September 30, 2025 Evolving business performance
What factors drive business performance? And how might that performance be affected by external rather than internal influences? Those are the key questions which the government’s Longitudinal Small Business Survey (LSBS) sets out to answer.
Carried out every year since 2015, the LSBS undertakes a deep dive into a cross-section of SME businesses, identifying changes in business performance, outlook and success. The latest statistics, published on 25 September 2025, focus on performance in 2024 and the preceding three years.
Perhaps unsurprisingly, growth factors varied between those businesses with and without employees. Those without employees identified competition in the marketplace as the most significant obstacle to business success in 2024, overtaking energy costs which were identified as the most significant obstacle in 2023. For these businesses the key focus was now on growth in sales over the short to medium term; bolstered by a greater use of technology to achieve their targets.
When it comes to finance, the picture was somewhat mixed. Whilst fewer businesses were making use of lines of finance at the time they were surveyed than in the previous year, more businesses had resorted to finance at some stage in the preceding twelve months, with bank overdrafts being a key source of finance. The employment picture was also mixed as 14% of ‘non-employment’ businesses had previously employed one or more individuals with 18% planning to do so in the future.
Turning to SME employers, the picture is less rosy when it comes to employment prospects. The trend in increasing employment levels seen since the pandemic seems to have halted with 24% expecting to employ fewer people over the following year. There was also a decline seen in the number of businesses investing in employee training. This is despite a finding from the survey that training correlated positively with both employee performance and turnover. Other areas seen as providing a boost to growth included the taking of external finance and investing in innovation.
For employers; tax, VAT, PAYE, National Insurance and business rates were seen as the greatest obstacles to business growth, replacing energy costs and market competition. As with ‘non-employment’ businesses, SME employers were also making greater use of technology and web-based software to both manage the business and to boost sales.
Almost 90% of businesses surveyed relied purely on a UK-only marketplace for purchases of goods and services. On the other side of the coin there has been a decline in the number of businesses exporting, falling from 19.4% in 2021 to 17.2% in 2024. The report’s authors commented that there was little consistency in the relationship between growth and exporting with some years seeing non-exporting firms outperforming exporting firms and other years seeing the reverse apply.
