Research on Determinants of Profitability in UK SMEs

This report investigates the determinants of profitability in Small and Medium-sized Enterprises (SMEs) operating in the UK. The research begins with an overview of SMEs, their significance to the UK economy, and the challenges they face, particularly in financial management and profitability. The report aims to analyze SME operations, identify growth indicators of profitability, examine factors that affect profitability, compare small and medium-sized enterprises, and recommend strategies to maximize net returns. The research questions focus on identifying growth factors, the impact of various factors on net yield, and strategies for maximizing net project yield. The methodology includes exploratory and descriptive research designs with a deductive approach, utilizing a positivism research philosophy. The study aims to provide insights into the operational performance of SMEs and contribute to the understanding of factors influencing their profitability, offering recommendations for future success.

Research Title:
Determinants of Profitability in Small and
Medium Sized Enterprises (SMEs) in the UK
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Acknowledgement
I owe my deepest gratitude to almighty “Allah” the most Gracious and the most Merciful, who
has provided me ability to complete this work. This dissertation would not have been possible
without my mentor who has motivated me to have proper contribution the project. Along with
this, the proper standards are being followed in order to advance the commitment so that entire
dissertation can be carried in the right manner. Learning about such measures has also inspired to
have proper contribution. I am thankful to family members and friends because they have
provided me support in completion of the research work. Along with this, I would like to thank
my classmates who have provided me support in the understanding of subjects so that
dissertation writing can be accomplished. I would also like to thank my classmates who has
assisted me to have appropriate analysis. Support of Professor. MERVIN SOOKUN, my
professor has provided me diverse suggestions to strengthen the outcome of the investigation,
which has provided me assistance in completion of dissertation. At last but not least my thanks to
all my lecturers who helped me in meeting academic criteria during the journey of the University
of the West of Scotland.
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Abstract
Enterprises are being owned and managed by the small corporations, sole proprietorship and in
partnership. In this, less employees are being employed are being appointed for working in the
company. Enterprises mainly lacks with their financial support as these companies are owned by
less number of people so the amount contributed is also limited. This results with the deficiency
of the funds for the development of the company. HR strategies allow ensuring that social and
human resource aspects are well maintained. (Collis and Hussey, 2009). There are a number of
factors which provides a better success of the small business organisations such as business
culture within organisations is well motivated it also has a direct impact on the profit margin
ratio of business. Evaluation that the majority of small businesses' precept that operations is
profitable. It has been noticed that respondents' percept that their cost and current sales are at the
same level so they cannot provide appropriate in respect to the statement (Clark, 2002).
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CHAPTER 1-
1.Introduction
1.1 Overview
Small business organization is considered as one of the critical aspects of the UK economy
because it provides a high contribution to economic development. Such kind of businesses is
mainly operated at a small scale and numbers of employees are also less. In addition to this, it
can be said that enterprises that employ less than 250 employees, whose annual turnover is up to
the maximum limit of 50 million Euro and total of the balance sheet does not exceed 43 million
Euro are called as small and medium-sized enterprises (SMEs) (UK small business. 2013). With
the change in time, a role of SME's in the economic growth and development has also
transformed (Miles, 2011). They make an effective contribution to the nation’s growth in context
to the advancement in gross domestic product (GDP), more employment opportunities and
bringing innovation. With reference to United Kingdom (UK small business. 2013), in the
beginning of 2016, 5.5 million private sector enterprises are operating as SMEs which have been
increased by 97000 from 2015.
Along with this, SMEs that are able to get sufficient capital are suffering with difficulties due to
lack of management skills and experience. Entrepreneurs have no great knowledge of financial
management and unable to utilize the funds and revenues in an efficient manner which in turn
increases business costs and results in declining profitability (Nijssen and Frambach, 2001).
However, in the present scenario of volatile external market conditions, only those entities can
survive that are operating successfully.
It has been noticed that small business firms are mainly focused towards advancement in the
profit margin ratio. A number of activities with regard to financial analysis are being considered
as a critical aspect so that management with respect to costing can be controlled effectively.
Businesses are also well focused towards business expansion in order to have advancement in the
market share (Afiouni, 2013). By having the assistance of expansion activities, business entity is
well focused towards profit margin ratio. It has been noticed that profit can be advanced through
improvement in sales (Allen and et.al., 2014). In the present study, key aspects will focus on
profitability of SME’s who have operations within UK. Moreover, this research also provides
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determination of various factors that affect the firm’s profitability. Furthermore, it also compares
the profitability of a small sized business with a medium sized organization of the UK. It also
provides information with regard to various growth indicators of the profitability of SMEs. In
association with this, recommendations about appropriate ways to maximize net return of SMEs
in the future period is also a critical aspect of the study (Reid, 2007).
1.2 Research Problem
Small business firms are having an effective participation in the economic development of the
UK. Along with this, a number of small business organizations of UK are looking forward to
have expansion in the services so that the profit margin and market share can be advanced
efficaciously (Agrwal, 2012). It has been noticed that a quantity of previous readings have been
conducted to evaluate the profitability of SMEs but there are very few evidences present with
regard to profitability. In order to overcome the limitation of previous studies, the existing
dissertation topic “profitability of small and medium sized enterprises in the UK. ” Is being taken
into account (Sahut and Peris-Ortiz, 2014). Moreover, in the historical years, none of the
investigators compared operational performance of a small sized entity with that of a medium
sized firm. In addition to this, it can be said that the current study is beneficial to overcome the
gap between key aspects and provide a better understanding with respect to the small business
firms and their working.
A number of initiatives are taken into account to promote the working and the presence of small
business firm. It means that by having appropriate information about the subject, overall working
of small business firms can also be advanced successfully. With the help of this, they can
formulate better policies and make decisions for encouraging SMEs. In accession to this, firms
will be getting benefited because they can find numerous ways to maximise their potential to
make profits (Andersen and et.al. 2016). As a consequence, they can move their operations
without any hazards would enhance strategic and competitive strength and assure long-run
sustainability as good. Another rationale behind the selection of topics is that small businesses
are having consideration of policies to improve the market share and sales. But they do not have
an actual understanding about cost control which is significant for the advancement in profit
margin ratio. By receiving an appropriate consideration of the key elements of the study
outcomes, such kind of issues might overcome (Hatten, 2011).
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1.3 Aim and Objectives
Aim: Present investigation is focused towards the analysis, profitability of small and medium
sized enterprises in the UK.
Objectives
 To evaluate the operations of small and medium sized enterprises
 To determine various growth indicators of profitability of SMEs
 To examine numerous reasons that disturbs the profitability of enterprises which operate
at small and medium scale.
 To compare the profitability and growth of medium sized enterprises with that of small
scale firms
 To recommend appropriate ways to maximize net return of SMEs in the future
1.4 Research questions
Q 1. What are the factors that indicate growth in SME’s profitability?
Q 2. How various factors like size, growth, current ratio, gross profit, gearing and asset-turnover
affect SME’s net yield?
Q 3. How small and medium sized enterprises can maximize their net project’s yield in the
forthcoming period?
1.5 Focus and Purpose
It has been noticed that the key motive of present investigation is to analyse the
profitability of enterprises which operate at small and medium scale in UK. With assistance of
this, the growth of small business organizations can be considered into account because it assist
in meeting objectives. Present investigation will meet the purpose of analysing gap in the subject.
Numbers of previous studies are being taken into account. They have some limitations which
have affected the effectiveness of outcomes. In order to overcome the limitations of the present
study, researcher has selected the present study topic (Jackson, 2010). Along with this, numbers
of literature documents with regard to small businesses and their growth have been analysed. It
provides learning about the subject and assists in understanding the growth indicators of SMEs.
Various researches have been conducted on the concept of small business firms, but the
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outcomes of studies were not much helpful. In addition to this, it can be said that to provide a
proper justification to the outcomes, the present study is being taken into account (Khan, 2011).
It has been observed that a key motive behind the present investigation is to have determinants of
profitability of low and medium sized enterprise in the UK. By owning an application of profit
margin ratio analysis, companies can have better designing of opportunities. Present study allows
to have the determination of diverse factors which are associated with the long term working of
small business organisations. Along with this, factors related to work culture, sales and revenue
of small businesses have been evaluated effectively.
Small business firms are having an effective participation in the economic development of the
UK. Along with this, a number of small business organizations of UK are looking forward to
have expansion in the services so that the profit margin and market share can be advanced
efficiently. It has been observed that a number of previous subjects have been taken to assess the
profitability of SMEs but there are very few evidences that are present with respect to
profitability. It is one of the key reasons that present study topic is being selected to provide
better evidences. Present study outcomes also will assist in analysing factors that bear upon the
profitability of enterprises which operate at small and medium scale.
1.6 Framework and analysis
For continuous improvement and accomplishment of the objectives, it is significant for an
investigator to have a suitable collection of outline. It assist in analysis for better outcomes. It has
been noticed that framework and analysis is a section which provide systematic steps for
accomplishment of objectives. It also helps to meet the standards of conclusion and
recommendation chapter.
Design of research – It is important for a researcher to have collection of policy so
that better support can be provided to study. Explorer and descriptive design is mostly referred
by the investigator. In the present study the exploratory research has been planned in order to
have appropriate accomplishment of designed objectives in the anticipated way (Herbane, 2010).
It is a design which assists in providing the description of characteristics of the population so that
reasons can be identified behind advancement in profit margin of small business firms.
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Explanatory research design helps to provide an explanation of variables. It will accomplish the
objectives effectively.
Research approach – In the present study the deductive approach will be employed
so that better outcomes can be attained effectively. It has been witnessed that the present
approach selection provides a flexible structure so that outcomes can be attained. It is a reason
that provides a better opportunity in order to accomplish objectives of the investigation. It allows
to understand the concept of small business firms (Crowther and Lancaster, 2012).
Research philosophy – Positivism and interpretivism approach is mostly employed
by the researcher. With respect to the present investigation the positivism approach is being
adopted by the investigator. It allows to analyse the significance and operations of small medium
business.
Techniques of research – Qualitative and quantitative research techniques are a
key valuable aspect that allows to accomplish better outcomes. However, for the current study
the quantitative technique of research has been employed. It helps in ensure that sustainable
values in regard to accomplishment of objectives can be attained. With an assistance of this,
statistical interpretation has been provided in data analysis under quantitative values.
Method for data collection – Primary and secondary data collection have been
employed by the investigator in order to ensure that information is being gathered in a significant
way. It has been observed that for primary investigation the questionnaire has been designed on
the basis of objectives. Responses have been taken from the sample universe to outline the
primary research outcome (Pring, 2014). On the other side, books, journals, govt annual report,
online resources have been followed to gather secondary information. It has been made sure that
literature was related to the subject to relevant outcome.
Sampling technique – Random sampling technique has been considered by the
investigator so that data collection can be accomplished effectively (Khan, 2011). Along with
this, the sample has been applied by the researcher and data has been collected from 10 managers
of small business organizations.
Analysis of data – In the present research, quantitative technique will be used for
analysing the data. It has been noticed that overall study is based on the quantitative aspect so
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selection of technique for data collection also needs to according to the nature of the study. In
addition to this, it can be said that statistical information is being presented in the data analysis
section for better understanding of the outcome (Saunders. et. al., 2010).
1.7 Potential Significance
The present investigation is focused towards analysing the profitability of small and medium size
enterprises in UK. It will help in understanding the concept of small business organization and
allows to identify key success factors of the business. Present investigation provides a diverse
benefit to the learners. One of key significance is that it provides better learning to academicians
and helps in meeting the standard of courses. It also assists in determining the issues faced by
small business enterprises. It will also provide various benefits to the small business
organisations so that they're working can be advanced inappropriate manner (Silverman, 2010).
With an assistance of the report the organisations can have understanding about the factors that
impact profitability of small and medium sector enterprises. The research will be important for
the philosophers. With an assistance of this, deep and innovative outcome can be presented so
that integral part of the research can be attained effectively. Along with this, the understanding in
regard to literature documents can also be developed so that improved operations can be
designed. With an application of present investigation the issues that impact the working of small
business organizations can be overcome so that the profit margin can be advanced in an effective
manner (Jackson, 2010).
1.8 Chapter Structure
Research study also needs a suitable structure so that key outcome can be understood in
an appropriate way. By having an effective presentation of systematic defined structure the
research can be accomplished successfully. The structure encompasses a succession of
subdivisions that procedure a vital part of the investigation learning (Smallbone, 2008). With an
assistance of this, discussion about the diverse chapters of investigation can be referred for
proper outcome can be drawn in anticipated manner. Classification of key chapters of the
investigation is as follows:
Chapter 1: Introduction – It is a chapter that provides an in-depth information or
introduction about the subject. It provides information about the research as it helps in meeting
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