There has been a growing recognition over the past few years in business, political and media circles, of the important role that mid sized SMEs play in the UK economy. These are companies typically turning over £2.5m or more, and employing anything from 20 to 250 people. From research undertaken by NESTA we know that growing SMEs are among the most important and effective job creators in the UK economy. Analysis by Experian has shown that a great many SMEs have high potential but don’t go on to fulfill it. And a recent report by the CBI suggested that if we could get more SMEs to grow, and more to grow faster, they could add up to £50bn to the economy by 2020.
Tellingly very little hard analysis exists. Earlier this year we began working with Experian pH to identify and analyse the UK’s universe of high growth companies. Specifically we have been looking for companies with a turnover between £2.5 million and £100 million, and with reported growth of 10% or more per annum for the past 3 years; exactly the sort of companies that we believe could benefit from BGF equity investment and support.
We are calling the results the BGF Growth Companies Barometer, and we will be repeating the exercise quarterly.
The most recent wave of research identifies a total of 25,533 UK companies in the turnover range, with 16% categorised as high growth. Unsurprisingly the highest proportion of high growth companies is located in London and the South East, however the BGF Barometer highlights that fast growing companies can be found in a diverse range of industries and across all regions of the UK.
It is interesting that the absolute number of companies that fall within the turnover range has remained fairly constant over the past ten years (23,000-25,000). But in line with wider economic trends there has been a gradual shift in the sectors that these companies operate in, moving away from Manufacturing towards Business Services. The highest proportion of companies in the BGF Barometer today come from the Business Services sector followed by Manufacturing and Retail.
The number of high growth companies, however, has fallen in recent years although there may be the first signs of an upturn. The latest figures identify 4,110 UK companies as reporting 10% plus annual growth in the last three years, down from 6,660 three years ago.
This is the first wave, and perhaps the most interesting analysis will come as trends emerge in the quarterly updates ahead. But as a temperature check on the health of the UK’s mid sized SMEs, these numbers should give us all hope. There is a steady base of UK SMEs and fast growing UK companies that continue to thrive across the UK and that operate in diverse industry sectors. This is a resilient group. Successful UK entrepreneurship is alive and well. And this is good news for the overall UK economy as these companies play a significant role in job creation and innovation and are a critical part of the economic recovery.
In commissioning this data our aim is to create a new and additional measure of economic performance of mid-sized SMEs. Our hope is that over time it may even become aspirational for business owners and entrepreneurs as a way for them to measure and benchmark their own performance. We will wait with interest to see how the data changes over the coming months and years.