Despite it being more than a year since the outbreak of Covid-19, it’s still too early to predict the full extent of the damage on the UK economy. As the future was (and still is) uncertain, many companies were forced to make tough decisions regarding their spending based on future expectations. This led to redundancies and mass layoffs, especially across the small businesses that operate in the worst affected industries, such as construction and hospitality.
More than 95% of UK businesses are small and medium-sized enterprises operating with fewer than 250 employees. These businesses make up a considerable proportion of the UK economy. As a result, the financial prosperity of the country hangs in the balance, depending on the success and overall health of these businesses once the virus is finally under control.
Small companies are more likely to operate in sectors that are vulnerable to covid-19 restrictions
Covid-19 is forecasted to cost small businesses over £69 billion, with over 234,000 small businesses have already stopped trading as of May 2020. One of the key drivers for these statistics is that smaller companies are much more likely to operate in sectors that are most affected by the pandemic and social distancing restrictions.
Industries such as hospitality, food and drink, arts and recreation, and construction have all been hit the hardest by government lockdown restrictions, and small businesses are the ones who must bear the brunt of the consequences.
The ramifications of this still remain to be seen as many of the businesses affected are not legally obliged to submit profit and loss statements to Companies House as a larger company would. This makes it particularly difficult to assess the damage from a financial standpoint for the time being.
One of the key difficulties small businesses face is their inability to access affordable funding options that could help to ease cash flow problems; however, this has been mitigated to a large extent by the government furlough scheme, which we will touch upon later.
Poor customer service during the government lockdown will cost businesses over £2.5bn
A recent study found that nearly a third of Brits will refuse to spend their money with a business that provided them bad customer service during the lockdown. The fallout of this is expected to cost businesses over £2.5bn per year in future sales, which signifies the importance of maintaining positive relationships with consumers throughout this challenging period.
The biggest frustrations unhappy consumers reported were:
- Poor customer services (35%).
- A lack of communication channels (31%).
- The need to repeat issues to customer service agents (20%).
It’s clear to see that the companies who prioritize authentic customer engagement and focus on providing a high-quality service will reap the rewards of their efforts for quite some time.
It’s time to get on board with digitization
Thanks to Covid-19, digitization is no longer an option; it’s a necessity. Companies that are too slow to adapt or are indifferent to implementing new technologies will inevitably concede a significant competitive disadvantage to their rivals and may lose customers as a result.
Russ Ruffino, founder and CEO of Clients on Demand, shared his thoughts on the importance of this issue in a recent interview;
“I believe that every coaching, consulting, or professional services company should have a revenue stream that functions 100% online. No one knows what the future holds, or when it will be safe to see clients face-to-face again. Having an offer that is sold and delivered online is a no-brainer for people looking to expand and secure their revenue while maximizing their reach and global impact,” explains Ruffino.
Fortunately, many UK businesses have been quick to adapt to the new consumer demands, with one in five small businesses adopting new technologies. However, one of the biggest obstacles to digitization is finding employees with the requisite skills to ensure a smooth digital transformation. The companies with limited access to funding will find it the most difficult to bridge the skill gap.
The effect of government support
Despite the government coming under heavy fire for the way they handled the coronavirus pandemic (especially during the first wave), the support packages that were made available to small businesses have proved critical to their survival. Even though nearly two-thirds of small businesses saw their revenue decrease throughout the onset of the virus, the vast majority of them now expect to survive, assuming there are no further national lockdowns.
Amazingly, 75% of small businesses accessed financial help through the government furlough scheme, and of those businesses, 98% of them said it had a positive impact on their business. This allowed business owners to keep their employees on the payroll, maintain a healthy cash flow, and focus on adjusting their business practices to meet new business demands.
While small businesses remain resilient amidst the economic uncertainty, their survival still largely depends on the wider government policy, partially regarding national lockdown measures and strict social distancing rules that make it impossible for certain businesses to operate.
For now, it seems as if the government furlough scheme is doing enough to mitigate the losses incurred by small businesses across the UK; however, it’s likely the ramifications of the scheme will begin to manifest themselves in one way or another in the not so distant future.