Twenty percent of microbusinesses founded by Britain’s ever-growing army of self-employed entrepreneurs close down within the first twelve months. These findings, from the Institute of Fiscal Studies, highlight the precarious state of self-employment in modern Britain.
The Big Picture – Explained
The IFS report noted that just under 50% of businesses set up by individual entrepreneurs have a long-term future. However, more than 60% of micro firms folding after five years of trading.
The report also found that between the years of 2014 and 2015, the overarching macro picture illustrated a more nuanced experience of business growth. The period saw 650,000 businesses launching and 580,000 businesses ceasing trading. However, this meant that the number of ‘sole traders’ grew by a substantial 70,000. Nonetheless, the churn dynamics of the bigger picture still illustrates a challenging landscape.
What Does This All Mean for Self-Employed Businesses?
This report was funded by the Office of National Statistics. The purpose of the report was to evaluate the landscape for self-employment within the wider economy.
Nonetheless, the report noted that the biggest overall share in employment growth in the years 2000 to 2015 was with sole traders growing from 1.4 million to a massive 4.1 million (with a third, post-2007, of growth coming from foreign-born sole traders in the UK.
Does This Explain The Growth Problems Faced by Small Business?
One can see that investment and employment rates for self-employed businesses were low in comparison with other business types. This ‘growth’ as a ‘one-man band’ venture illustrated the stunted dynamics of small business growth in the UK. The report also noted that the lack of uptake in tax breaks was another problem linked to growth.
One of the conclusions from the IFS report was a negative take on the issue of tax breaks for the self-employed when so much ‘churn’ resulted in more and more people leaving self-employment. If there are low levels of investment along with a noticeable lack of recruitment in employment terms, why does the Government continue to provide lucrative incentives to quit the world of work for the uncertainty of self-employment?
Is This All The Fault of The Banking Crisis and Subsequent Recession?
However, in a post-Financial Crisis era, and the recession 2007-09 that impacted negatively on UK sole traders, the picture is complex. The impact of this now-decade-old event has highlighted a failure to ‘bounce back’. Median profits for microbusinesses fell by 7% in relation to the pre-recession highs.
This massive influx of new business, creating nearly 25% more self-employed businesses, post-recession has seen a lowering of aggregate turnover across the entirety of the microbusiness landscape. However, the IFS don’t blame the average fall in profits on microbusinesses but the failure of established businesses to fall in line in relation to a changing landscape.
Prestige Business Management – Accountancy Partners Who Can Help You Self-Employed Businesses Succeed
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