UK’s SME scene shows resilience in 2021, but financial concerns remain

The “2020 effect” took companies by storm, forcing them to embrace digital transformation and even rethink their business model. And yet, despite the massive recession that everyone expected, reports show that the UK’s Small and Mid-Size Enterprise (SME) scene was mostly resilient to these disruptive times, found ways to adapt, and is optimistic about this year’s prospects. 

According to a recent report, 71% of small business CEOs expect their sales revenues to grow in 2021, and 68% believe that their savings will be enough to get them through the year. Moreover, more than half of respondents said that they expect economic conditions to improve – 44% expect this to happen in the second half of the year. 

However, in spite of this optimistic outlook, it’s not all smooth sailing from here. Small and medium-sized businesses still have many challenges to face, and financial concerns remain a persistent problem. 

A closer look at UK SMEs in 2020 

The number of small and medium-sized companies in the UK has been rising steadily for several years now. In 2020, there were over 5.97 million SMEs, 300K more than in 2018. These businesses had a turnover of £1.6 trillion and employed approximately 4 million people, accounting for nearly half of the total UK workforce. 

Last year, businesses had to make some difficult decisions due to the pandemic: 

  • 43% relied on the furlough scheme to survive the crisis 
  • 30% had to lay off personnel 
  • 29% of CEOs considered shutting down their business 

Lockdowns were the biggest concern for small and medium-sized business owners in the UK, who were concerned that restrictions would affect productivity and lead to a loss of customer engagement. Unlike the rest of the world, UK businesses had another major cause of concern in 2020: Brexit. According to one study, 57% of CEOs expressed concern over Brexit legislation and requirements, and 33% about Brexit process changes for imports and exports. Leaders in certain industries, such as agriculture and the environment, said that they were more worried about the impact of Brexit than that of the COVID-19 pandemic. 

Then, there were financial concerns: 24% of SME owners rated unsteady cash flow and late payments as a top cause of concern in 2021, and 21% worried about consumer spending changes. The industries that were the most likely to be affected by financial challenges include tourism & hospitality, arts & recreation, transport, and retail, where financial distress rose by 50%. Northern Ireland and Northwest England were the most affected, but London also took a big hit due to its reliance on tourism. 

Roadmap to recovery: how can SMEs deal with financial issues post-pandemic?

Although the COVID-19 pandemic was the biggest crisis the business scene has experienced in decades, recovery is possible. In some cases, you may even be able to turn the crisis to your advantage and use it as a launchpad towards new opportunities. Here are a few ways you can cope with the crisis and keep your finances in order. 

Use online tools to monitor your cash flow.

A recent study has found that poor cash flow is the biggest financial concern for SMEs in the UK, and 26% of CEOs have to chase late payments. The most affected sectors were finance, pensions, charity, and volunteering. One major problem arises from the fact that late payments can be hard to manage, and, sometimes, it may take months until you realise that a certain client is affecting your cash flow. To remedy this, use online tools that automatically generate bills, track client expenses, and manage project budgets. This way, you’ll have a clear overview of your cash flow and, if one of your contractors or clients is late on payments, you’ll be able to address the problem before it grows.

If you identify a problem with the cash flow, you can apply this three-step recovery plan: 

Stop the financial bleeding. 

The first thing you should do when experiencing cash flow issues is to perform a rapid diagnostic and see what problem is losing you money. For example, if you suspect that improperly tracked employee time after transitioning to remote work is costing you money, using software for online timesheets can help avoid unnecessary spending. Then, try to fix the problem through a short-term action plan. This can include solutions such as financing (including crowdfunding) and Government programs. During this process, make sure you maintain communication with key stakeholders in your company, such as important clients, banks, and strategic partners. As a short-term solution, you can also cut back on unnecessary expenses (such as tools you no longer use, office supplies, extraneous personnel, office space) and itemise cash flow from week to week.

Stabilise your business by setting priorities and making a plan. 

After you’ve stopped the bleeding in the short term, you need to develop a long-term strategy to prevent that issue from coming back. This starts with understanding why the cash flow issue occurred in the first place, what weaknesses made it possible, and then create a recovery plan to stabilise the business. This can include minor improvements, such as using tools that boost productivity or reorganising the workflow, as well as major decisions, such as the sale of equity, assets, or debt, or changing your business model. 

Implement long-term solutions and track their performance.

Once the plan is set, it’s time to implement it. Once the measures are deployed, however, don’t forget about the importance of tracking progress. Ultimately, if a certain measure doesn’t have the expected impact and KPIs don’t point to any improvement, it may be time to rethink your operations and make additional changes.