Micro Business And Banking
Micro businesses with no employees or between one and nine employees accounted for 94.6 of all UK businesses in 2001 29 of employment and 21.2 of turnover.
Approximately 3.1 million people were selfemployed in 2002 according to Social Trends 33 2003. An additional 1.35 million people have some income or losses from selfemployment. Selfemployed men outnumber women by nearly three to one. The proportion of selfemployed in the working population has fallen since 1987.
Around 20 of the UKs selfemployed work in the construction industry. Between 13 and 14 are involved in diverse business activities around 7 work in recreation culture and sport and a further 7 in health and social work.
Nearly threequarters of the selfemployed had a selfemployment income of less than 15000 in 2000/2001. NatWest is fully aware of the problem of low income in selfemployment and hopes its business managers will help customers to develop their businesses and increase their profits.
In December 2001 the Competition Commission reported on banking services for business and accused the banks of failing to offer good value competitive services to small businesses. The banks have responded with improvements to their services for business and now cater much better for micro businesses.
KEY FINANCIAL SERVICES
Approximately 1.5 million people use personal bank accounts for their business activities and fewer than half of new entrepreneurs open a business account for their startup enterprise.
52 of selfemployed men and 70 of selfemployed women were not in a pension scheme in 2000/2001.
Selfcertified and flexible mortgages and offset accounts have revolutionised the capacity of the selfemployed to borrow for their home and business. Designated business loans and grants are hard to obtain especially for new small businesses. Government support is targeted on disadvantaged geographical areas.
Employers liability professional liability and other protection insurances are highcost because of rising litigation costs. Liability cover is often prohibitively expensive for the selfemployed in risky occupations such as roofing and scaffolding. Critical illness cover is costly because of medical advances resulting in rising longevity. Lack of affordable insurance is a significant barrier to the creation and expansion of micro businesses.
Invoice finance which involves factoring or invoice discounting has few customers among micro businesses but offers good potential for improving cash flow for businesses turning over at least 50000.
COMPANY DEVELOPMENTS
Abbey National offers free banking for small businesses. Alliance Leicesters Commercial Bank also offers a free banking account. Barclays Clearlybusiness service offers useful information and support to new businesses. Bank of Scotlands Smartfinance is a relevant offset product that cuts the costs of borrowing. HSBC relies on brand scale and reputation and on accessibility to sell moderately priced business banking. Lloyds TSB offers tiered customisation of business bank accounts. NatWest has the strongest brand in small business banking but is facing stiff competition from the innovative smaller banks notably Alliance Leicester and Bank of Scotland.
Insurers products for small businesses tend to lack the degree of brand power possessed by the major banks. Selling insurance products through financial advisers and banks tends to weaken brand identity. Norwich Unions new Self employed suite of policies signals the companys intention to cater comprehensively for micro businesses.
PROMOTION
Royal Bank of Scotlands NatWest remains the largest advertiser of banking services to business generally and small business in particular.
HSBC Bank of Scotland and Abbey National are the other leading advertisers to business.
The newly selfemployed are not an important focus for banks advertising or for advertising by other financialservices organisations.
INTERNATIONAL PERSPECTIVE
Business owners in the UK have fewer problems with late payment than in many other parts of the world and are relatively optimistic about future investment and turnover.
PEST ANALYSIS
Budget help for enterprise is focused on companies not on unincorporated micro businesses.
Late payment legislation and invoice factoring can be used to help improve cash flow.
Debt levels among employees threaten to restrict new voluntary selfemployment because continuity of income is essential for debt repayments. Push factors into selfemployment such as redundancy leading to involuntary selfemployment are likely to assume greater importance.
Lack of national broadband coverage restricts the creation of new businesses in rural areas especially those needing to use IT.
CONSUMER DYNAMICS
The percentage of those surveyed who were in selfemployment has barely changed since 2000.
Only a small minority of respondents feel they are in secure permanent employment and feelings of insecurity have risen sharply since 2000.
Despite the apparent increase in insecure employment far fewer respondents in 2003 than in 2000 intend to become selfemployed in the
coming 5 years.
Banks emerge from the survey reasonably well. Few respondents say banks are unsympathetic to the selfemployed in financial difficulties or that they do not give sufficient support to new small businesses or that they expect new businesses to become profitable too quickly. Conversely few regard banks as keen to support new businesses and even fewer agree that there is a good range of financial services for the selfemployed.
The main messages from the survey available at www.marketsensus.com are a growing sense of insecurity in work alongside a declining interest in selfemployment. The two trends may be linked in that starting a business and becoming selfemployed is a step towards instability a step that may be too far for people who already feel insecure. If the numbers of those intending to become selfemployed are falling as fast as Key Notes survey suggests banks will have less reason to provide services to small businesses and their proprietors. Banks keenness to increase consumer lending may in fact reduce the number of new customers for smallbusiness services.
THE FUTURE
Push factors leading to selfemployment will probably assume greater importance. These factors include redundancy and a need to augment pensions. Reluctant entrepreneurs will need sound lowcost business advice.
Women who are selfemployed are less likely to employ staff or to aim for growth than selfemployed men. Women require encouragement and support to launch into selfemployment.
There is still enormous scope for the sale of new business bank accounts but confidence in pensions will remain low. Expensive insurance especially for employers and public liability policies and for professional indemnity cover is a barrier to selfemployment in higherrisk occupations.
Pacesetting companies include Alliance Leicester Bank of Scotland Lloyds TSB NatWest and Norwich Union.
About the writer:nbsp;nbsp;Josephine Jenno
Marketsensus is the leading source of Market Intelligence. Across all industry verticals.
http://www.marketsensus.com
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