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2020 was an unusual year to say the least, with people in the UK and the rest of the world finding their lives turned upside down by coronavirus almost overnight.

Unexpectedly amongst this was an explosion in new business registrations. Nearly half a million new businesses launched last year – a record 84,758 extra businesses compared with 2019.

Why the surge in new businesses during a pandemic?

Was this sudden spike the result of unemployment forcing people to find other ways to make ends meet? Or perhaps people unexpectedly finding the time to grow businesses while on furlough?

Starting a successful business is notoriously difficult, even in normal times. As many as 60% of new businesses fail within the first three years. But, within these new micro companies are the SMEs of tomorrow, and a potentially bright future for our economy.

The startups creating the jobs of tomorrow

ONS data shows that the UK’s small and medium-sized businesses created three times more jobs in the years from 2013 to 2017.

It further underscores just how central SMEs are to the health of the UK economy. But what made these entrepreneurs decide to take the plunge amongst so much uncertainty? What do they really know about owning and managing a business? To ensure they receive the support necessary for survival, we need to establish who is behind these new ventures.

In order to learn more about their reasons for stepping out on their own in such an unsettled year, we surveyed more than 1,200 entrepreneurs. Here’s what we found.

Surveying 1,200 entrepreneurs: Key findings at a glance

Taking the plunge

2020 was a devastating year in many ways, not least for employment, with a series of lockdowns taking their toll on the economy. UK unemployment rose to a record high of 5.1% in December, following a staggering 370,000 redundancies in the period from August to October alone.

726,000 fewer people on company payrolls in January 2021 compared to February 2020

 
Figures from HMRC for January 2021 show there were 726,000 fewer people on company payrolls, in comparison to February 2020. With even large, well-established businesses finding themselves in serious difficulties, it’s easy to assume that the vast majority of last year’s 84,758 additional new business registrations were by those left with little other choice.

Why businesses are launching in a pandemic

Our research paints an altogether more complicated and interesting picture of the reasons so many people decided to take their first steps as entrepreneurs in the midst of a global pandemic.

As one might expect, a fairly significant proportion were striking out on their own as a direct result of COVID’s impact on employment. Of those surveyed:

This shows that the rising level of unemployment and financial hardship faced by many last year did indeed play a role in the birth of many new businesses.

46% of 2020’s entrepreneurs started their business because they want to be self-employed.

 
However, almost half (46%) of 2020’s entrepreneurs said that they started their business because they had always wanted to be self-employed – by far the most widely cited reason.

“This statistic is hugely encouraging, showing that even businesses launching out of necessity have people behind them with a genuine desire to be their own boss. Hopefully this invaluable enthusiasm will see many of these fledgling businesses thrive, regardless of the circumstances behind their beginnings.”

Lee MurphyManaging Director of The Accountancy Partnership

The ongoing rise of the side hustle

The research also shows an ever-growing interest in side hustles, especially with growing awareness of the trading allowance.

It seems that some small businesses were not adversely affected by the pandemic, and perhaps even benefitted, creating an opportunity for the people behind the business to make them their main source of income.

What does the future hold for UK businesses?

Although the UK is not currently in a recession, we are far from out of the woods financially. The country’s post-COVID recovery will be complex and multi-faceted, but SMEs will certainly play a pivotal role. SMEs are the backbone of the British economy, which:

All traits that are vital in today’s rapidly shifting business landscape. When our SMEs are thriving, the country thrives.

With SMEs accounting for around 99.9% of the business population, if you don’t work for one, it’s certain that your family or your friends will. The launch of so many businesses in 2020 therefore spells good news for our economic recovery efforts.

 

But to do so, these new businesses must do more than survive; they must thrive. Only then can they grow enough to contribute to public finances and create new job opportunities.

 

Although it’s clear that many of 2020’s entrepreneurs had long harboured dreams of starting their own business, we have also established that in a lot of cases it was the financial implications of the pandemic that pushed them to take the first step.

Dreams can often be very different from reality, so what are the long-term intentions of these new business owners now? Are they hoping to return to the world of salaried work as soon as they can? Or do they now see themselves growing their own business empire?

Ambition for the future

Positively, our research suggests that people have big ambitions for their businesses. While many businesses were started last year as side hustles, or may still be in their very early stages:

It’s fantastic to see that so many of these new business owners are keen to grow their new ventures, either into a full-time career for themselves, or even to provide career opportunities for other people.

“This entrepreneurial spirit is exactly what the UK needs at this difficult time, so we need to ensure we’re doing as much as we can to support these SMEs to secure both their future and that of the country.”

Lee MurphyManaging Director of The Accountancy Partnership

Technology as a facilitator

In recent years, blanket access to the internet and the rise of smartphones have led to a boom in eCommerce and a proliferation of social platforms. They undoubtedly make it easier for people to fulfil their dreams of becoming their own boss.

But is the latest cohort of entrepreneurs taking advantage of these new and exciting channels? Have the most popular platforms changed following the advent of COVID? If so, why?

Given that Covid-19 transformed people’s buying habits in 2020, leading to a huge increase in online shopping, it’s no surprise that research has shown that the most popular startup sector in 2020 was retail sales.

Our survey reflects these findings, with a clear growth in the usage of eCommerce platforms and social media sites by new business owners.

The most popular platforms for starting a business

By far the most popular platforms for starting a business in 2020 were Facebook and Instagram.

It suggests that the usage of Instagram by small business owners is growing, while Facebook’s usage is falling. Although Instagram has significantly fewer users than Facebook, it is the fastest growing social network at around 5% growth per quarter – significantly ahead of Facebook at 3.14%.

While Facebook and Instagram are not only of use for eCommerce businesses, Instagram in particular has an ever-growing number of shopping features, making it increasingly ideal for retail businesses looking to target a younger demographic in particular.

Icons of popular social media platforms

Online marketplaces and shopping platforms

Usage of Amazon and eBay remained static, at 8% and 7% respectively both years. Significantly more business owners launched their businesses via Shopify and Etsy.

Icons of popular ecommerce platforms

The growth of digital marketing amongst new businesses

When it comes to running and marketing their businesses, it seems that 2020’s entrepreneurs are more digitally-minded than their 2019 counterparts. Of those surveyed:

This is possibly linked to the fact that the lockdowns last year meant that digital businesses were more likely to succeed, whereas 2019 would have seen a greater variety of enterprises launched with no social distancing measures to contend with.

Most popular startup sectors in 2020

Most popular start-up sectors 2020

 

Sector Number of businesses
Retail 22,011
Management consultancy 16,869
Real estate 16,747
Freight transport 10,848
Building development 9,217
IT consultancy 9,064
Takeaway food shops/mobile food stands 9,062
Hairdressing and beauty treatment 7,083
Construction 7,074
Business and software development 5,395

Top UK cities for new business registrations

Top UK cities for new business registrations 2020

Risky business

Deciding to launch a business at any time takes nerve, so doing so in the midst of a pandemic is certainly not for the risk-averse.

But just how much of a risk did 2020’s entrepreneurs actually take in deciding to start their business last year? and did they have more at stake than those who came before them? Our research found:

On the other hand, 35% of those who started a business in 2019 quit their job to do so, compared with 28% of those who did so in 2020. This disparity might be as a result of more people already being out of work or furloughed when launching their new venture, as well as the rise in side hustle culture.

Read our report about The Age of Entrepreneurialism and the rise of young entrepreneurs.

 

Knowing the risks of starting a business

With so much on the line, both financially and emotionally, were the lockdown-preneurs ready for the task? Or were some forced to start their businesses before they were really ready, and therefore unaware of the full extent of the risk?

Business Knowledge scale showing that most of 2020’s entrepreneurs rated their business knowledge as a 5/10

It seems that most people were well-informed, but with a definite decrease in the number of people who were thoroughly prepared, and a rise in those who had done little to no research.

This preparedness was reflected in the responses from entrepreneurs when asked whether their biggest challenges in running their businesses were the same as they had anticipated beforehand.

Managing their money

While 2019 and 2020’s entrepreneurs were fairly similarly prepared in terms of their business knowledge, can the same be said for their financial situations? Are the lockdown-preneurs as financially savvy as their predecessors or is there a significant difference in their attitudes to money?

Start-up cash

Although our findings shows a greater number of entrepreneurs risking their life savings to start a business in 2020, we can also see that many businesses launched with a minimal initial investment.

Start-Up Cash Infographic

Financial management

Whether last year’s business owners replicate the relative financial security of their predecessors depends on numerous factors. Some – such as the circumstances surrounding the pandemic – are beyond their control, but others thankfully are not.

This includes the methods they choose to manage their money, and how professional they are in their approach. Reassuringly, it seems many of 2020’s entrepreneurs are already taking their finances seriously, though with varying levels of reliability.

“This more laidback approach is not necessarily a big problem for very small businesses. However, we know that the vast majority of last year’s business owners have plans to grow their enterprise. Getting organised from the get go makes it much easier for entrepreneurs to have a good grasp of their financials, saving a lot of headaches in the future.”

Lee MurphyManaging Director of The Accountancy Partnership

What do new entrepreneurs worry about most?

2019 and 2020’s new business owners might be at different stages financially, but it’s interesting to note that they share many of the same concerns.

COVID’s impact on fledgling businesses

While 2020’s new businesses were started with at least some knowledge of the pandemic and its implications, and perhaps even in response to it, 2019’s entrepreneurs were caught entirely unawares.

Have these business owners been more affected by COVID-19 than those who made an informed decision? Would they still have started their businesses when they did, knowing what they know now?

Despite the hardships, more than half (53%) said that although running their new business through the pandemic has been hard, it has still been worth it.

Conclusion

It is clear that some of last year’s new businesses were launched by people who were left with little other choice. But fulfilling a dream of self-employment was still by far the biggest motivator – even if the pandemic gave them the final nudge. This is brilliant news, suggesting many of those new businesses were born out of passion – one of the key factors for success.

However, the research also shows that business knowledge amongst fledgling entrepreneurs could be better. It’s essential that experts are on hand to offer advice that these business owners might need, either to turn their side-hustle into a full-time job, grow their business, or even turn it into a franchise.

Learn more about our online accounting services. Call 020 3355 4047 to talk to one of the team, or grab an instant quote online.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible.

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