21st Century start-ups significantly change shape of UK economy

Nottingham, UK, 30 July 2015 – Banks and utility providers must adapt to serve the knowledge and internet-based start-ups which have helped to double the business population since 2000, according to data from Experian.

The ‘Generation Z’ companies formed in the 21^st century have played a significant role in driving the incorporated business population from 1.5 million in 2000 to 3.4 million by the end of 2014. The sectors experiencing the greatest growth are dominated by start-ups with few fixed assets and long-term liabilities.

The business population has experienced two decades of almost uninterrupted growth, falling only in 2009 and 2010. A record 586,818 companies were set up in 2014, 27.5 per cent more than the 459,967 created in 2007 when the economy was at its peak. These start-ups accounted for 17.3 per cent of the business population last year.

Servicing the needs of these businesses is a challenge which must be met by banks and trade credit providers, which have traditionally lent to SMEs against fixed assets such as property and machinery. Utility providers are also among the service providers which will have to consider the needs of a small company without a dedicated business premises.

Max Firth, Managing Director for Experian Business Information Services, UK&I, said: “The UK’s business landscape has changed dramatically in the 21^st century. Start-ups are created using knowledge, skills and the internet, often with just a laptop, mobile phone and a small or home office. Fewer companies are being created in asset-intensive sectors where there is a need for expensive machinery, so the requirement for bank loans and an overdraft has shifted as a result. Businesses which understand the nature of the ‘Generation Z’ start-ups and how they operate will be in the best position to serve them as they grow.”

East London was the home of 3.4 per cent of UK start-ups created in 2013, the most in the UK, while London as a whole accounts for six of the top eight postcodes for business incorporations. Birmingham, Manchester, Reading and Leicester also appear in the top 10.

Many of the business sectors witnessing significant population growth have low-tangible assets and are knowledge, skills, or internet-based. There were eight times more health services companies in 2014 than there were at the turn of the millennium, rising from 6,993 to 59,907. Retail (up 444 per cent), finance and insurance (up 341 per cent), construction (up 293 per cent) and well-being (up 290 per cent) companies also increased in large numbers over the same period.

The vast majority of businesses started in the 21^st century reported minimal share capital and no long term liabilities on their first annual accounts – 78 per cent have no long term liabilities, and 79 per cent have issued capital valued only from £1 to £100.

In East London, web-tech, restaurants, construction, human health activities, and adult education were the most popular types of start-ups. Across London, web-tech was the most popular sector start up, except in North London where it was restaurants.

The sectors to suffer the greatest declines in population since 2000 tend to be asset intensive. There were 35 per cent fewer businesses in the print industry last year compared to 2000, while manufacturing (down 17 per cent) and wholesale (down eight per cent) also fell in number.

The business closure rate increased to 10.4 per cent last year, up from 10.2 per cent in 2013. The rate was also higher than the 9.2 per cent average seen during the benign decade before the economic downturn of 2009, when one in five companies ceased trading.

In focus: Web-tech

The number of companies operating in the web-tech sector has increased by 237 per cent between 2000 and 2014. Web-tech companies account for 8.5 per cent of all start-ups since the turn of the millennium and are typical of many of the new knowledge and internet-based businesses. Nearly half (44 per cent) of all companies in this sector are SOHOs, working from a small or home office. Of those formed since 2000, just 13 per cent have long-term liabilities on their first of accounts, 1.2 per cent have bank loans and 1.4 per cent have an overdraft. Nine out of 10 (88 per cent) are created with less than £10,000 worth of fixed assets, while 29 per cent of the assets held by these start-ups are in cash.

Table 1: Business population by sector

Table 2: Start-up business population by postcode (2013)

-ENDS-

Notes to the editor:

Where possible, the data in this press release runs to the end of the calendar year 2014. Data from 2013 is used when relating to start-ups because the industry sector and trading location of the majority of those formed in 2014 were not available at the time the research was compiled.

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