How do small businesses impact the economy?

The state of the UK economy is never far from the front pages. In the last few years, we've all felt the impact of Brexit, the pandemic, the energy price crisis, soaring inflation and the cost of living crisis. These events have affected personal and business finances, as well as the overall state of the economy. 

Then there are things like the Liz Truss mini-budget (which caused panic in financial markets) and the government's 'fiscal rules' (a set of restrictions put in place by the government to constrain its own decisions around taxes and public spending). 

But what impact does your business have on the economy? And how is the way your business operates shaped by the state of the economy? Let's take a look.

What is the economy?

The UK economy is measure of how the country is performing in terms of the production and consumption of goods and services and the supply of money. We contribute to the economy every time we spend money or go to work. 

What we do with our money and the amount we have to spend impacts the economy. This applies to individuals who buy goods and services from businesses, and business owners who need to spend money on their SME to provide those goods and services.

How can you tell if the economy is in good or bad shape?

According to the Bank of England website, there are four things to consider when working out whether the UK economy is in good or bad shape:

• GDP - Gross Domestic Product (GDP) is a measure of all the good and services produced in the UK over a set period of time. An increase in GDP means the economy is growing.
• Inflation - The rate at which the prices of goods and services increase. The government think that 2% is the ideal rate of inflation. Low inflation suggests the demand for goods and services is lower than expected. This can slow economic growth and depress wages. High inflation means we all get less for our money, which can stop people from spending and slow down the economy.
• Unemployment – Usually shown as a percentage, this is the amount of people who want to work but can’t find a job. Lower unemployment figures point to a stronger economy.
• Inequality – A measure of how the UK's wealth and prosperity is distributed. High inequality is usually a sign of an ‘unhealthy’ economy. The bad news is that figures from the Organisation for Economic Co-operation and Development (OECD) suggest that the levels of income inequality in the UK are among the highest in the European Union.

The problems faced by small business owners in Britain

SMEs make up 99% of UK businesses, employing millions - so their collective successes and failures have an impact on the economy.

If you’re a small business owner, you’ll no doubt have your own take on the state of the economy, shaped by your own experiences and your business's balance sheet. 

But regardless of how your business is performing now, it could be argued that the last 15 years have been as tough a time in living memory. 

Following the global financial crash of 2007, British businesses have had to cope with the effects of Brexit, the pandemic, high energy prices, soaring inflation, and the cost of living crisis. An increase in consumer price inflation (CPI) and a dampening in household real income growth led to cuts in consumer spending. 

A drop in the value of the pound means that international buyers get more for their money, a problem that has hit export-oriented businesses hardest. 

Although the rate of inflation has slowed, in 2022 it hit a 30-year high. Wages have stagnated for more than a decade, lowering people's spending power and meaning they have less to spend at small businesses.

How do small businesses affect the economy?

At Bionic, we believe small businesses are the backbone of the UK economy, and there are three key ways that small businesses can contribute to the economy:

• Create employment opportunities
• Encourage innovation
• Offer the opportunity for financial independence

Here are some more ways in which small businesses contribute to the economy:

Small business turnover helps shape the UK economy

Turnover is typically one of the first metrics that springs to mind when measuring the economic contribution of a small business - it’s far from being the only metric, but it’s very important.

Small and medium-sized businesses in the UK had a combined turnover of £2.4 trillion in 2023. Here's how turnover figures break down by employee number band (GOV.UK)

• One to nine employees: £592 billion
• 10 to 49 employees: £670 billion
• 50 to 249 employees: £763 billion

SMEs account for nearly two-thirds (61%) of total employment and around half (53%) of turnover in the UK private sector (£2.4 trillion). Their collective successes and failures have an enormous impact on the UK economy. So it’s no surprise that SMEs are generally seen as the key engine of growth and sustainability.

Small business employment figures impact the UK economy

Although the majority of small businesses are not employers – the UK has 3.1 million sole traders, which make up 56% of private sector businesses in the UK – SMEs still make a huge contribution to job creation in the UK. 

Overall, small businesses employ over 16.7 million people in the UK, which accounts for 60% of all private-sector employment.

Small business growth affects the UK economy

The business population increased by 24% from 2010 to 2023, when an estimated 1,072,000 new businesses came into being. The micro business community has increased by 16% in that time (up from 1,015,000 to 1,177,000), while the number of businesses with no employees has increased by 26% (3,259,000 to 4,110,000)/

And confidence could be growing among Britain's business owners. 

A study from Geek Retreat, the retailer, gaming café, community hub and events venue, found that almost two-fifths (38%) of business owners who have launched in the past decade are feeling hopeful about the UK economy's prospects over the next 12 to 24 months. Specifically, 9% of them anticipate improvements within the next year. 

This optimism is a breath of fresh air following two tough years that have dented profits and shaken confidence for many. Nearly half (49%) of the surveyed owners reported that the cost-of-living crisis has negatively impacted their business performance, with more than half (55%) of these experiencing profit drops between 11% and 50%.

How Bionic can help grow UK SMEs and the economy

With a vision for “the world’s most innovative economy” and a challenge to “put the UK at the forefront of the artificial intelligence (AI) and data revolution”, the government is investing £725m in research and development as part of their Industrial Strategy.

Businesses are now being rewarded for innovation and encouraged to explore the possibilities of AI in the workplace. This focus on data and technology will help smaller companies to make more informed decisions and bring otherwise unattainable strategies to life. 

And we want to help be the driving force behind the UK’s business growth story.

Whether you run a corner shop, a beauty salon, a fast-food chain or a tech company, energy is essential - and if you’re overpaying for business energy, that’s money needlessly being taken away from another part of your business.

If you run an energy-intensive business, our industrial and large business energy team offer a bespoke procurement service and bill validation service to make switching simple.

And Bionic can help with a range of other business essentials too, including business insurance, business phone, business broadband and VoIP.

Our tech-enabled team can also help with business loans, whether you need fund for cash flow, expansion, or anything in between. Give us a call today on 0800 860 6833.