HALF of all businesses are operating out of people's homes, sustaining around one in five private sector jobs.

But far from being simple cottage industries, the companies are helping power the economy and are turning over more than £19 billion a year.

A new report has uncovered the crucial part played by the smallest of companies in Scotland's financial health and revealed the extent of their activities in supporting the job market.

The survey, by Professor Colin Mason from Adam Smith Business School at Glasgow University and Dr Darja Reuschke of St Andrews University, was conducted on behalf of the Federation of Small Businesses (FSB) to give a clear picture of the 188,000 firms being run from people's houses .

It found that almost two thirds of home-based businesses employ at least one member of staff, and operate across every sector of industry and in all parts of Scotland.

The FSB studied data from almost 1,000 business owners, four out of ten of whom were home-based while a further one in five owned businesses that grew out of a start-up from their place of residence.

More than more than half of Scotland's home-based businesses have been established for ten years or more, and while three quarters of these enterprises turn over less than £100,000 a year, three per cent generate more than £500,000.

The biggest concentrations are in catering, leisure, tourism, hotels and entertainment, along with and providing business services.

Smaller clusters were found in creative services and construction, while up to six per cent of all enterprises in engineering, real estate, and health and social work are based in the home.

The study also found that, for the majority of businesses owners said that turning their backs on traditional offices and shops was convenient for their business model and helped them reduce costs.

Caroline Wylie has been running her business Virtually Sorted from her home in the Southside of Glasgow for ten years. She said that with modern internet technology there was no need for many people to physically head to an office each day.

The firm carries out admin work including marketing and typing, and manages social media sites for clients remotely and employs 20 people working from home offices across the UK.

She said: "Business has changed a lot in the last ten years and you no longer need to have a physical office space where people are waiting around to be given work.

"We can do it all through email or across the phone, and our staff are spread from the Highlands to Cornwall. I've not even met some of them face to face, but they all have to pass our tests and work to the same standard.

"Traditional business owners with a bricks and mortar office are used to having people physically on hand, so it can be a bit of a mind-shift.

"But more and more firms are turning to companies like ours because it can save on the cost of hiring full-time staff when we charge by the hour."

The report calls on local government, regulators, banks and enterprise support agencies to stop ignoring home-run firms and adapt their approach to better meet their needs.

Professor Colin Mason said: "Policymakers have been slow to appreciate the importance of home-based businesses to the Scottish economy. This report shows that Acacia Avenue is as much the home of entrepreneurship as any business park.

"These are serious businesses, accounting for 10 per cent of private sector turnover and 17 per cent of private sector employment. If our economic salvation lies in broadening and strengthening our small business base, we ignore their contribution and their needs at our peril."

Andy Willox, the Federation of Small Businesses' (FSB) Scottish policy convenor, added: "The sheer scale and diversity of this sector means that regulators and local authorities need to make sure that their policies and regulations are right for those based in the home. We also need to tackle these firms' biggest bugbears: unreliable broadband and a lack of suitable finance products."