Some 11,451 new businesses started up in Merseyside in 2018, an increase of 3.9% compared with the previous year and the highest ever figure for the region. More of these new businesses were based in Liverpool than anywhere else, however, Wirral, Sefton, St Helens and Knowsley also showed considerable growth. When the figures are released next spring, will they look similar for this year? Should we expect the trend to continue or will other factors intervene?
Why have more people been going into business?
There are two theories as to why the number of new businesses has been increasing, both of which may be true to an extent. One is that increased economic confidence has made people feel able to take the plunge into self employment, as well as making it easier for them to find investment and customers with money to spend. The other is that increasing financial pressures and difficulty finding well-paid jobs have encouraged people to go it alone out of necessity.
Alongside this, the development of small businesses tends to encourage more of the same. People are inspired to go into business when they see their friends doing so, and in areas where there are a lot of small businesses they can partner and create opportunities for each other. This means that they tend to form clusters. Cities where there are a lot of them have a better than average chance of producing more.
What do the long-term trends tell us?
Liverpool was one of the first cities to show improvement following the global economic slowdown in 2008, and since 2011 our economy has been growing steadily, with the number of new businesses increasing year on year. Although the south east of England has enjoyed the biggest boom during this period, Merseyside has proven one of the strongest areas in the North. Between 2017 and 2018, however, the number of new businesses across the UK dropped. At the same time, the number of people employed by new businesses rose, suggesting that the new employment opportunities that have been created have given people alternative options.
The rise in the number of people employed by new businesses suggests that they’re enjoying increasing stability and bodes well for their long-term survival. With only half of businesses lasting five years at present, improvements in this area are just as important for the city’s long term economic well-being.
What challenges do new businesses face in 2019?
Despite all this, most experts agree that 2019 is a difficult year to launch a business in the UK. Brexit has created a climate of uncertainty and that has put a damper on investment, with lenders holding onto their money to retain flexibility and becoming all the more cautious about the risks involved with start-ups. Increasingly, new businesses need to look for alternative sources of finance. It’s difficult to set up in a trade involving imports or exports without knowing what’s going to happen to trading arrangements, and even businesses that don’t import or export directly could be impacted by problems with their supply chains. This is understandably persuading some people with entrepreneurial ambitions to put them on hold and wait for a more stable situation to emerge. It’s also delaying business expansion and encouraging the use of temporary solutions like self storage for managing stock.
What opportunities does 2019 present?
One advantage that Brexit could provide for businesses in Liverpool is that it could reduce competition from the south east of the country, which is likely to be more severely affected by problems with transport infrastructure around the ports. More business is likely to come in through the docks here and this could create new opportunities. Potential changes to border arrangements in Ireland could also see some Northern Irish businesses shifting business connections to Liverpool where previously they traded with the Republic.
Exactly what will come of all this remains to be seen, with so many fundamental aspects of trade and business currently up in the air. The businesses most likely to be successful will be those that plan carefully but stay flexible. Any upset of established practices creates opportunities and it’s likely that some small businesses setting up during this period will do very well out of them. Both the risks and the rewards will be higher than usual.
With all this in mind, 2019 is likely to see the figures for formation of new businesses fall, but the wider scenario is more complicated and in the long term the city could well continue to prosper.