Caroline Plumb OBE, serial entrepreneur and founder of cashflow management app Fluidly, examines the current plight of small businesses and calls for action
Caroline Plumb OBE, serial entrepreneur and founder
of cashflow management app Fluidly, examines the current plight of small
businesses and calls for action
How many times have we used the phrase “uncertain times” in recent years? It’s just one thing after another. Covid-19 rapidly followed another season of terrible flooding that at the time threatened to be the year’s bête noir for small businesses.
Fortunately, as business owners, we’re a resilient bunch. You don’t decide to go it alone and learn to juggle every aspect of a larger, established business on your own without serious mettle. Sales, marketing, finance, HR, product design, we’ve all been there.
Yet while we’re used to the sleepless nights and being responsible for other people’s livelihoods, we’re at a critical moment that could hardly have been imagined just weeks ago.
I was already concerned before the first confirmed Covid-19 case. At Fluidly, the cashflow management business I started to help small businesses avoid having no cash in the bank, we’ve been able to see a gradual slide into business overdrafts over the past 12 months.
You will all know where you are and how much cash you have in the bank, but predicting how that will change over the next 90 days and beyond is key.
Covid-19 has inevitably sent things spiralling out of control for many, making the need for tighter cashflow control greater than ever. But the signs were there months before as the country lurched through Brexit and then a General Election.
Heading into the Red
While there’s nothing wrong per se with being in your overdraft - after all it can be a handy funding tool - the position is stark. Overdrafts are really there to be temporary facilities, to provide for occasional shortfalls and cashflow squeezes. A business shouldn’t be in overdraft every month.
Term loans or instant working capital are better options and you can find cheaper or more guaranteed finance if you have the right information in good time. Clearly almost nobody could have predicted the impact of this virus and now the government-guaranteed loans, if delivered urgently, provide a sticking plaster for a gaping wound - with loans needing to be repaid and reports of owners being asked to offer personal guarantees.
We researched nearly 20,000 small businesses between March 2019 and February 2020 and by the end of February one in five businesses were in the red. In March last year the figure was 14% across the UK for our unique dataset. By February it had risen to 18%. I now dread to think of the number we’ll see once we can collate figures for March.
For 10 out of the last 12 months, this number went up, meaning more and more businesses have been relying on overdrafts to keep the lights on. Worst hit regionally were, Southampton (23%), Preston (20%), Lincoln (18%), and Manchester and Peterborough (33%) where around a third of businesses have had to resort to their overdraft to survive.
Food and drink makers, product manufacturers, and farmers, have fared least well over the period, suggesting that those that invest large amounts up front have been struggling badly. The seriousness of the situation was highlighted by supermarket chain Morrisons announcing it would pay its suppliers immediately to help keep them afloat.
Early signs of the Covid-19 impact can almost certainly be seen in February’s figures, with bars, hairdressers, restaurants, and retailers’ figures rising significantly. Taking bars as an example, just 11% were using their overdraft a year ago, but 12 months later the figure had risen to 21% - and this was before enforced lockdown. The segment encompassing hairdressers and other beauty treatment businesses leapt from 13% to 22%.
As business owners, late payments are the bane of our lives and this situation is only likely to be deteriorating too as every business seeks to conserve cash. We can only hope, like Morrisons, larger businesses recognise the impact this will have on their supply chain and do their bit to protect their smaller peers.
Dealing with disaster
For cafes and restaurants, independent retailers, and all sorts of other businesses, these circumstances could be disastrous. But it’s the professional services sector too that is perhaps less visible. Fluidly’s data suggests around a million of the UK’s small businesses have no cash in the bank. Those that are unable to generate revenue would struggle to survive more than a month without any government support - and many still won’t.
Together, the 100% business rates relief for retail properties, VAT deferral, job retention scheme, and grants go a long way, but it’s not enough for the agencies, creative businesses, technology and software companies.
We have seen a noticeable increase in enquiries for funding via our app. And while it is pleasing we’ve been able to match businesses with relevant products from a range of financial providers within minutes, the pressure needs to find a release valve.
Over the coming days, weeks and months we need to see support for small businesses increase still. These remain treacherous times.