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.
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