, CBS (Community Benefit Society), CICs (Community Interest Company) or described themselves as trusts, friendly societies, co- operatives, royal charter companies or unincorporated associations. Overall, 6% of SME employers had these alternative legal statuses (7% in 2022, 8% in 2021, 9% in 2020, 12% in 2019, 9% in 2018).

These alternative legal statuses were most common in other services (25%), health (22%), education (18%) and arts and entertainment (15%) sectors.

14.6 Registered charity status

In the data tables  data tables accompanying this publication, table 5 shows if the SME employer is a registered charity.

In 2023, 5% of SME employers were registered charities (as in 2022 and 2021). Micro businesses were less likely than small and medium-sized businesses to be registered charities. Some 5% of micro businesses were registered charities, compared with 7% of small and 6% of medium-sized businesses.

Of those with alternative legal statuses, as described above, 50% had charitable status. Of those with more common legal statuses (sole proprietorships, companies, partnerships), no more than 3% were registered charities.

Charitable status was most common in the health (42%), other services (31%), arts and entertainment (28%) and education (27%) sectors.

14.7 Number of owners/partners/directors

In the data tables accompanying this publication, tables 9, 24, 25, 27 and 28 provide the number of owners, partners and directors.

Overall, 75% of SME employers were majority-owned by the person or family who set it up (down four percentage points on 2022, and down three percentage points on 2021). In 98% of these businesses, the person or family who majority-owned the business was actively involved in managing it.

The majority of SME employers (75%) had no directors in day-to-day control of the business who were not owners or partners (79% in 2022 and 81% in 2021), while 12% reported having one director, 7% had two directors, 3% had between three and five and 2% had six or more.

Around 42% of SME employers reported having no more than one owner, partner or director, 37% reported having two, 17% reported having between three and five and 4% having six or more.

In 2022, the number of owners, partners and directors increases with employment size, with 46% of micros having no more than one owner, partner or director compared with 28% of small and 21% of medium-sized businesses.

14.8 Family-owned businesses

In the data tables accompanying this publication, table 24 shows whether the business is classified as family owned.

Seventy-five per cent of SME employers were defined as family-owned businesses (a four percentage points decrease on 2022 and a five percentage point decreases on 2021). Note that we classify businesses with just a single owner or partner as family businesses, but not those without any owners.

Family-owned businesses were more common among smaller enterprises, comprising 78% of micro businesses, 64% of small businesses and 56% of medium-sized businesses.

By sector, family businesses were most likely in primary (90%), construction (81%), retail and wholesale (80%) and administration (80%) sectors.

14.9 Women-led businesses

In the data tables accompanying this publication, tables 34 and 35 show whether the business is classified as women-led, table 25 provides more detail on the proportion of women owners and directors

Women-led businesses are defined as those majority-led by women, that is controlled by a single woman or having a management team of which a majority are women. In 2023, 15% of SME employers were women-led. This was a three percentage points decrease on 2022, a four percentage points decrease on 2021 and a one percentage point decrease on 2020.

There were fewer women-led medium-sized businesses (13%), compared with small and micro businesses (15% and 16% respectively). This has not changed over time.

Women-led businesses were most likely in health (39%), education (32%), arts and entertainment (24%), other services (23%), and accommodation and food (23%) sectors (it should be noted that in the service sectors of education, health, arts and entertainment and other services, about one in five respondents were unable to provide sufficient information in order to identify them as women-led or not).

While 15% of SME employers were women-led, a further 25% were ‘equally-led’, with an equal number of men and women in the management team (two percentage points up on 2022 and one percentage point up on 2021).

A further 9% of SME employers had women in the minority in the management team (11% in 2022 and 10% in 2021), and 44% were entirely male-led (as in both 2022 and 2021).

Overall, it was not possible to classify 6% of all SME employers as women-led or male-led, as there was insufficient information provided for these businesses (uncertainty regarding owners/partners’ gender or refusal to supply the information). The 2023 survey findings suggest that while there were fewer women-led SME employers, a slightly higher proportion of SME employers included management teams representing women and men equally, and fewer reported women in the minority.

14.10 Minority Ethnic Group-led businesses

In the data tables accompanying this publication, table 36 shows whether the SME employer is classified as led by people from minority ethnic groups

About 7% of SME employers were minority ethnic group led (MEG-led), defined as having a person from an ethnic minority in sole control of the business or having a management team with at least half of its members from minority ethnic groups (one percentage point higher than in 2022). This proportion has changed little over the course of the survey that has run from 2015 to 2022, and there has also been little change in the proportions of MEG-led SME employers by employment size; 7% of micros, 6% of small and 7% of medium-sized businesses.

MEG-led SME employers were more likely in transport and storage (11%), administration, education and finance and real estate (all 9%) sectors. They were less likely in primary (1%), arts and entertainment (2%), construction (3%) and manufacturing (4%) sectors.

Overall, 3% of all SME employers could not be classified as either MEG-led or non-MEG-led as there was insufficient information provided for those businesses (uncertainty regarding owners/partners’ ethnicity or a refusal to provide it).

Figure 27: Ownership of organisation, by year

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15. Accompanying tables

The following tables are available in Excel format and IDS on the  website for this publication:

• Longitudinal Small Business Survey 2023: SME employers – data
• Longitudinal Small Business Survey 2023: SME employers – data – cohort A
• Longitudinal Small Business Survey 2023: SME employers – data – cohort B
• Longitudinal Small Business Survey 2023: SME employers – data – cohort C

The survey microdata will be deposited with the ONS Secure Research Service and ONS Integrated Data Service and the UK  Data Service during the Autumn of 2024. This will be available to approved researchers.

16. Technical information

16.1 Aims of the survey

This report sets out some of the key findings for the 2023 Longitudinal Small Business Survey (LSBS), a large-scale telephone ( Computer Assisted Telephone Interviews CATI) survey of 9,681 UK small business owners and managers, commissioned by the Department for Business, Energy and Industrial Strategy (BEIS) until February 2023 and now managed by the Department of Business and Trade. This link provides further details about Machinery of Government change https://www.gov.uk/government/publications/making-government-deliver-for-the-british-people/making-government-deliver-for-the-british-people-html

This survey is the latest in a series of annual and biennial Small Business Surveys (SBS) dating back to 2003. The 2023 survey was conducted between October 2023 and April 2024 by BMG Research Ltd.

The 2023 survey follows surveys conducted annually since 2015.  Sample bases for each year from 2015 to 2023, are summarised in Table 1. The 2015 survey was the largest SBS yet undertaken, while the second highest sample was undertaken in 2018. The main reason for large sample sizes in both 2015 and 2018 was to enable the survey to have a longitudinal tracking element, so, in 2015, establishing, and in 2018 further boosting, a ‘panel’ of businesses that might be re-surveyed in subsequent years, enabling a detailed analysis of how combinations of factors affect business performance through time. Any panel has an element of attrition, hence the need for a large sample size in 2015 and a boost in 2018.

Table 1

Year	Sample size
2023	9,681
2022	9,524
2021	9,325
2020	7,636
2019	11,002
2018	15,105
2017	6,619
2016	9,248
2015	15,502

In 2023, 3,504 top up interviews were conducted. This was in addition to 6,177 interviews with enterprises that had already completed at least one LSBS survey between 2015 and 2022. Top-ups were needed for the following reasons:

• to represent sections of the SME population that were not active in the 2022 survey fieldwork period (businesses less than one-year old)

• to represent sectors in the raw data that may be under-represented due to businesses in the panel closing, or being hard to secure an interview with (e.g., in cases where businesses work away from their main offices)

All interviews were conducted with owner/proprietors, Managing Directors or other senior directors in UK-based enterprises. For the top-ups, named contact details were not supplied, and it was necessary to screen to find an appropriate respondent. The average interview length was 22.9 minutes (21.2 minutes for panellists, 24.9 minutes for top-ups).

The main aim of the survey is to collect a range of information on SMEs. The survey measures:

• recent turnover and employment growth
• capabilities (in terms of their ability to innovate, export, train staff, etc)      experience of accessing finance
• use of business support
• expectations of growing turnover and employment
• the major obstacles that prevent SMEs fulfilling their potential
• the characteristics of SMEs such as the number of sites they occupy, the number of owners, whether they have separate business premises, whether or not they are a social enterprise (or a socially oriented SME) etc
• the characteristics of their owners and leaders

There are three main reports based on the 2023 LSBS:

• a cross-sectional report based on SME employers. A cross-sectional report is a snapshot of the state of SMEs at any particular stage in time, this one being from the latter quarter of 2023 to the end of the first quarter of 2024 (including the first month of the second quarter of 2024)
• a cross-sectional report based on businesses with no employees
• a longitudinal report based on those businesses that responded in the last four years of the survey. This looks at the main changes that apply to the ‘panellists’ from year to year, and what appears to influence these changes

21 of the 9,681 interviews were with large employers with 250 or more employees. The reason for interviewing these is that these businesses were SMEs when first interviewed but have grown since. They form a part of the longitudinal analysis, but not the cross-sectional.

16.2 Survey method

Of the 9,524 interviews conducted in 2022, 8,359 (88%) agreed to a follow-up interview. The objective was to obtain the highest possible number of repeat interviews with these panellists. 4,715 were interviewed between October 2023 and April 2024 (56%, slightly lower than in 2022 - 60% and 2021 – 62%, but higher than in 2020 - 51% and 2019 - 53%). Of these, 858 had no employees, 16 were large businesses with 250+ employees, and the remainder (3,876) were SME employers. This group is known as the ‘full panel’.

In addition, 8,047 businesses interviewed from 2015 to 2021 but not in 2022 could be re- approached for interview (they had given permission for re-interview and had not refused to take part between 2015 and 2021 and had not ceased trading). 1,462 of these were interviewed in 2022, a response rate of 18% (16% in 2022, 18% in 2021, 13% in 2020, but still lower than the 21% achieved in 2019), of which 215 had no employees,1,247 were SME employers, and 5 were large businesses with 250+ employees. This group is known as the ‘past panel’.

In addition to these, 3,504 ‘top-up’ interviews were conducted, of which 788 had no employees and 2,716 were SME employers. As a result, the total sample size in the 2023 survey was 9,681, of which 1,861 had no employees, 7,799 were SME employers and 21 were large employers (250+ employees).

The top-ups were sampled using a method consistent with the 2015 to 2022 surveys:

• The sample was stratified within each of the four UK nations.
• Targets were set according to the employment size of enterprises and, within those targets, by 1-digit sector (using SIC 2007).
• The targets over-represented businesses with 5 to 249 employees substantially in comparison to their actual numbers within the business population.

For registered businesses, the Inter Departmental Business Register (IDBR) was used as the sample source. For unregistered businesses with no employees, a database from the commercial database provider Market Location was used. These contacts were screened out if they either had employees on their payroll or paid VAT, as these would have duplicated contacts found within the IDBR.

The IDBR is a record of all UK enterprises that pay VAT or PAYE, which contains around 2.7 million unique entries for enterprises. The DBT Business Population Estimates (BPE) publication 2023 estimated around 5.5 million enterprises in the UK in total. The difference in the figures is explained by the number of unregistered enterprises that do not pay VAT or PAYE, estimates of which derive from the Labour Force Survey (LFS). This is the reason why an alternative database was retained as the source for top-up businesses with no employees, as it contains records for both registered and unregistered businesses.

The targets within the sample stratification matrix were informed by the 2022 BPE (https://www.gov.uk/government/statistics/business-population-estimates-2022), the latest available at the start of fieldwork. However, survey findings were weighted to the 2023 BPE (https://www.gov.uk/government/statistics/business-population-estimates-2023) which were published a few months into the fieldwork period. The 2023 BPE was used for weighting as it more accurately represents the IDBR contacts used for the survey, as well as providing a more up-to-date picture of UK small businesses than the 2022 BPE.

A 336-cell sample stratification matrix was devised, the targets within each cell informed by the 2022 BPE. These cells were defined by cross classifying the following three categories:

• 14 ‘one digit’ SIC 2007 categories (ABDE, C, F, G, H, I, J, KL, M, N, P, Q, R, S)
• 6 size categories (unregistered zero employees, registered zero employee, 1-4 employees, 5-9 employees, 10-49 employees, 50-249 employees)
• 4 nations (England, Scotland, Wales, Northern Ireland)

Once the sample was drawn, with sample sizes informed by differential likely tele-matching success rates for each cell (based upon experience from the previous surveys), no quotas were employed on size, sector or any other criteria except for country, where Northern Ireland had a guaranteed minimum sample size set.

A review of the 2022 questionnaire was undertaken through consultations with stakeholders. This resulted in a number of alterations to existing questions from previous surveys, new question additions and deletions. The changes were informed by the requirement to balance stakeholders’ latest needs with the desire to exploit the longitudinal power of the survey. The consultation was followed up by a ‘live’ pilot of 100 interviews of the adjusted year seven questionnaire.

Based on the whole sample, the response rate for full panellists was 56%, four percentage points lower than in 2022. For past panellists the response rate was 18%, two percentage points higher than in 2022, but the same as in 2021. For IDBR top-ups the response rate was 4%, as in 2022. For unregistered top-ups, the response rate was 5%, two percentage points higher than in 2022 and 2021. There is more detail in the technical report, which includes tele-matching rates and other forms of non-response.

16.3 Note on this report

Please note that the findings presented in this report relate to SME employers only - Enterprises with no employees, and large employers, have been excluded from the dataset on which this report is based. This procedure is consistent with reporting of previous surveys. The overall sample size for SME employers across the UK in 2023 was 7,799.

16.4 Sample cohorts

One of the main reasons given by respondents who do not want to participate in LSBS is that the interview length is too long. In 2018, BEIS made a commitment to bring down the average interview length and introduced ‘cohort questions’, which we used again in 2023.

Three cohorts (A, B and C) were created. Each cohort was exclusively asked a series of non- key questions. For example, only cohort A was asked questions on business energy usage. Cohorts were chosen for respondents at random during their interview.

There were approximately 3,200 employers in each 2023 cohort: 3,230 in cohort A, 3,216 in cohort B and 3,214 in cohort C. Each respondent is part of one cohort only. Where a business is in each of the 2018, 2019, 2020, 2021, 2022 and 2023 datasets, its cohort for 2023 is entirely independent of its 2018, 2019, 2020, 2021 and 2022 cohorts (knowing a business was in cohort A in 2018 or 2019 or 2020 or 2021 or 2022 tells you nothing about which cohort it is in in 2023). Because of the different respondents answering questions for different cohorts, we have calculated separate cohort weights for analysing responses to the cohort questions. To analyse questions asked of cohort A in 2018, analysts should use the 2018 cohort A weights, for questions to cohort C in 2019 they should use the 2019 cohort C weights, and so on.

16.5 Sector definitions

Throughout this report, data tables show sectoral analysis by one-digit SIC 2007 codes. Because of relatively small numbers in the business population and survey sample, some of these sectors are grouped together: ABDE, labelled as ‘primary’, comprises (A) agriculture, fishing and forestry, (B) mining and quarrying, (D) electricity and gas, and (E) water, sewerage and waste management; KL, labelled as ‘financial and real estate’, comprises (K) finance and insurance, and (L) real estate.

To gain a better picture of the types of businesses that fall into each sector category, the following gives the most populous sub-sectors for SME employers at the three-digit level:

• ABDE (primary). There were 60,100 UK SME employers in this sector in 2023. The sector is dominated by farming but also includes mining and quarrying, and utilities such as electricity and gas. The three most populous sub-sectors within the category were animal production (38%), growing of non-perennial crops (21%) and mixed farming (13%)
• C (manufacturing). There were 88,200 UK SME employers in this sector in 2023. Manufacturing is the most classified sector, with 95 three-digit SIC codes. The most populous sub-sectors within the category were treatment and coating of metals (9%), manufacture of wood, cork, straw products (8%), printing, and repair of fabricated metal products, machinery and equipment (each 7%)
• F (construction). There were 195,900 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were electrical and plumbing (30%), building completion (24%) and building construction (19%)
• G (retail and wholesale). There were 247,560 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were retail sale of other goods in specialised stores (16%), maintenance and repair of motor vehicles (14%), and retail sale in non-specialised stores (12%)
• H (transport and storage). There were 51,700 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were road freight transport (53%) and other passenger land transport (mainly taxi businesses,14%)
• I (accommodation and food service). There were 145,700 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were restaurants (64%) and beverage serving activities (pubs and bars - 19%)
• J (information and communications). There were 75,800 UK SME employers in this sector in 2023. The most populous sub-sector within the category was computer programming and consultancy (68%)
• KL (financial and real estate). There were 74,800 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were estate agents (34%), property rentals (30%) and auxiliary financial services (15%)
• M (professional and scientific). There were 188,600 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were management consultancy (28%), architecture and engineering (19%) and accountancy (13%)
• N (administrative services). There were 129,100 UK SME employers in this sector in 2023. The sector was dominated by ‘business support services not elsewhere classified’ (41%). This is a miscellaneous category. Sector N also included house and business cleaning (14%) and landscaping (10%), and employment placement agencies (8%)
• P (education). There were 21,600 UK SME employers in this sector in 2023. The most populous sub-sector within the category was ‘other education’ (59%, e.g., driving schools and sports coaches). The next most populous was pre-primary education (13%)
• Q (human health and social work). There were 60,900 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were medical and dental (40%), non-residential social work activities (20%) and other human health activities (18%)
• R (arts and entertainment). There were 27,800 UK SME employers in this sector in 2023. The most populous sub-sectors within the category were sports activities (46%), creative and arts (32%) an d amusement and recreation (17%)
• S (other services). There were 69,300 UK SME employers in this sector in 2023. The sector was dominated by ‘other personal service activities’ (87%). This includes hairdressing and beauty, funeral directors and dry-cleaning

Much more detail on the sectors is available in the DBT Business Population Estimates.

16.6 Uncertainty

Since the LSBS questioned a sample of UK SMEs, rather than all of them, there is inevitably a level of uncertainty around the estimates we derive from the survey and how close they will be to the true values.

16.7 Coverage and representativeness

Users might wonder if the sample we have used is adequately representative of the target population (the UK SME population). We have used two sampling frames to draw our sample from. One is the IDBR from the Office for National Statistics (ONS), which has excellent coverage of registered businesses in the UK, as it is regularly updated with information from HMRC and ONS surveys. We use the commercial database provider, Market Location, to provide us with a sample of unregistered businesses.

The coverage of the unregistered business population is less well understood. It is likely that the Market Location frame is good for well-established businesses that advertise their presence in trade directories for example. Small businesses that rely on word of mouth, or platforms such as Facebook or Instagram for business and have no wish to expand are unlikely to be included in either of the sampling frames.

Our sample is deliberatively unrepresentative in the sense that it overrepresents larger SMEs, and also over-represents non-English businesses. This is to ensure that we have reasonable sample sizes for medium-sized businesses, Scottish businesses etc., otherwise we would not be able to obtain robust estimates for important subgroups. A truly proportionate sample would otherwise contain just a handful of medium-sized businesses. We produce survey weights so that analysts can nevertheless arrive at estimates that take due account of the actual distributions in the population – micro businesses have larger weights than medium-sized businesses for example.

Another way that our sample might be unrepresentative is that the businesses that take part in the survey (which is after all voluntary) are different from the businesses that we sample but do not agree to take part, with respect to the various questions we ask. This is known as non- response bias. For example, if struggling businesses are more likely to refuse to take part than thriving ones, then our final achieved sample will underrepresent struggling businesses, and estimates of things like future ambition, that might differ considerably between struggling and thriving businesses, might be biased.

It is hard to quantify non-response bias. We have taken a number of standard steps to try to minimise its risk. The research company that conducted our interviews made multiple attempts for each sampled business for which we could obtain a telephone number, so that we can get more of the reluctant businesses, and we did not have hard quotas for each of our ‘target cells’ (quotas for a target cell, for example 25 interviews of micro businesses in finance and real estate in Wales, can encourage an interviewer to give up quickly on reluctant businesses and focus on snapping up as many easier businesses as possible in order to meet their quota as quickly as possible). Sampled businesses were also given contact details for government officials so they could confirm the survey was genuine and official.

16.8 Sampling uncertainty

It is possible to quantify the amount of uncertainty that arises from using a sample instead of interviewing the entire population. There are a number of ways of doing this, but we will focus on using a statistical tool known as confidence intervals.

In order to run our survey, we drew a random sample. This means that on another day we would have drawn a different sample. With our actual sample, we estimated that 75.0% of SME employers in 2023 made a profit or generated a surplus in the previous financial year. But it is possible that another random sample might have found that number to be within +/-1.0% even though the actual true figure is unchanging. This is known as sampling variability.

What we can do is produce a 95% confidence interval around an estimate. The interval is calculated using a method that, for 95% of the possible random samples we could have drawn, will produce an interval that contains the true value of this profitability measure. Each different random sample would have a different confidence interval, but 95% of the time the interval produced will contain the true value. So, our actual survey estimate is 75.0%, and we are 95% confident that the true value is in the range 74.0% to 76%.

Our survey contains hundreds of measures, and it is not practical to produce confidence intervals for each one of them. Instead, Table 2 summarises the sampling uncertainty for the key measures reported in this publication.

Most of the estimates from this survey are presented as proportions or percentages (such as 10%). If this was an estimate relating to all UK SME employers, then we look at the ‘all UK’ row and the column for estimates at 10%. The confidence interval is given as +/- 0.7%. So, our confidence interval around the 10% estimate is 10% +/- 0.7%, that is, from 9.3% to 10.7%. We are 95% confident that the true figure is between 9.3% and 10.7%.

If the estimate had been closer to 30% or to 70%, then our interval would have used +/-1.0% according to Table 2. When estimates are close to 50%, that is the ‘worst case scenario’ in the sense that the confidence intervals are at their widest. They narrow more as the estimate moves away from 50% (in either direction). So, the intervals are slightly narrower for 30% or 70% estimates, and narrower still for 10% and 90% estimates.

Confidence intervals get narrower when you have larger sample sizes too. If our 10% estimate is for medium-sized SME businesses employers rather than for all UK SME employers, we use a different row of the table, and find the confidence interval to be 10% +/- 1.8%. If we have an estimate of 65% for the construction sector, that is close to 70% so we use that column of the table and arrive at an approximate confidence interval of 65% +/- 3.2%.

Table 2 is useful for estimates of proportions but cannot be used for other measures. For example, we have estimated a mean amount of external finance sought for by SME employers as £288,500.

Table 2 cannot be used to produce a confidence interval for this estimate, though it can be done (it is +/- £96,000). The underlying data tables published alongside this report contain ‘standard errors’ for estimates that are not proportions, such as amount of finance sought, or number of employees. Standard errors are another way of quantifying the sampling variability. As a rule of thumb, twice the standard error gives you the ‘+/-’ for a 95% confidence interval, which is how we calculated the +/- £96,000 figure above.

Table 2

	Sample size	Confidence interval for an estimate of 10% or 90%+/- (%)	Confidence interval for an estimate of 30% or 70%+/- (%)	Confidence interval for an estimate of 50%+/- (%)
All UK	7,799	0.7	1.0	1.1
England	6,006	0.8	1.2	1.3
Scotland	764	2.1	3.3	3.6
Wales	554	2.5	3.8	4.2
Northern Ireland	475	2.7	4.1	4.5
Micro businesses (1-9 employees)	3,917	0.9	1.4	1.6
Small businesses (10-49 employees)	2,805	1.1	1.7	1.9
Medium-sized businesses (50-249 employees)	1,077	1.8	2.7	3.0
ABDE. Primary sector	236	3.8	5.9	6.4
C. Manufacturing	772	2.1	3.2	3.5
F. Construction	799	2.1	3.2	3.5
G. Retail and wholesale	1,299	1.6	2.5	2.7
H. Transport and Storage	290	3.5	5.3	5.8
I. Accommodation and Food	716	2.2	3.34	3.7
J. Information and communication	356	3.1	4.8	5.2
KL. Finance and real estate	332	3.2	4.9	5.4
M. Professional and scientific	1,029	1.8	2.8	3.1
N. Administration and support	579	2.4	3.7	4.1
P. Education	238	3.8	5.8	6.4
Q. Human health	611	2.4	3.6	4.0
R. Arts and entertainment	206	4.1	6.3	6.8
S. Other services	336	4.4	6.7	7.4

For cohort questions, the margins of error increase by about 70% - for example +/- 2.0% becomes +/- 3.4% (to increase a number by 70%, multiply it by 1.7). This table applies to estimates of proportions.

16.9 Which differences are statistically significant?

Generally, throughout this report where we talk about differences (between the estimate for a subgroup and the total, say, or between two subgroups) we mean they are different even after taking account of the sampling variability. This is often described as statistically significant. Where we simply list numbers that are different (for example ‘England (41%), Scotland (38%), Wales and Northern Ireland (both 36%)’) this does not necessarily mean that they are statistically significantly different from each other. Where we draw attention to some estimate being ‘higher’, or a subgroup being ‘most likely’, or single out a sector as higher than the rest, this is a statistically significant difference.

For example, suppose we have stated the following: By sector, SME employers within manufacturing (47%) and information and communications (41%) were most likely to have exported in the last 12 months, while those in health (1%), accommodation and food (2%) and construction (4%) were least likely to have done. 

This does not mean that manufacturing businesses were statistically significantly more likely to have exported than those in information and communication, but both sectors were statistically significantly more likely than the rest of the SME employers to have done so, i.e., they are more likely than average. Similarly, we are 95% confident that the three other sectors mentioned were less likely than average, even though there is some uncertainty over those specific figures of 1% and 2%.

17. Definitions

Term	Description
Business, enterprise, firm	In this report these terms all mean the same – they are interchangeable.
Cohort	We use this term to describe the way the survey samples since 2018 are divided into three separate groups (the cohorts) and answer some questions that are for their cohort only. This was done to increase the number of questions asked in the survey without increasing the average length of interview.
EFTA	European Free Trade Association. This comprises the countries of Iceland, Liechtenstein, Norway and Switzerland. The three countries apart from Switzerland are part of the European Single Market as members of the European Economic Area.
EU	The EU is the European Union. This comprises the countries of Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden
Exports	In this report this means a British business selling goods or services to a customer outside the UK. An English business selling to a Northern Irish business is not exporting, but a Northern Irish business selling to a customer in the Republic of Ireland is exporting.
Family-owned business	This means a business where a majority of the owners are in the same family. A business with a single owner is automatically a family-owned business, although a business with no owners is not. ‘Majority’ means more than half, but ultimately, we require the respondent to the survey to interpret this: where a business has more than one working owner or partner, they are simply asked if the business is family-owned and this is defined in the questionnaire as ‘majority-owned by members of the same family’.
Finance	In this report when we talk about businesses accessing finance or applying for finance, we usually mean borrowing money for business reasons. This might be from banks or other financial institutions or might be less formal arrangements such as money borrowed from friends and family.
Health sector	The health sector in this report is more accurately described as the ‘human health and social work sector’. It does not include veterinary services (which fall under the professional and scientific sector). As this survey covers the private sector, the National Health Service (NHS) does not come under the health sector for this survey; but private sector healthcare providers do.
Imports	In this report this means a British business buying goods or services from a business outside the UK. A Northern Irish business buying from a Welsh business is not importing, but a Northern Irish business buying from a business in the Republic of Ireland is importing.
Innovation	This refers to a business implementing a new or significantly improved product or process (which can also include new marketing methods or organisational methods). The international manual on collecting data about innovation is known as the Oslo Manual.
Longitudinal	A longitudinal study is one which collects data from the same unit as different times. We call this survey longitudinal because each year we try to re-interview businesses that took part in the survey in previous years. Analysts have specific methods for analysing longitudinal data. This report focusses on cross-sectional analysis – even when we refer to results from earlier years of the survey, we take no particular account of the fact that some businesses will have contributed to both years of the survey (in other words, the analysis is not longitudinal). We have longitudinal analysis in the panel report which we publish separately, and the dataset is available to approved researchers to perform their own longitudinal analysis if they wish.
Mean	A measure of the average which takes the total of whatever is being measured and divides it by the number of units being measured. (For example, mean turnover of micro businesses in 2023 is the total turnover of micro businesses in 2023 divided by the total number of micro businesses in 2023.)  As the LSBS is a sample survey, the mean is estimated, as we can only estimate the relevant total for example. The mean is a common and well-known statistical measure, but it can be affected by extreme values which make it poor as a measure of the ‘typical’ value of whatever is being measured. This is often a problem with business statistics as there are often many ‘extreme’ values.
Median	The median is an alternative measure of the average which is not affected by extreme values in the way that the mean can be. As such it is often a better way of finding a ‘typical value’ of whatever is being measured. The median is the middle value of what is being measured if all the measured values are put into order from smallest to largest value. As with the mean, in the LSBS we can only estimate the median as we are working from a sample.
Medium-sized business	A business which has between 50 and 249 employees (whether they are full-time or part-time). These are the largest SMEs, since businesses with 250 or more employees are defined as large businesses in this survey. Alternative definitions of business size are sometimes used by other studies (which might include consideration of annual turnover or total assets belonging to a business).
MEG-led business	A business where at least half of the leadership team comes from minority ethnic groups (as this is a UK survey, minority ethnic groups are those that are not of any White background, including White British, where White British includes White English, White Scottish etc). The leadership team comprises the directors and working owners. We can include members of several ethnic groups and can include people who describe themselves as mixed ethnicity where White British background is one of those ethnicities.
Micro business	A business which has between one and nine employees (whether they are full-time or part-time).
National Minimum Wage, National Living Wage	The National Minimum Wage has been in operation in the UK since 1999. This sets a minimum value for the hourly rate of pay that employers must pay, though this level depends on the age of the employee and differs for apprentices. It does not depend on the size of the employing business. It is usually updated once a year following a (non-binding) recommendation by the Low Pay Commission but ultimately determined by the UK Government. The National Living Wage is a minimum wage that applies to workers from the age of 25 and has been in place since 2016.  It was extended to 23- and 24-year-olds on 1st April 2021. As it is higher than the National Minimum Wage it effectively supersedes it for employees aged 25 or more.
PAYE	This stands for ‘pay as you earn’ and describes the system where employees’ taxes on income are deducted automatically from their pay before they are paid. If this is done accurately then the employee does not face an annual tax bill for these taxes. The relevance for this survey is that businesses that we describe as ‘unregistered’ will not be registered for PAYE with the UK tax authorities – so if a business is registered for PAYE, we know that it ought to be included in our sampling frame for registered businesses, the IDBR.
Private sector, public sector	The survey is one of private sector businesses, which are businesses where the government ‘does not exercise significant control over the general corporate policy’ of the business. The Office for National Statistics follows international guidance to determine whether something is in the public sector, and have more information on their process here. Note that the private/public sector distinction is not the same as the market/non- market distinction, and in particular note that charities and social enterprises can be in the private sector (in fact the majority of these are). The ONS page has more detail on this.
R&D	This stands for ‘research and development’ and in this survey is usually referred to in the context of ‘R&D spending’, meaning spending on creative and systematic work to increase the stock of knowledge or to devise new applications of existing knowledge. The international manual on collecting data about R&D is known as the Frascati Manual.
Red tape	This is an informal term used to refer to regulations or requirements that are imposed on a business or person. In this survey it is sometimes cited by businesses as an obstacle. Different businesses may have different ideas as to what counts as red tape, and the ultimate source of regulations that are perceived as red tape could be governmental or non- governmental.
Registered business	In our survey we use ‘registered’ businesses to mean those that are registered for PAYE (and so are employers) or registered for VAT (and so have an annual turnover above a certain threshold set by the UK Government). In either of these cases such businesses ought to be included in our sampling frame for registered businesses, the IDBR. Some unregistered businesses do appear in the IDBR, but we use a separate sampling frame for unregistered businesses which has better coverage of them.
Sector	In this report businesses are classified into one of a number of non- overlapping sectors. We use the Standard Industrial Classification but have combined some of the categories to make them more practical for our survey. See the ‘sector definitions’ section of this report for more detail.
SIC 2007	This is the specific version of the Standard Industrial Classification that is used for this survey, in common with most official statistics in the UK. This is a useful page from the Office for National Statistics website for more detail on SIC 2007.
Small business	A business which has between 10 and 49 employees (whether they are full-time or part-time). In some contexts, people use the term ‘small business’ to refer to all businesses that are smaller than large and medium- sized businesses (in other words all businesses with fewer than 50 employees) but in the LSBS we always use the narrower definition when referring to small businesses specifically.
SME	This stands for ‘Small and Medium Enterprises’, but this is commonly meant to refer to all businesses, firms and enterprises that have fewer than 250 employees, including those that have no employees at all. This means that in the LSBS ‘SMEs’ actually comprise business with no employees, micro businesses, small businesses and medium-sized businesses.
Surplus	Our survey includes not-for-profit enterprises and for many of these it is more appropriate to use the term ‘surplus’ to refer to an excess of revenue (money coming in, from all sources) over expenditure (money going out, for all reasons).
Trade credit	Trade credit is typically used to refer to when a business receives goods or services from another business but does not pay for it in full at the time of delivery. We ask about it in the survey in the section on finance, but we do not treat it as a form of external financing – rather, it is contrasted with late payments, so it is better thought of as a form of agreed delayed payment, with late payments a delayed payment that has not been agreed.
Turnover	In the LSBS this term is usually synonymous with ‘sales’. Although for the purposes of preparing accounts ‘turnover’ may be defined differently from ‘revenue’ or ‘sales’ we do not specify a particular definition in our questionnaire and assume that respondents interpret it to mean revenue from sales which do not take account of costs.
VAT	Value-added tax is tax which businesses are liable to pay if their annual turnover is above a certain threshold. Businesses which are registered for VAT with the UK tax authorities are considered to be ‘registered’ businesses for this survey and ought to be included in our sampling frame for registered businesses, the IDBR.
Women-led business	Women-led businesses are defined as those majority-led by women, that is controlled by a single woman or having a management team of which a majority are women. ‘Majority’ here means more than 50%.

18. Further information

18.1 Future updates to these statistics

The Department for Business and Trade (DBT) intends to continue the survey for at least three further waves. The delay to field start date that occurred in 2020 impacted in turn on the 2021 and 2022 fieldwork dates. Interviewing which was planned to commence in July 2020 and continue to February 2021 was delayed to September 2020 and continued to April 2021 because of the uncertainty and upheaval caused by the coronavirus (COVID-19) pandemic. In 2022, this had a further impact in delaying field start to November 2021, which then continued to the end of April 2023.  Interviewing for the 2023 survey took place between the 2nd October 2023 and the 26th April 2024. We anticipate that the field dates for the 2024 survey will follow those of 2023. 

18.2 Related statistics

The publication of statistics relating to businesses with no employees derived from the same survey is on the same day as this publication. DBT will also publish a panel report in Autumn 2024 which focuses on businesses that have taken part in several waves of this survey and associated longitudinal analysis. On the same day as the panel report we will publish the technical report which will include the questionnaire used for the 2023 survey.

The Scottish Government usually produces its own publication based on the same data but focused on Scottish businesses Small Business Survey Scotland: 2022-2023 - gov.scot (www.gov.scot)

DBT publishes the Innovation Survey which covers the topic of innovation in much greater detail, and covers large businesses (which the LSBS excludes) but not micro businesses and non-employers (which the LSBS includes). Also the National Survey of Registered Businesses (NSRB) which covers business sentiment around exporting and trade. The survey focuses on businesses with a turnover over £500,000 or more due to their higher potential to export.

As outlined elsewhere in this report DBT publishes the Business Population Estimates (BPE) which details the structure of the UK’s business population (and which the LSBS uses for determining sample sizes and for weighting). The BPE contains information about employment and turnover in different sectors and includes information at regional level as well as nationally.

The Office for National Statistics conducts many surveys of businesses, many of which cover topics that the LSBS examines too. A good starting place is the Annual Business Survey, which does not cover all the sectors of the economy but has very good coverage of large businesses.

The Department for Culture, Media and Sport (DCMS) publishes Social Enterprise  Market Trends, which takes a deeper look at the social enterprises that are identified in the LSBS. BEIS and DCMS worked to improve the survey questions used to identify social enterprises, with the new questions being used in the 2017, 2019, 2021 and 2023 surveys.

The Department for Education (DfE) conducts the Employer Skills Survey. The 2022 Employer  Skills Survey was a large survey with over 80,000 respondents. DfE also publishes statistics about apprenticeships by industry characteristics in England based on administrative data. The Employer Skills Survey for 2022 was published in September 2023  Employer Skills Survey , Calendar year 2022 - Explore education statistics - GOV.UK (explore-education-statistics.service.gov.uk)

18.3 Uses of these statistics

As a wide-ranging survey of SMEs, the LSBS is of interest to many Government departments and agencies. Department for Energy Security & Net Zero makes use of the questions on energy use by SMEs to develop policies on business energy such as non-domestic smart meters. Statistics are used by the Government Equalities Office to monitor rates of women-led businesses in the SME population. The figures for MEG-led SMEs are published by the Government’s Race Disparity Unit as part of its  Ethnicity Facts and Figures service. DBT also uses the LSBS data to understand more about the export and import behaviour of UK SMEs and the operation of the UK internal market. As mentioned above DCMS makes use of the social enterprises data and the Scottish Government uses the data for evidence and analysis on a broad range of policy areas.  

In the past the Department for the Environment, Food and Rural Affairs (Defra) has analysed rural SMEs, and the Low Pay Commission has looked at what businesses say about the National Minimum Wage and National Living Wage. HM Revenue and Customs has sponsored questions looking at SME preparedness for the Making Tax Digital Programme. Innovate NI looks at Northern Irish companies and their innovation activities. The British Business Bank makes use of the data on access to finance.

The LSBS is increasingly widely used in the academic and research community, in the UK and abroad. We will run a mini competition later in 2024 for research teams to apply for small grants to conduct research using the latest LSBS data, and the data will continue to be made available by the ONS Secure Research Service,Integrated Data Service and the UK Data Service for approved researchers. The Institute for Family Business makes use of the survey in its ‘State of the Nation’ reports, and the Federation for Small Businesses has used the LSBS in its research work, for example the Unlocking Opportunity report https://www.fsb.org.uk/resource-report/unlock.html

18.4 User engagement

Users are encouraged to provide comments and feedback on how these statistics are used and how well they meet user needs. Comments on any issues relating to this statistical release are welcomed and should be sent to business.statistics@businessandtrade.gov.uk.

The department statement on statistical public engagement and data standards sets out the department’s commitments on public engagement and data standards as outlined by the Code  of Practice for Statistics.

18.5 Statistics error and revision policy

The department statistics error and revision policy sets out the revisions policy for these statistics, which has been developed in accordance with the UK Statistics Authority Code of Practice for Statistics.

18.6 Pre-release access to statistics

Principle T3 of the Code of Practice for Statistics requires that access to official statistics before their public release is limited to certain individuals. This includes those involved in the production of the statistics and the preparation of the release, and those involved for quality assurance and operational purposes. Pre-release access may only be granted in accordance with the rules and principles set out in the Pre-release Access to Official Statistics Order 2008. In addition, the order requires that records are published of those who have access prior to public release.

Below is the list of roles for people who received pre-release access to Longitudinal Small Business Survey 2023:

• Secretary of State, Department for Business and Trade (DBT)
• DBT Parliamentary Under Secretary of State, Minister Gareth Thomas
• DBT Special Advisers
• DBT Permanent Secretary
• DBT Deputy Director, Chief Statistician
• DBT Press Officers x1
• DBT SME Analyst x1

19. Contact

•        Responsible statistician: Jayshree Varsani

Email: business.statistics@businessandtrade.gov.uk

•      Media enquiries: 020 7215 2000
•      Public enquiries: 07741 703241