You could forgive UK small and medium businesses (SMEs) for feeling a little pessimistic about the future, given the year we’ve had. For many, this year has been the most difficult business environment ever known.
But the results of the Economic Recovery Survey from October 2020 are encouraging. More than seven in 10 (71%) SME decision-makers are confident that they will still be trading after December — this is a testament to their resilience in the face of the challenges posed by Covid-19. What’s more, one in four leaders plan to hire employees and 40% expect to retain their workforce in the next three months.
What’s the cause of this optimism?
It appears that SMEs have adapted to the disrupted business environment. To use one of this year’s most popular expressions, they have ‘pivoted’ in response to the pandemic.
Two-thirds (68%) of survey respondents have rethought their business model. Changes to business models include:
- Reducing the product or service range
- Making changes to supply chains
- Transforming sales and marketing strategies to directly benefit customers
Another major adjustment relates to working practices. Over two-thirds (67%) of SMEs have had to rethink their operating model due to the pandemic. In many cases, this has meant implementing a mix of remote working and working in the office. Some firms have asked staff to take on new responsibilities and expand their skillset. Other firms have reduced working hours.
2020 has certainly tested us. Back in April, The Corporate Finance Network reported that a fifth of firms did not have enough cash to survive for even one month. Our research certainly confirmed that firms’ top lines have taken a hit 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, small business revenue has been down 13.1%.
Many SMEs continue to anticipate challenges. A third expect to make some employees redundant in the next three months.
While SME decision-makers are confident in their own businesses, they appear to have reservations about government policy. Less than half (48%) felt 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 protect the fragile economic recovery, especially in sectors such as hospitality and retail, which have been badly hit by Covid-19. The best thing the government can do is reduce uncertainty as much as possible by pausing business regulation, setting out tax plans for the next two years and outlining a long-term economic strategy.
During this pandemic, UK SMEs have proved, once again, that they are the backbone of our economy. In fact, they are one of a few bright lights at this very difficult time.