Ever since the autumn of 2003, and up until the first quarter of 2008, government regulations and redtape has been the most important problem faced by small firms until it was toppled from its perch by the business climate and recession, according to the OUBS-based Quarterly Survey of Small Business in Britain. At that time, even though their priority was to deal with the effects of the recession, hardly any small firms believed that the time they spend on regulations and paperwork has decreased over the past year and 61% believe that it has increased.

Although the very smallest firms are exempt from some government regulations and paperwork, it is clear that the burden in terms of the proportion of working time spent on compliance falls most heavily on them. A large majority feel that regulation is unclear, complicated and disproportionate. Only one in ten believes that the government consults well with business before introducing or changing regulations.

However, this is not just a whinge against big government. A vast majority of small businesses say that their view of regulation would be improved by better communication, earlier warning, more effective consultation and feedback on that process. Even more say their view would be improved by fewer and simpler regulations with less frequent changes. However, there is little sign that anyone is listening. Small buisness compliance is big business for government and professional advisors.

The Department of Business, Enterprise and Regulatory Reform (BERR) estimates that businesses in Britain ‘spend at least £1.4 billion each year on advice to help them comply with regulation’. The UK Trade and Investment estimate of the overall regulation advice market is £4.3 while ARK Business Analysis (a consultancy firm in this field) reports that ‘the government’s Regulatory Impact Assessments show an annual regulatory impact on UK business in employment and safety per year of £11 billion and climbing’.

However, another survey conducted by the small enterprise team at OUBS among more than 1,000 professional advisors revealed that the time taken to deal with their own government regulations and paperwork has increased and 71% believe that the time it takes their clients has increased over the past year. They confirm that the government does not consult well enough about regulations and that they are generally unclear and complicated (and that in many cases industry certification should be considered).

Most agree with small firm owners and do not think that the government understands business well enough to regulate. Better communication about what government is doing and guidance on regulations would be welcome, as would better consultation and feedback on that process. Echoing small business owners, the most welcome changes, would be fewer and simpler regulations, with less frequent changes. In fact, the government does have a taskforce that aims to reduce regulation but Britain’s small firms and their advisors are still waiting to see if the government, distracted by the recession, listens to their views.

Find out more

• Calibrating regulation: Light touch or firm grip?
• Evan on... compliance

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

Subscribe to Colin Gray's posts

 

With most of Britain in the cold grip of winter and the effects of the credit crunch, August 2007 seems a long time ago. That is when one of biggest UK mortgage providers, Northern Rock, raised the alarm that it was finding it difficult to raise funds from the world’s money markets and ushered in the dreaded credit crunch, with the biggest run on a British bank in recent memory. At the time, however, many thought it might remain a local problem. Indeed, the 2007 third quarter Quarterly Survey of Small Business in Britain, which is based in the Open University Business School (OUBS) and has been monitoring small business performance every quarter since 1984, found that the net percentage of small firms reporting increased sales was at a four year high on 26%. On top of that, the net percentage balance of small firms expecting sales to rise in the coming quarter was at its second highest level since the Quarterly Survey began (28%).

very small firms account for more than 95% of all enterprises in Britain

Sadly, it was not to be. In the final quarter of 2007, the net percentage balance on actual annual sales (the percentage of respondents reporting an increase less the percentage reporting a decrease), slumped to just 12% and has continued to fall. Expectations on sales have been negative for the last two quarters of 2008. Not surprisingly, this has had a significant impact on the survival of firms. Furthermore, it appears that the very small firms of fewer than 10 employees are most adversely affected, which is worrying for the entire economy. The latest statistics from the Department for Business, Enterprise and Regulatory Reform (BERR) - show that these very small firms account for more than 95% of all enterprises in Britain and just under one quarter of national sales turnover (23%) but that they also account for most of the closures in Britain’s declining stock of businesses. In fact, closures had already overtaken new start-ups by the beginning of 2007.

The main economic impact of the credit crunch on small firms is now seen in the labour market and its effects on unemployment. The Office of National Statistics December release shows a steady increase in unemployment from the third quarter 2008, heading for the 2 million mark by the end of December and still climbing. With more small firms shedding staff than those hiring, the Quarterly Survey has recorded negative percentage balances for employment since the second quarter 2008 and negative expected unemployment since the end of 2007. The signs of a deepening slowdown have been clear for over a year.

When asked in July about the measures they are adopting to cope with the economic downturn, most small business owners (53%) report that they take a cut in their own earnings and some 38% report that they have cut staff. A further 14% intend to close their business. However, the more entrepreneurial firms seek new markets and business ideas (42%) or increase their marketing and promotion (35%) – as opposed to the 19% who cut their marketing costs.

The trends from national statistics and the Quarterly Survey are not encouraging. Although recessions are often thought to be an opportune time to launch new cost-saving products, processes and services, many small firm owners face a bleak future. Only 18% now expect to have a comfortable pension when they retire and, more worryingly, 8% of small business owners report they do not have any pension provision at all. Consequently, more than one third (38%) will have to continue working longer than they intended. The average age of retirement is likely to be 67 with a significant number resigned to working into their 70s.

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

Subscribe to Colin Gray's posts

 

Blogging about

Money Programme

Get the facts behind the big business and finance stories from around the world – and down your street, in The Money Programme.

William Henry Gates, known to his friends and the rest of us as Bill, is probably the world’s most prominent entrepreneur. From a teenager’s interest in computer programming, he founded and built Microsoft to its position of global dominance of the vast personal computer market. He is certainly one of the world’s richest individuals. Entrepreneurs, entrepreneurship and enterprise are today very fashionable topics. The self-made, intelligent and visionary individual, who sets up a business that eventually arrives on everyone’s ‘must have’ list and sees off all rivals, is now the focus of press, film and TV. Entrepreneurs are now role models. Yet, in 1955, when Bill was born in Seattle, very few people ever mentioned the word ‘entrepreneur’. Even as recently as 1975, when Bill Gates and Paul Allen founded Microsoft, calling a business person an entrepreneur was often a term of abuse in Britain, if not in the US.

Bill Gates.
[image © copyright BBC]

However, merely being extremely rich is not the same thing as being an entrepreneur. There are plenty of people with inherited wealth who did not have to lift a finger or take a risk. The term was first used to refer to merchants and traders who were prepared to bear the risk of buying goods and services at certain (fixed) prices, to be sold elsewhere or at another time for uncertain future prices. They were people who had the skills and energy to spot opportunities in trade and to act on their judgement. In the 1920s, Joseph Schumpeter, an Austrian economist, took the view that entrepreneurs are not opportunists but are energetic and competitive people who seek to gain an edge over their rivals by creating and adopting innovations. By this, he meant not only new goods and services but also novel processes, marketing, distribution, financing and ways of doing business. Thus, ‘modern’ entrepreneurs, in contrast to ‘classic’ entrepreneurs, create their own luck and opportunities. Furthermore, they are controlled rather than unbridled risk-takers. Schumpeter, however, was also interested in the motivation of the entrepreneur, which he ascribed to three main drives – a desire for social status, the joy of creativity or a desire to conquer, win and beat rivals (what is now often called need for achievement). So, what sort of entrepreneur is Bill Gates – classic or modern?

"merely being extremely rich is not the same thing as being an entrepreneur"

Bill Gates was born in Seattle to a father who was a leading lawyer there and a mother who was part of a prominent banking family. So, young Bill had no problem with social status and the family was not short of money. However, there is evidence that Bill was driven by a joy of creativity. As a boy, he was fascinated by computers and programming. He even managed to convince his teachers to let him drop maths so that he could pursue programming. At the age of 14, Bill and his school friend, (and future Microsoft partner) Paul Allen, converted an Intel processor into a traffic counter and earned $20,000 each for themselves. Six years later, in 1975, Paul talked Bill into dropping out of Harvard and travelling halfway across the country to New Mexico, in order to develop an interpreter of the BASIC programming language for the new Altai microcomputer. This opportunity gave birth to Microsoft but was clearly driven not by a desire to beat competitors but more by a love of doing something new, with new technologies, in a new industry.

Within ten years, however, Microsoft was creating its own opportunities and was on the path to becoming the $50 billion, 80,000 employee, multinational, dominant force that it is today in computing. The big opportunity came in 1981, when IBM turned to Microsoft to produce the operating systems for its new personal computers. To meet the IBM deadline, Microsoft bought the rights to an existing system for $50,000 and adapted it into the PC-DOS. Each IBM PC sold included the Microsoft system yet Microsoft retained the rights to sell to other customers. As clones of the IBM PC began to flood the market, they too were mostly using the Microsoft disk operating system (MS-DOS). As the money poured in, Microsoft stepped up its R&D so that it soon began to lead, rather than follow, market developments. So, Bill moved from being something in between an enthusiastic hobbyist, and a classical opportunity spotting entrepreneur, into a thoroughly modern entrepreneur who savours the creating of new opportunities. Bill now clearly enjoys being a winner.

Weblinks

• Join the discussion
• What makes an entrepreneur?
• Are you an entrepreneur?
• Just Do It
•  
• Watch the trailer
• Video extras: Bill and Paul's excellent adventure
• Is Microsoft finally breaking the mould?
• Bill Gates: The skills you need to succeed
• Profile: Bill Gates

Courses

• Professional certificate in management
• Investigating entrepreneurial opportunities

About the author

Colin Gray is Professor of Enterprise Development at the OU Business School, where he is responsible for research and teaching in small business and entrepreneurship.

Subscribe to Colin Gray's posts