UK SMEs have been severely impacted by the pandemic, but there are grounds for cautious optimism about the future.
The coronavirus pandemic has caused large-scale disruption for individuals, businesses and societies as a whole. The UK is now facing its deepest recession in its history with job losses rising at the fastest rare since records began and the biggest rise in unemployment in over a decade. For many UK small and medium businesses (SMEs), this year has been the most difficult business environment they have ever known ‘ so it is hard to blame them for feeling quite pessimistic about the future.
But that’s precisely why the results of our Economic Recovery Survey into trading conditions for SMEs are interesting. Over seven in 10 (71%) SME decision-makers are positive that they will still be trading after Christmas, which is an indication of their resilience in the face of the challenges posed by the pandemic. What’s more, one in four plans to hire new employees and 40% expect to retain their workforce during this period.
Some encouraging early signs
SMEs have been prompt to adapt and tailored their business to the disrupted environment. To use one of this year’s most popular expressions, they have pivoted in response to the pandemic.
Two-thirds (68%) of respondents to our research said they had rethought their business model due to the crisis. This could include reducing their product or service range (32%), making changes to their supply chains (30%), and transforming their sales and marketing strategy to directly target customers (28%).
SMEs have also significantly adjusted their working practices. Over two-thirds (67%) of SMEs have had to rethink their operating model due the pandemic. In many cases, this has meant implementing a mix of remote working and working in the office (40%). 37% of businesses have asked staff to take on new responsibilities and expand their skillset while 30% have reduced weekly working hours.
A challenging time for SMEs
Back in April, a survey reported that a fifth of firms did not have enough cash to survive for the next four weeks. Our research certainly confirmed that SMEs have taken a knock during the pandemic. Revenue for SMEs has been down 6.6% on average over the last six months, with smaller businesses (organisations with 10-19 employees) being the worst hit. On average, their revenue has been down 13.1%.
It is also clear that, despite some encouraging early signs, many businesses continue to anticipate potential difficulties. This is particularly true for sectors and businesses (e.g. hospitality, leisure and retail), which have already been disproportionately affected by the Covid-19 shock, and for which further restrictions in the winter months could lead to additional job losses and permanent closures. In fact, a third of SMEs already expect to make some employees redundant in the next three months.
Cautiously optimistic about economic recovery
While SME decision-makers are fairly confident in their businesses’ ability to withstand challenges, they appear to be slightly more reserved when it comes down to government policy. Less than half (48%) say that they feel confident that the government’s Winter Economy Plan would continue to drive economic recovery to spring 2021. This suggests that the government could do more to get the country back on its feet and protect the fragile economic recovery, especially in sectors such as hospitality and retail, which have particularly been affected by the devastating effects of the pandemic.
Measures that SMEs would find the most beneficial to help their businesses and overall economic recovery include providing employer grants to support a rebuttable (25%), outlining business tax plans for the next two years to provide certainty for all businesses (24%), and completing on trade agreements with other countries (24%).
Changes for the post-pandemic world
It is difficult to predict exactly what life will look after the pandemic, yet it also seems very unlikely that we will go back to what we used to call business as usual. Looking towards the future, SMEs certainly plan to keep some of the changes brought by the pandemic. A third (33%) of businesses expect to continue remote working in some shape or form. Nearly a fifth (19%) expect to continue delivering new products or services and continue asking staff to take on new responsibilities to expand their skillset.
2020 has not been easy for small and medium businesses. They have had to work hard to protect their business, adapt their ways of working, and find new ways to bring in new revenue under extreme financial and time pressure. Whether we like it or not the road to recovery will be slow and paved with challenges, particularly in service-based industries, and if they are to survive ‘ and eventually thrive again ‘ businesses must plan accordingly.
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