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How to create a growth economy for small businesses

Written by Gary Turner on Monday, 23 August 2021. Posted in Growth, Finance

The UK economy is facing a difficult road to recovery. The impact of the pandemic and the cycle of lockdowns that came with it has had a devastating impact on our small business community. But, there is now hope on the horizon.

How to create a growth economy for small businesses

The UK economy is facing a difficult road to recovery. The impact of the pandemic and the cycle of lockdowns that came with it has had a devastating impact on our small business community. But, there is now hope on the horizon. 

Recovery is underway and our platform data showed tentative signs of sales growth amongst UK small businesses in June - growing 6.5% y/y. Although that’s still below pre-crisis level, it’s the strongest performance in the last three months. Whilst this is a positive step, small firms have still got a fair way to go to get back to 2019 growth levels. 

Small businesses will be the ones creating new opportunities and driving growth over the next year. That’s why it’s essential we all work together to create an environment which accelerates their growth. But where do they start?

Driving greater technology adoption  

We’ve already seen the transformational role digitisation can play during the pandemic. It’s been critical in helping firms get, sell and operate online, be ready for future disruption and work remotely. For many, it’s been a lifeline in helping them to adapt and survive.

In the longer-term, technology will help businesses to boost productivity, reduce manual tasks, reach new customers, expand their reach and so much more. But many still aren’t using it. We need to close the digital divide that still exists between many firms. 

This means a greater focus from the government - and the Small Business Commissioner in particular - on promoting the benefits of  technology, writing off digital tech investments for SMEs and increasing R&D tax credits to include digital tools. 

Creating  fairer trading conditions 

Late payments can be the difference between life and death for many small businesses. We’ve seen first hand the devastating impact disrupted cash flow can have on firms. If we want to create growth amongst our small business economy we need to put an end to late and unfair payment practices.

Our research shows that some corporates actually increased payment terms for SMEs during Covid lockdown last year. That’s why a far bolder and enforceable approach is needed. At Xero we’re calling on the government to create a ‘fair buyers bill’ which would mean legislating 30 day payment terms for all businesses and encouraging prompt payment across big firms.

Accountants as essential business partners 

Now more than ever, accountants have a vital role to play in supporting small businesses. Our research shows that 43% of SME owners said their accountant was crucial to their pandemic survival. They’ve been helping businesses get to grips with government schemes, managing cash flow, scenario planning - the list goes on. 

In the future they will be critical in helping drive digitisation amongst small businesses and helping them to navigate challenges around things like Brexit and the new digital tax rules (MTD). There are 22,000 accounting firms  on the ground ready to support. As a start, the government needs to run a campaign to encourage small businesses to work with an accountant if they don’t already.

Strengthen local business communities 

Local business communities must be strengthened. The pandemic has shown that business can take place all over the country and not just in major cities. New hubs are emerging and new technologies and ways of working will mean businesses can expand their geographical presence into new areas. 

But to level the playing field the government must improve gigabit digital access, introduce a reform of business rates and support regional economies more effectively. 

Boost technology skills amongst small businesses

Despite strong technology uptake over the last year, many small businesses and entrepreneurs are struggling with the skills to support this. We need tech skills development to grow at the same pace as emerging technologies to see the full benefit on our economy. 

To help small firms get the critical skills they need, we need to see the government give tax relief to train and reskill business owners in essential digital, financial and business management skills. 

Making some of these changes will go a long way in helping small firms to quickly recover and rebuild. Now is the time for the government to ensure small firms are prioritised in the next phase of our economic recovery.  

About the Author

Gary Turner

Gary Turner

Gary Turner is co-founder and managing director at Xero UK and is responsible for Xero's business operations across Europe, Middle East & Africa. Under Gary's leadership, Xero UK has scaled from a three-person startup with annual sales of £50k in 2009 to revenues of £110m in 2020.

A visionary on SaaS and technology, Gary is renowned for his trend spotting. He’s loved tech since he started coding on a BBC micro computer in his parents’ attic in the 80s. Gary is also passionate about small business, being an active investor in startups with a passion for building better businesses.

A 25-year veteran of the UK’s software industry, Gary joined Xero shortly after its UK launch in 2009. A native of Glasgow, Scotland, he has previously held senior positions at Microsoft, Systems Union and Pegasus Software. He's an engaging speaker, writer and thought-leader on startups, digital transformation and leadership inside hyper-growth organisations. Gary has also served as a mentor to early-stage fintech startups at TechStars London.

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