Entrepreneurship and Small Business

By: Miguel Serodio

12/11/2011

Index

Introduction......................................................................................................................page 3

Core...................................................................................................................................page 4

References........................................................................................................................page 8

Bibliography.....................................................................................................................page 9

Introduction
In 1985 an the Companies Act was brought up to define better the size of small business in order to make it more clear than before, the Bolton Committee. The new act defined the business by setting maximum criterions of annual turnover, annual balance sheet total and the number of employees. This act helped to define in a practical way than before, for the reason that the Bolton Committee used to have a large number of definitions such as under 200 employees for manufacturing firms to £50 000 turnover for retailing, and up to five vehicles or less for road transport. With so many different criterions it was unpractical to define what, so the Companies Act defined that there was two groups of small and medium firms. Small business would have a maximum annual turnover of £2.8 million with an annual balance sheet total of £1.4 million and a maximum of fifty employees. Medium business could have a maximum turnover of £11.2 with a annual balance sheet of £5.6 million and a maximum of 250 employees.
In 1996 the European Commission coined the term ‘small and medium enterprise’ (SME) and defined them as organisations that employed fewer than 250 people, however it was reviewed and changed in 2005. This review made some adjustments to the definition of 1996, by categorising the enterprises into three different categories. These categories are micro, small and medium sized enterprises. Micro sized enterprises can employ up to nine employees with a €2 million maximum turnover and annual balance sheet total. Small sized enterprises can employ up to forty nine employees with a maximum annual turnover and balance sheet of €10 million. Finally a medium sized enterprise can employee up to 250 employees, have a maximum annual turnover of €50 million and an annual balance sheet total of €43 million (ec.europa.eu, 2011).

Diversity of Small and Medium Enterprises Currently in the UK accordingly to the Department for Business Innovation and Skills there is 4.5 million private enterprises at the start of 2011, where 99.2% are small sized enterprises and only 30 000 are medium sized enterprises (bis.gov.uk, 2011). The number provided by the Department for Business Innovation and Skills (BIS) clearly show that SMEs are vital to the UK economy, they employ 13.8 million people and it was estimated that they had a turnover of £1.500 billion. All SMEs count more than half of employment (58.8%) in the private sector and a decimal smaller than half of the (48.8%) annual turnover at the start of 2011 (bis.gov.uk, 2011). Again small sized enterprises had a fundamental contribution towards employment (46.2%) and annual turnover (34.9%). According to BIS at the start of 2011 there was 62.4% of all private sector were sole proprietors, 27.7% were companies and 9.8% were partnerships.. It is possible to understand that there are 2.8 million sole proprietorships in the UK, which means that they don’t employ any one except the owners that make 9.8% of employment in the private sector (bis.gov.uk, 2011). In the partnership enterprises represent 35.2% of the employment in the private sector and in 59% of employment is represented by companies. Through 2010 there was an increase in sole proprietorship of 87 000 (3.2%) and the number of partnerships increased by 1 000 (0.2%) and the number of companies increased by 6 000 (0.5%). Overall the majority of SMEs in the private sector are of sole proprietors and not companies or partnerships. This could be a result of the recession that the UK economy is passing through. The reason for this is that there are people that used the money form their redundancy to invest in their ideas to form a business. These ideas can come from a number of different reasons such as; they can try to replicate what they were doing at work but in smaller scale or they can transform a hobby in to a business. With the increase of sole proprietors and the reason of this increased as mentioned before there is a large range of SMEs. According to BIS the sector with more SMEs is in the construction sector, this sector is represented by 19.3% (876 000 enterprises) of all UK private enterprises. Following the construction sector is the professional, scientific and technical sector with 13.3% (606 000 enterprises) of the enterprises in this sector and 10.7% (484 000) in the wholesale and retail trade and repair sector (bis.gov.uk). There are other sectors that other private enterprises are in the industry such as; * Agriculture, forestry and fishing a number of 150 000 enterprises, * Electricity, gas and water with 25 000 enterprises, * Manufacturing with 238 000 enterprises, * Transportation and storage with 251 000 enterprises, * Accommodation and food service with 251 000 enterprises, * Information and communication with 269 000 enterprises, * Financial and insurance activities with 83 000 enterprises, * Real estate activities with 87 000 enterprises, * Admin and support service activities with 340 000 enterprises, * Education with 231 000 enterprises, * Human health and social work activities with 309 000 enterprises, * Arts, entertainment and recreation with 195 000 enterprises and, * Other service activities with 252 000. It is possible to conclude that the majority of the industry of SMEs is in the service sector, the reason for this could be due to the fact that the sole partnerships don’t have money to invest in large amounts but have the time to invest in their customers. It is also possible to see that there is a small number of enterprises in the electricity, gas and water industry, this could be explained by the fact that the enterprises that are in this market have control of it such as Eon. According to BIS from the 4.5 million private sector business in the UK, 3.9 million (86.7%) are in England where London is the city with more registered enterprises. London has 748 000 enterprises from the start of 2011 with 16.6 % of the enterprises belonging to the Professional, scientific and technical activities sector. The number of enterprises in London is greater than in any other region or country in the United Kingdom. The South East is the second with more enterprises in England, followed by the East (745 000) and North West (474 000). London and the East of England are almost one third of all private enterprises in the UK (bis.gov.uk). The lost number of enterprises in England is in the North East (119 000) and East Midlands (307 000).

Barriers for SMEs growth In 1997 the Centre for Business Research at Cambridge University produced a report to demonstrate the possible barriers to growth to small firms. This report consisted of a survey of some 2 500 UK small firms in 1997, accordingly to Burns (2007) it is probably the most authoritative recent survey. In this survey there were identified a number of different factors by the small firms such as; * Increased competition, * Marketing and sales skills, * Availability and cost of overdraft finance, * Availability and cost of finance for expansion, * Growth of market demand, * Management skills, * Skilled labour, * Acquisition of new technology , * Difficulty implementing new technology, * Availability of appropriate premises and, * Access to overseas markets. From all of these factors there were only three major factors that had large scores compared to the other ones. The factors that were identified as major were the increased competition, availability and cost of finance for expansion and marketing sales skills. Two of these factors are external (Availability and cost of finance for expansion & increased competition) and marketing and sales skill is an internal factor. According to Burns (2007) ‘the survey showed that manufacturing small firms faced greater constraints in more areas than did service firms, larger firms faced greater constrains than did micro-firms...’. There was another survey carried out by Harrison and Taylor (1996) that cited ‘barriers to entry’ is when entering new markets is the biggest obstacle to growth, connected with ‘establishing a reputation’ and ‘intense competition and monopoly practices’. There are other factor that can contribute as a barrier to the growth of SMEs that can be the suppliers, trade unions, customers, culture of the organisation, other organisations, employers associations, pressure groups, learning and skills council, international relations, CBI, competitors, climate and shareholders or providers of finance. The conclusion seems to be that while there is competition and finance are the general problems, there other factor that affect small and medium enterprises such as political, economical, social and technological factors known as PEST. PEST analysis is defined by Mullins (2010) as technique for analysing the general external environment of an organisation in terms of political, economical, social and technological factors.

PEST analysis for Pasztecik The business venture that our group decided to carry out was the importation of a polish traditional snack, the pasztecik. We carried out a PEST analysis for our idea and found out that it would be possible to go ahead with our business venture. There a number of reasons that support this decision, the first and main one is according to our budget we would be able to import to the UK the machinery to produce pasztecik in large numbers in order to keep with the predicted customer demand. Our product would have a large customer demand due to the large polish community that we found out while caring the PEST analysis. We found that there is a large number of polish people in Blackpool and its surrounding (20 000) according to Blackpool council statistics. In the economical factor it is the perfect time to try and get a mortgage from the bank due to the low interest rate of 0.5% according to the Bank of England. However the mortgage should have a fixed rate, because it of how low it is now. It would be very beneficial for the business venture to import equipment from Poland due to the low exchange rate of £1- 5.16 Polish Zloty.

References
Burns, P. (2007), Entrepreneurship and Small Business, Second Edition, New York, PALGRAVE MACMILLAN.
Harrison, J. and Taylor, B. (1996) Supergrowth Companies: Entrepreneurs in Action, Oxford: Butterworth-Heinemann.
Mullins, L.J, (2010), Management and Organisational Behaviour, Seventh Edition, London, Prentice Hall Publishing. http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/sme-definition/index_en.htm (assessed in 06/11/2011) http://www.bis.gov.uk/assets/biscore/statistics/docs/b/business-population-estimates-2011_statistical-release.pdf Bibliography
Deakins, D. & Freel, M. (2009), Entrepreneurship and Small Firms, Fifth Edition, London, McGraw-Hill Education. http://www.lib.strath.ac.uk/busweb/guides/smestats.htm http://www.econ.brown.edu/fac/Ross_Levine/Publication/Forthcoming/Forth_3RL-LL_Fin%20Size%20Growth.pdf
http://researchrepository.napier.ac.uk/2626/1/ecust_full_lect_notes_Nov_03.pdf