What does the future hold for small businesses?

Small businesses in certain sectors have felt the brunt of the impact from Covid-19. While significant opportunities now lie ahead, other challenges can no longer be overlooked.

Often referred to as the engine room of the economy, small businesses are a crucial part of our society, contributing more than half of UK turnover and employing 60 per cent of all private sector workers. But many have had an incredibly challenging 12 to 18 months, relying on sound financial advice and planning to see them through extraordinary disruption.

Nearly two-thirds of entrepreneurs told a King's Business School survey last autumn that their business might not survive the persisting pressures of Covid-19, while more than half predicted they would run out of money within a year. According to the researchers, this could put over 16 million UK jobs at risk, particularly as support measures are phased out.

In particular, government measures like furlough, business rates exemption and deferred VAT payments – introduced to support companies through the worst of the pandemic – will gradually come to an end after the 19 July ‘terminus date’ in England’s unlocking. The pressure on cash-strapped firms is likely to intensify, even with Covid restrictions eased.

The most affected companies, financially, during the pandemic have, of course, been those with the most restrictions placed on them. Government figures show around a quarter of UK businesses operate in the retail, hospitality, transportation, arts and recreation sectors, which have been decimated despite employing 36 per cent of all private sector workers. Meanwhile, the not-for-profit sector has suffered from a huge drop in donations and funding.

That’s not to say companies in other sectors haven’t been impacted, however, havoc has reigned through nearly all supply chains that small businesses rely on, while even just the transition to remote working has forced companies to amend working practices and often even adapt their entire business plans as workforces have been far more fragmented. From a financial planning perspective, Ascot Lloyd has experienced a large spike in enquiries.

Mike Palmer“Initially, a lot of employees were seeking reassurance, particularly around their pension funding,” says Mike Palmer, Corporate Regional Manager at Ascot Lloyd. “Then, the pandemic caused people to pause and think about their financial plans. Do we need to review our finances? Do we need to rebuild for the future? We’ve seen huge diversity in the type of enquiries, both from small business owners but actually probably more from the employees of those companies. What happens to my pension? Am I on track with my pension? Unfortunately, we've also had some conversations with regard to protection. What if I lose my job? What if I become ill? We've been very busy fielding those sorts of enquiries.”

In the small business space, especially, there is often significant interdependence between business financial planning and personal financial planning. This has been more evident during the pandemic, though somewhat turned on its head. While traditionally small business owners would leverage their company finances to support their personal lives, in the last 18 months many have lent on their personal finances to keep their businesses alive.

Small businesses do not typically have the cash reserves of their larger counterparts, nor the ability to raise funds quite so easily as was perhaps possible in the more distant past, before the last global financial crisis in 2008 caused banks to stiffen their risk profiles. Meanwhile, some small business owners have had to take a long hard look at their exit strategies or succession plans which just a couple of years ago were so clearly crafted.

“A lot of these plans have just been shot out of the water in the last 12 to 18 months,” says Mike Palmer. “They've either had to tighten the belts from a business perspective, or the money they were looking to extract has not been there because they've had to retain the capital within the business or redirect it to other projects. Many capital expenditure projects have also been put on hold for the same reason. For small business owners, it has dramatically affected their personal financial plans, particularly in terms of later life retirement planning, because the funds, or mergers and acquisitions (M&A) buyers, they thought were going to be available are now not.”

If the pandemic has taught us anything, however, it’s that things can change extremely quickly. So long as the UK remains on its path back to normality, economists now expect a rapid bounce back, particularly in the sectors most damaged by the pandemic. This means the small businesses which have survived the disruption, thanks to their nimbleness and agility, now have a great chance to ride the waves of the economic rebound. In an M&A sense, that could mean big opportunity for small businesses that have proved resilient.

But small businesses must not mistake an end to the Covid-19 pandemic with an end to business turbulence full stop. We live in a time of perennial disruption, and one other great disruptor has been lurking beneath the surface: Brexit. As companies now seek to enter a period of recovery and growth, it’s vital they understand the implications of Brexit on their business, and apply the same energy and adaptiveness that they have to the pandemic.

“We've all been so focused on Covid that Brexit has been pushed to the back seat,” Mike Palmer adds. “We've already had some particular cases where small businesses are overwhelmed by the red tape and additional cost that's been passed on to them because of Brexit, and that’s only going to evolve further over the next six months. As businesses start opening up more, reengaging with their supply chains and exporting to the EU, some could have quite a nasty shock. Ascot Lloyd is here to support you through all financial planning challenges.”

If you are a small to medium sized business owner or any members of your family are and would benefit from business financial planning as well as personal financial planning, our Corporate team of advisers can help you achieve your financial goals. For more information please contact your Ascot Lloyd financial adviser directly or request a call back by completing the form below and a member of the team will be in touch.

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