The UK economy is losing out on £18 billion due to 520,000 job vacancies that businesses are unable to fill due to a lack of relevant skills, according to new research by Everline, the digital lender for small businesses, and the Centre for Economic and Business Research (Cebr). This is equivalent to half the GDP of Northern Ireland.

The research surveyed over 1,000 small business decision makers as part of the inaugural Everline Small Business Tracker and found, on average, they spend over 100 hours a year looking for suitable candidates, training new members of staff and developing and supporting their existing staff. This figure represents time that could be spent further developing the business if suitably skilled staff were readily available, and equates to £3,160 of their time in economic terms (Gross Value Added). This figure rises to £7,540 for 18-34 year olds and falls to £1,860 for respondents aged 55 and over, indicating that younger entrepreneurs recognise that in order to  focus on business development themselves, they need to spend more time creating a skilled workforce.

Small businesses unable to fill roles despite growth in vacancies

The small business employment index (based on changes in headcount and the number of vacancies in a company) was found to be at its highest since 2004 and just under a quarter (24%) of small businesses surveyed had available vacancies today. However, a further 16% were unable to fill a role in the last month due to unskilled candidates. In addition, only 17% said that the staff in their business are fully trained in every area of their job role and only 47% are comfortable relying on less senior members of staff to take on more senior roles in the business if necessary. This figure rises to 58% for 18-34 year olds but falls to just 43% for respondents aged 55 and over.

Small firms planning to increase hiring intentions in 2015

The small business employment index also found that small firms are planning to increase their hiring over the next quarter and into 2015, therefore highlighting the need for the skills shortage to be addressed to meet the rise in vacancies.

Trading environment enjoys fastest annual growth rates since index began

Finally, the Tracker also indicates a strong improvement in the trading environment with the small business growth index (looking at growth in sales volumes and turnover) enjoying its fastest annual growth rates during the past four quarters since the index began. Standing at 113.4, 30.6% higher than in Q3 2013, the index is the highest it has ever been. This compared to a historic low of 83.6 in Q1 2013. A fall in company liquidations (15.3% lower than the same quarter last year) further indicates the improvement. The performance of small retailers in particular has strengthened with sales volumes returning to annual increase after a full year in decline.

Russell Gould, Managing Director at Everline, commented: “This study illustrates that small business owners are often spending too much time searching for suitable candidates when they could be focusing on growing their business. We are in the midst of a transformational story where SMEs learn to take advantage of the digital age, and more needs to be done to ensure that our workforce has the necessary skills to excel in this changing environment.

Younger entrepreneurs are doing the right thing by dedicating the time up front to upskill their staff, but a more skilled workforce would remove the necessity for this and consequently free up even more time for UK small business owners.”

Charles Davis, Director at Cebr said: “We have seen a strong pick up in small business growth through 2014 as illustrated by the Everline Small Business Tracker. However, as small businesses continue to create jobs and this reduces unemployment faster than expected, we are seeing skill shortages become an ever greater challenge. Small business leaders that need to be focussed on strategy are being tied up in the desperate search for the right talent. Ultimately, the time lost through this amounts to an £18 billion hit to the UK economy. A higher skilled UK workforce and more efficient processes for matching candidates with new vacancies could lead to productivity gains that would make a real difference.”

Ian Brinkley Chief Economist at The Work Foundation commented on what more could be done to support small businesses: “In order to support small business growth, more needs to be done to incentivise these businesses to pool their resources more. As individual companies with few staff, the cost of things like training, upskilling and recruitment can be significant. By encouraging clusters of small businesses to share the cost by organising larger training sessions with nearby companies, we could significantly reduce their overheads. In addition, large firms should do more to provide mentorship and experience through their supply chains. Properly evaluated public supported mentoring schemes for SMEs can also be very helpful. For a small business, getting your recruitment wrong can be fatal.”