Last year saw the biggest increase in small business start-ups since records began in 1995. Great news! Government targets have been met and boxes have been ticked. But is too much emphasis being put on starting up and not enough on succeeding?
The number of new businesses operating at the beginning of 2004 increased by 0.3 million but at the same time the number of employers decreased from 1.35 million to 1.23 million. According to recent research conducted by the Confederation of British Industry (CBI) a staggering 71% of businesses now have no employees.
BUSINESS FORUM COMMENT
Has the Government made a mistake in setting targets for start-ups without any regard for their continuation? Are business support organisations encouraging people to set up in business when they don’t have the great ideas, the work ethic or the skills to succeed?
Shouldn’t public funding be used to support businesses that can demonstrate plans and an ability to grow and take on staff? After all anyone can set up a business. The real challenge is to make a success of it. The CBI has also discovered that in spite of significant amounts of Government funding to enable ethnic and minority groups to set up in business the gap between the minorities and mainstream businesses is widening (see previous article in Knowledgebase – Government fails small businesses).
The CBI has raised questions about the quality of business support for ethnic and minority groups. But while some of these organisations may be failing their client groups many that are well qualified and have all the necessary accreditations are struggling against anomalies within the system (targets and funding criteria that do not reflect what their clients need). These organisations have also identified major shortfalls (relating to skills, attitude and motivation) within certain sectors of their ethnic populations.
The system is geared to start people up in business because that is targeted and funded. There is no incentive for the business support organisation to advise people that they are not cut out for business or their idea is not good enough - because that is not funded.
It is not surprising, therefore, that the number of start-ups is reaching record proportions. But if a large number of those businesses are one-man bands, living on the breadline with no real growth prospects is this a good development for the national economy?
One could argue that the Government is pushing people into business when they don’t really have what it takes to succeed. It is then abandoning them to their fate and making it increasingly difficult for them to grow by imposing layers and layers of new legislation every year. The CBI found that 61% of small businesses are being held back by red tape, and over the last three years 86% of all businesses have had to increase resources in order to stay on top of new regulations.
In particular the vast amount of employment law and the unfair costs associated with tribunals (see story in Knowledgebase - Employment tribunals fall but the cost to business remains high) has been a major deterrent for businesses looking to take on their first employee.
Many people are opting to remain as freelance operators and will form networks with other freelancers in their sector who can supply additional or complementary skills as and when required. The net result is a growing number of businesses that do not employ people. This flies in the face of one of the key rationales for supporting start-ups – that news businesses stimulate employment.
Read related items on: