Home Based Small Businesses

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This Hot Topic flashlight report shows the position of home based businesses in the South East business population. It explores some of the issues facing home based businesses in particular, and their attitudes to general economic conditions. The research was carried out in July 2009. More detail will be available in the full Hot Topic Spotlight report on home based businesses,
which will be published in October 2009.

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Home Based Small Businesses

  1. 1. South East Business Owners and Senior Decision Survey of Business Monitor Makers Survey of Business Owners and Senior Decision Makers 6 Hot Topic Spotlight Home-based SMEs November 2006
  2. 2. Contents 1. Introduction 2 2. Home-based SMEs Key messages 3 Background 3 Business characteristics 5 Markets and trading 6 Growth constraints, business planning and support 6 3. Annex – Statistics 8
  3. 3. Hot Topic Spotlight 6: Home-based SMEs Introduction This Hot Topic Spotlight is based upon findings from the South East Business Monitor - a quarterly survey of businesses based in the South East, conducted by the region’s Business Link Providers (BLPs). The Business Monitor has the following key objectives: 1. To identify business issues and concerns 2. To monitor business intentions and future growth expectations 3. To explore attitudes towards and experiences of using external business support and advice 4. To establish whether any gaps exist in current support provision Every three months, at least 1,200 telephone interviews are conducted with business owners and senior decision makers of small and medium-sized enterprises (SMEs), based in the South East. This allows an ongoing ‘temperature check’ of business issues and concerns. The survey results are weighted to reflect the size and structure of the region’s SME population. The questionnaire consists of a set of fixed core questions, and additional ‘hot topic’ questions that change from wave to wave. ‘Home-based working’ was covered in wave 4 of the South East Business Monitor, the fieldwork for which took place in August 2006. The findings from the hot topic questions are published in a series of Hot Topic Spotlights, freely available upon request. Hot Topic Spotlights currently available are (as at November 2006): 1. Business start-ups 2. Fuel, energy and water costs 3. 2012 Olympics 4. Red tape and SMEs 5. Women’s enterprise 6. Home-based SMEs 7. Sustainability 8. Work-related stress To request a Hot Topic Spotlight, or if you have any enquiries about this research, please email Stuart Cole at Business Link, Stuart.Cole@businesslinkkent.co.uk. This Hot Topic Spotlight was prepared for the South East Business Link Providers by Step Ahead Research. The views expressed within it are the views of the authors, and do not necessarily reflect those of Business Link. © Copyright Business Link Wessex 2006. The information contained in this paper may be quoted, provided the following is acknowledged as the source: “South East Business Monitor, a quarterly survey of business owners, conducted by the region’s Business Link Providers”. 2
  4. 4. Hot Topic Spotlight 6: Home-based SMEs Home-based SMEs Key messages • Almost two in five SMEs in the South East have the home as their main business or work premises. Home-based working is not restricted to the self-employed. Over half of home- based SMEs are employers. • Start up and owner managed SMEs are more likely to be home-based than more established and team managed SMEs. • Being a home-based SME is not a barrier to greater geographical market reach. Well over half of SMEs serving EU markets are home-based. • Home-based SMEs may have a particular need for support in using and keeping up with ICT. This reinforces the view that ICT is an important driver of the growth in home-based businesses. • While home-based SMEs are less likely to use formal business planning tools, they are more likely to use Business Link support services. • The distinction between home-based SMEs, home-based self-employment and home working is sometimes difficult to make in current intelligence and needs further investigation. Background As recently as 20 years ago, homeworking was perceived as low value-add, low wage employment, often associated with piecework in the clothing trade. While this remains an issue of concern1, key changes have taken place in the economy and in society that have substantially changed this picture. Information and communications technology (ICT) now allows many small businesses to compete in a wider market. The cost barriers to accessing technology have fallen dramatically, allowing growing areas such as software development, consultancy and professional services, to work remotely. Additionally, ICT can overcome distance barriers for more traditional businesses, allowing them to market their services through the World Wide Web, creating a “global shop front”2. Not all home-based businesses are ICT-based, however. Not only do the “traditional” forms of homeworking continue, but there is also a range of other activities where the home is used as an office base for activities that of necessity take place elsewhere, as is the case of construction. Equally, there are a significant number of people in the UK that “sometimes” (25%) or “partially” (3.5%)3, work from home, often associated with knowledge-based occupations. These figures rise to 32% and 24% respectively for self-employed people. 1 http://www.cleanupfashion.co.uk/about-us.php (accessed 27 October 2006) 2 http://www.bgateway.com/bg-home/bg-health-safety-and-premises/bg-premises/bg-working-from-home/bg-Nitty-gritty-on- home-working.htm (accessed 27 October 2006) 3 Felsted A, Jewson N, Phizacklea A & Walters S (2006) A Statistical Portrait of Working at Home in the UK: Evidence from the Labour Force Survey University of Leicester 3
  5. 5. Hot Topic Spotlight 6: Home-based SMEs The picture is therefore complex and varied. However, there is little doubt that homeworking is on the rise, and teleworking (homeworking using ICT) forms an increasing proportion of that activity. Figure 1, below4, illustrates this growth over the period 1997 to 2005. Figure 1: Growth in homeworking and teleworking – UK 12% 11% 10% 10% 9% % of UK workforce 8% 8% Homeworkers 6% 5% Teleworkers 4% 4% 2% 0% 1997 2001 2005 Year Source: Ruiz Y & Walling A (2005) based on Labour Force Survey This growth is primarily coming from home-based SMEs, with, for example, the self- employed making up 63% of teleworkers, but only 13% of the workforce (Figure 2). This supports the view that new opportunities in ICT are fuelling the growth in homeworking, and in home-based businesses. Figure 2: Homeworking and teleworking by employment status – UK 100% 87% 90% 80% 70% 65% 63% 60% % of Total Employed 50% Self-employed 35% 37% 40% 30% 13% 20% 10% 0% Homew orkers Telew orkers All w orkers Source: Ruiz Y & Walling A (2005) based on Labour Force Survey 4 Figures 1 & 2 drawn from Ruiz Y & Walling A (2005) Labour Market Trends October UK National Statistics. 4
  6. 6. Hot Topic Spotlight 6: Home-based SMEs This view is supported by a recent survey5 of 2.6 million households, in which 16.1% said they use the web for work-related tasks. The survey suggests that the typical teleworker is: • male (60%); • between 25 and 44 years old (46%); • probably with a middle-management or knowledge-worker job (social classes B and C1, 61%); • part of a family with children (43%). It also shows that single people living alone, and households in social groups C2, D and E, rarely work from home. The research also found that households in the South East, South West and the East of England account for 40% of home workers, but less than a quarter of the population. In the South East, the Business Monitor found that 38% of SMEs surveyed operate mainly from their home address. This headline figure fits broadly with UK level data. The distribution of home-based SMEs across the region appears to be relatively even (Figure 3) except that in Surrey half of the surveyed businesses were home-based. Future waves of the Business Monitor will help to clarify whether the prevalence of home-based SMEs in Surrey is significantly different or whether this is just survey variance. Figure 3: Is your home your main business or work premises (%)? South Berks Hants Kent MKOB Sussex Surrey East & IoW Yes 38 39 36 37 34 37 50 No 61 60 64 62 65 63 50 Source: South East Business Monitor, August 2006, base 1,803 SMEs. Kent = 502, Sussex = 500, Berkshire = 200, Hants & IoW = 200, MKOB = 200 and Surrey = 204. MKOB = Milton Keynes, Oxfordshire and Buckinghamshire. IoW = Isle of Wight. Business characteristics Although there is a higher proportion of rural SMEs based at home (41%), the difference between rural and urban areas in the South East is small (around 4%). This contradicts other recent research6 which found that 39% of small businesses in England are home- based, while in rural areas it is 55%. It should however be noted that the Business Monitor found that 45% of SMEs in commuting areas are home-based and this may even the urban/rural balance in regions with major metropolitan centres and large commuting zones (i.e. around London). Perhaps surprisingly, just over half (56%) of home-based businesses in the South East are not single person businesses, although many (44%) have just 2-4 staff. Although this probably points to family businesses, it does raise important issues over health and safety in the workplace where employees are involved, and may suggest some requirement for support and advice in complying with relevant legislation. A clear pattern emerges in looking at the trading life structure of home-based SMEs. They make up higher proportions of young businesses (50% of those trading for 2 yrs or less, 43% of 2-10 yrs and dropping to 34% of businesses over 10 yrs old) suggesting that the home base may be a characteristic of early stage development, with growing businesses moving on to separate premises as they build momentum. 5 http://www.point-topic.com/home/press/dslanalysis.asp (accessed 27 October 2006). 6 Dwelly T, Maguire K & Truscott F (2006) Under the Radar - tracking and supporting rural home-based business, Live/Work Network. 5
  7. 7. Hot Topic Spotlight 6: Home-based SMEs Home-based SMEs make up a higher than average proportion of SMEs in the construction sector (48%) and business and financial services sector (48%) but a lower proportion in the ‘retail, tourism and other’ sector (29%). In the case of construction, it is obvious that while the business may be run from home, the business activity will be elsewhere, with the home base being used for office backup, and possibly storage. Financial advice, however, is more likely to be a primarily home-based activity. Unsurprisingly, owner managed SMEs, whether in a growth (46%) or steady state (51%) are more likely to be home-based, and although team managed businesses are less likely to be home-based there are still one in five corporate growth SMEs managed from home (21%). Again, this may be accounted for by family-run businesses, although around a third are multi- site businesses and the survey may be capturing more home workers than home-based businesses. A lower proportion of female managed SMEs (34%) are based at home than those managed solely or entirely by men (39%). However, national data7 shows a significant bias to women in homeworking (69% of people “mainly” working at home), although this figure includes employees. It may be that the types of businesses (i.e. sectors) most suited to a home- based environment are more likely to be owned and/or managed by men. Markets and trading Running an SME from home does not appear to restrict geographical markets. Home-based SMEs make up a lower than average proportion of SMEs focused on local markets (35% compared with 38%), and a higher than average proportion of those serving other parts of the South East, Greater London or other parts of the UK (43%, 44% and 41% respectively). More strikingly, 42% of exporting SMEs are home-based. This finding deserves further exploration in future surveys. Some 22% of all home-based SMEs export some goods or services (compared with 19% of SMEs not based at home). There is no difference in terms of reported and expected financial turnover trends between home-based SMEs and those that are not. However, home-based SMEs are much more likely to report a decrease in staff (27% compared with 13% of non-home-based SMEs) over the past 12 months. While it is possible that this could point to retrenchment of businesses to a home base from external premises, it may also point to difficulties in maintaining employees from a home base for other reasons. The benefits from working at home may include a better work life balance. Perhaps as a consequence of this, home-based SMEs are less inclined to say that their trading environment has got worse in the past 12 months (11% of home-based SMEs compared with 17% of those not based at home). Growth constraints, business planning and support The main constraints on growth felt by home-based SMEs (Figure 4) are significantly different from SMEs not based at home. 7 Felsted A, Jewson N, Phizacklea A & Walters S (2006) A Statistical Portrait of Working at Home in the UK: Evidence from the Labour Force Survey University of Leicester 6
  8. 8. Hot Topic Spotlight 6: Home-based SMEs Figure 4: Differences in constraints felt by home-based SMEs Less of a concern More of a concern Poor skills in the workforce Access to finance High salary levels Using/keeping up with IT Problems with suppliers Lack of government support Their location Lack of affordable housing Source: South East Business Monitor, August 2006, base 1,803 SMEs. Further examination shows that much of the difference is related to the structural characteristics of home-based SMEs discussed above (age, size, sector etc). However, even allowing for this, home-based SMEs seem to occupy a position where problems with suppliers is a less common constraint and keeping up with information and communication technology seems to offer a particularly difficult challenge, again re-emphasising the role of ICT in maintaining the home-based SME sector. Additionally, the mention of housing issues points to possible unmet demand for “live/work” accommodation8. Two key points emerge in relation to business planning and support. While home-based SMEs are less well prepared in business planning terms than other SMEs, they are equally willing to use business advice and support services. While 50% of home-based SMEs have a business plan, this is lower than for non-home- based SMEs (60%). The gap widens when looking at sales and marketing plans (32% to 50% respectively) and for training plans (20% and 42%). Overall, 42% of home-based SMEs have no business planning tools at all compared with only 27% of SMEs not based at home. Despite this, home-based SMEs are more likely to have used Business Link services in the past 12 months (20%) compared with those not based at home (17%). They are also marginally more willing to accept business advice (59% compared with 56%). It is likely that both the prevalence of formal planning and the propensity to use business support services is a reflection of the size and age profile of home-based businesses rather than the nature of their premises or accommodation. External evidence points to some wider issues. For example, the Under the Radar Report9, puts forward some criticism of support agencies from rural home-based businesses, with a view that support available is jargon-ridden, bureaucratic and geared to growth and expansion models rather than sole entrepreneurs. This is contrasted with networking models, where public money supports self-help networks and hubs through which home- based workers can network and have access to facilities. 8 http://www.flexibility.co.uk/flexwork/location/live-work.htm (accessed 27 October 2006). 9 Dwelly T, Maguire K & Truscott F (2006) Under the Radar - tracking and supporting rural home-based business, Live/Work Network. 7
  9. 9. Hot Topic Spotlight 6: Home-based SMEs Annex: Home-based SMEs – Statistics This Annex sets out five Figures which provide more detailed analysis of home-based SMEs, based on the South East Business Monitor. It should be noted that in some cases these figures are based on a small number of responses and care should be taken in interpreting the results. Figure A1: Home-based SMEs by broad industry sector Land-Based 36 64 Manufacturing 78 21 Construction 52 48 Retail/Tourism/Other 71 28 Business/Financial Services 52 48 Transport/Distribution 63 37 All industries 61 38 0 10 20 30 40 50 60 70 80 90 % Home is main business/w ork premises Home is not main business/w ork premises Source: South East Business Monitor, August 2006, base 1,803 SMEs. Land based = 124, manufacturing = 271, construction = 204, retail, tourism & other = 560, business & financial services = 496 and transport & distribution = 148. Figure A2: Home-based SMEs by size of business 100 84 93 90 80 70 58 60 % 50 41 40 30 16 20 8 10 0 Micro Business (1-10 Small Business (11-49 Medium Business (50+ employees) employees) employees) Home is main business/w ork premises Home is not main business/w ork premises Source: South East Business Monitor, August 2006, base 1,803 SMEs. Micro businesses = 1,112, small businesses = 459 and medium businesses = 235. 8
  10. 10. Hot Topic Spotlight 6: Home-based SMEs Figure A3: Home-based SMEs by management type Majority Majority Management female male All genders managed managed businesses equal business business Home is main business/work 34 39 40 38 premises Home is not main 65 61 59 61 business/work premises Source: South East Business Monitor, August 2006, base 1,803 SMEs. Female managed = 274, male managed = 1,255 and gender equal management = 256. Figure A4: Home-based SMEs by segmentation model 90 79 80 66 70 54 60 50 50 51 48 46 50 % 40 33 30 21 20 10 0 Start Up Grow th (Ow ner Steady State Corporate Steady State managed) (Ow ner Grow th (Team (Team managed) managed) managed) Home is main business/w ork premises Home is not main business/w ork premises Source: South East Business Monitor, August 2006, base 1,803 SMEs. Start ups = 113, growth (owner managed) = 273, steady state (owner managed) = 394, corporate growth (team managed) = 577, steady state (team managed) = 375 and other = 65. Figure A4 uses the Business Link segmentation model to profile home-based SMEs. The model categorises SMEs in terms of the age, ownership structure and development plans of the business. The five different categories within the model and qualifying criteria for each category are outlined below: Start up: Any business in operation for less than 2 years. Growth (owner managed): Established owner managed businesses expecting to expand in the next 12 months. Steady State (owner managed): Established owner managed businesses not expecting to expand in the next 12 months. Corporate Growth (team managed): Established team managed businesses expecting to expand in the next 12 months. Steady State (team managed): Established team managed businesses not expecting to expand in the next 12 months 9
  11. 11. Hot Topic Spotlight 6: Home-based SMEs Those SMEs that are categorised as ‘other’ are those that answered ‘don’t know’ to one or more of the questions in the Business Monitor that are used to determine a SMEs category with regard to the segmentation model. Figure A5: Home-based SMEs by business type All businesses A Public Limited A Partnership A Sole Trader Company (PLC) Company A Limited Home is main business/work 56 40 30 21 38 premises Home is not main business/work 44 60 70 79 61 premises Source: South East Business Monitor, August 2006, base 1,803 SMEs. Sole traders = 411, partnerships = 227, limited companies = 1,005 and PLCs = 122. Voluntary & community and social enterprises are excluded due to small sample sizes. 10

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