In less than five weeks’ time, the annual rollcall of the fastest growing firms in Wales will again be revealed in a special supplement published by the Western Mail.
Since 1999, the Wales Fast Growth 50 has been identifying those businesses that have shown the highest levels of growth within the Welsh economy and the 551 firms that have appeared on the lists so far have generated tens of thousands of new jobs and generate nearly £18 billion into the Welsh economy every year.
Such fast-growing firms (or scale-ups) are normally defined by organisations such as the OECD as those SMEs who have reported turnover growth of 20 per cent or more in the previous year (and in each of their preceding two years).
Given that such firms account for a small proportion of businesses in the UK but create the majority of jobs in the economy, policymakers have taken an increased interest in their development and are increasingly looking for ways to support such businesses.
That is why a special report by the SME Finance Monitor - which has been providing robust data on SMEs and their finance needs since 2011 – is worth a read, especially given that a new Development Bank for Wales is being launched next month to apparently help such businesses grow further.
So what does the report show us? As we have seen with the firms that have been listed on Fast Growth 50 for the last eighteen years, scale-ups can be found in all sectors and all parts of the country.
As compared to other SMEs, scale-ups are more likely to be younger businesses although it is also worth noting that a quarter of scale-ups have been trading for fifteen years or more.
Whilst scale-ups are also more likely to have a younger owner, to be family owned and be more profitable, what really differentiates them from other SMEs is the fact that have a higher propensity to be innovative, international and strategically-oriented.
For example, they are twice as likely as their peers to have innovated in the past three years, are twice as likely to be trading internationally as their peers, and are also more likely to produce management accounts and have a business plan than other SMEs.
Whilst most scale-ups are ambitious to grow in the year ahead, this growth will be largely achieved by expanding UK rather than overseas markets, despite the greater propensity towards international activities.
In terms of the key barriers to the businesses, scale-ups identify recruitment and retention of staff, cashflow, availability of advice and management/leadership skills as barriers. Unfortunately, very few of these issues are being dealt with by business support organisations within the UK or Wales.
Given that they are by their very definition growing firms, scale-ups are slightly more likely than SMEs to be using external finance and business funding, mainly for plant and machinery, premises or international growth.
However, what is surprising is that four out of ten choose not to access external funding and those that will be seeking finance stating are less confident than other SMEs that their bank will agree to their future requests for funding. This suggests that more needs to be done to understand the reasons behind such a decision and ensure that owner-managers of scale-ups are fully aware of the options available to them from both the private sector and government bodies.
Therefore, the study shows that whilst growth firms are ambitious, innovative and internationally focused, a significant proportion are still unwilling or unable to seek the external finance they need to grow further.
Certainly, the new Development Bank of Wales will have to make a far greater effort than its predecessor Finance Wales in developing the right approach to helping many more Welsh firms to scale up by providing affordable growth capital.
And unlike Finance Wales did for most of its existence, it will need to work closely with business support organisations in both the private and public sectors to ensure that in addition to funding, growth firms get access to mentoring and advice that is relevant to their business as it develops.
This approach has proven to be enormously successful across the Atlantic where both the Small Firms Administration in the USA and the Business Development Bank of Canada have utilised both capital and consultancy to help local firms.
Given this, one can only hope that a similar strategy is adopted here in Wales by the new Development Bank so that scale-ups across the economy will finally get the financial and business support they need to grow further.