Half of all Scottish businesses are based at home

Friday February 6th 2015

Half of all Scottish businesses are based in the home, sustaining around one in five private sector jobs and turning over £19.7 billion a year, a new Federation of Small Businesses’ (FSB) report reveals.

Believed to be the first in-depth profile of Scottish home-based businesses the study, conducted by Professor Colin Mason from Adam Smith Business School at the University of Glasgow and Dr Darja Reuschke of the University of St Andrews, dispels many of the popular myths about these 188,000 firms. For example the research reveals almost two thirds of home-based businesses employ at least one member of staff.

The report argues that local government, regulators, banks and enterprise support agencies can’t ignore these businesses and should adapt their approach to better meet their needs.

Professor Colin Mason said: “Policymakers have been slow to appreciate the importance of home-based businesses to the Scottish economy.  This report shows that Acacia Avenue is as much the home of entrepreneurship as any business park.

“These are serious businesses, accounting for 10 per cent of private sector turnover and 17 per cent of private sector employment.  If our economic salvation lies in broadening and strengthening our small business base, we ignore their contribution and their needs at our peril.”

The FSB studied data from 999 business owners, 39 per cent of whom were home-based and a further 19 per cent owned businesses that grew out of the home. The research highlights that these firms operate across every sector and geography.

The biggest concentrations of these enterprises are in catering, leisure, tourism, hotels and entertainment (24%), and providing business services (12%). Smaller clusters were found in creative services (8%) and construction (7%).  However, up to six per cent of all enterprises in all other business sectors (including engineering; real estate; and health & social work) are based in the home.

Further, far from being start-ups, more than half of Scotland’s home-based businesses (54%) have been established for ten years or more. Around three quarters (73%) of these enterprises turn over less than £100,000 a year, and 3 per cent generate more than £500,000.

The study also found that, for a majority of businesses, home is seen as being the permanent location for their operations. The most frequently cited reasons to operate a home-based business were the nature of the business (65%), convenience (61%) and to reduce costs (56%).

One in three (31%) specifically highlighted the high cost of commercial premises, with the same number citing improved work-life balance (31%) and over a quarter (27%) saying they wanted to avoid commuting. Motivations for male and female home-based business owners were generally similar, but childcare considerations were cited more frequently by women than by men.

The survey also challenges ideas of home-based businesses being parochial.  In fact, they are more likely to have a broader customer base than other businesses – with a larger proportion trading nationally and internationally and utilising e-commerce compared to firms in commercial premises.

Andy Willox, the Federation of Small Businesses’ (FSB) Scottish policy convenor, said: “This report tells some home truths about how important this army of businesses is to our economy. Some people start up in the home to supplement their household income and work around other commitments, while others are manufacturing, trading internationally and turning over hundreds of thousands of pounds a year.

“Three key factors have powered the growth in home-based firms: new technologies; large public and private sector re-organisations; and everyone’s changing expectations about a work-life balance. But they are all proper businesses, providing services and generating revenues.  Many are also creating jobs.

“The sheer scale and diversity of this sector means that regulators and local authorities need to make sure that their policies and regulations are right for those based in the home. We also need to tackle these firms’ biggest bugbears: unreliable broadband and a lack of suitable finance products. ”

The FSB is the UK’s leading business organisation with around 200,000 members and around 19,000 in Scotland.

Scottish Government statistics cited in the report estimate that there are 187,640 home-based businesses – 56% of all Scottish businesses. The researchers estimate they provide 17.1% of Scottish private sector employment (including the business owners) generating £19.7 billion of business turnover (or 9.6% of total private sector turnover).

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