One in six of UK’s smallest firms expects to go under this year

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MORE than one in four of the Britain’s micro-businesses expects to fold in the next two years, according to research published today.

Of the UK’s 4.3 million businesses with fewer than ten employees, 28 per cent think they will have folded by 2014, with one in six expecting to be gone by the end of this year, according to a report by professor Francis Greene of Enterprise at Warwick Business School.

The report adds to jobs worries as micro-businesses employ nearly a third of the private sector workforce. They employ seven million people across the UK and contribute more than £600 billion to the economy.

“Micro-businesses are the back-bone of the UK economy, yet they face real challenges in surviving in today’s climate,” Greene said. “In order to provide micro-businesses with effective support, we need to understand their immediate needs.”

His report calls for existing business advice services to be better promoted to help micro-businesses access the support available.

He added that there is “clear evidence” of a financial skills gap. He recommends that business owners adopt measures to encourage their clients to pay bills promptly, as slow payment is one of the problems that drives small firms out of business.

The research also shows that although many of Britain’s smallest businesses are finding it harder to fund their ventures, only 2 per cent are interested in bank finance.

With about 300,000 micro-businesses north of the Border, Greene’s research suggests more than 75,000 could be set to close by 2014.

But Stuart Mackinnon, a spokesman for the Federation of Small Businesses (FSB) in Scotland, said he thought the figures were overly pessimistic.

He said: “The FSB’s own polling shows that business confidence is very low, as both businesses and consumers are reluctant to spend money at the moment.

“However, the idea that one in six of the Scottish business community will fold this year is a little over-gloomy.”

He said that many small business were using alternatives to bank finance, although that was in part because services such as overdrafts had become more expensive.

“There’s still a need to have flexible and affordable finance” he said.

Mackinnon said that business owners often used their own reserves of cash, borrowed from family and friends or used credit cards to provide working capital.