Poll of SMEs
LawBite, the leading online legal platform providing expert and accessible legal services to SME businesses, recently commissioned a YouGov poll in order to gage the impact of Covid loan repayments and the tapering of furlough on the SME sector.
The survey found that the governments withdrawal of these schemes is placing a significant strain on the businesses that provide the backbone to the British economy and contribute towards two thirds of employment.
However, the figures could certainly be worse, and the situation can be improved with the right support from government, larger corporates in SME supply chains and experts in the professional services sector.
It’s not all doom and gloom, and as you will read, many SMEs are prepared to embrace long term opportunities that are being brought forwards by commercial and social change in a post-pandemic world.
Q1. Has the repayment of government COVID-19 loans and/ or tapering of furlough support impacted your business' finances/ cash flow?
We were inspired to conduct this survey after repeatedly hearing from clients that the repayment of COVID loans and tapering of furlough is impacting their cash flow. This concerns us, as we have learned from working with SMEs for many years that cash flow is the number one cause of death for these businesses. This is why the survey begins by focusing on this issue.
It’s apparent in the data that many SMEs are beginning to encounter problems with their cash flow – one in ten cannot afford to repay at least one government Covid loan. Unsurprisingly, this is a particularly prominent issue in the hospitality and leisure sector, which required more government support than any other, where the proportion of businesses unable to repay at least one loan rises to 19%.
With 59% of SMEs using loans or the furlough scheme – amounting to around 3.5 million businesses – this suggests that as many as 354,000 SMEs are feeling the strain on their cash flow.
Q2. You previously mentioned that your business’ finances / cash flow has been impacted by the repayment of government COVID-19 loans and/or tapering of furlough support...How has the repayment of government COVID-19 loans and/ or tapering of furlough support impacted your business?
We wanted to learn more about how cash flow will impact jobs, productivity and growth.
At a time when SMEs need to be integrating more technology in order to be competitive in an increasingly digital world, 40% are currently unable to invest in new technology or products due to the impact of Covid loan repayments and the tapering of furlough. We believe the government can do more by expanding schemes that help businesses improve their technology and digital skills, whilst digital challengers in the professional services sector like LawBite will continue to help businesses streamline their day-to-day activities.
Unsurprisingly, the retail sector has been hit hardest, with 65% of retail SMEs unable to invest in new technology or products, whilst 58% of hospitality and leisure also report the same issue. These are damning statistics for the high street recovery, which requires this type of investment in order to drive footfall.
Employment is also going to be tricky for SMEs, with a quarter reporting that they will not be able to hire any new staff. This is particularly prevalent in the North West – an area which has been hit hardest by infections and restrictions – where 58% of SMEs do not plan to hire new staff (compared to 39% and 37% in London and Yorkshire respectively).
Perhaps most worryingly of all, almost a fifth (18%) of SMEs are making redundancies due to the impact of government loan repayments and the tapering of furlough, whilst 16% cannot afford to pay existing staff.
Finally, the aforementioned figure of one in ten SMEs reporting cash flow issues is likely to grow – almost a quarter (23%) of SMEs are reporting disruption in their supply chains due to late payments caused by the impact of Covid loan repayments and tapering of furlough. In manufacturing hot spots like the North East, this is a widespread issue, where 50% of SMEs report this problem compared to just 13% in Yorkshire. Remember, this survey doesn’t take other issues like Brexit into account, which will only exasperate this problem.
Q3. Which, if any, of the following is your business having to reduce the amount it spends on due to the cost of repaying government COVID-19 loans and/ or tapering of furlough support (Please select all that apply)
At a time when SMEs need more help than ever, we wanted to understand how the repayment of these loans, as well as the tapering of furlough, will impact SME spending.
60% of SMEs will reduce the amount they spend on professional services, with legal services being the lowest at just 11%, underlining how important it is for SMEs to have a lawyer in their corner during these turbulent times.
Almost half (47%) of micro businesses have reduced the amount they spend on PR and marketing, and it appears these businesses are concentrating their expenditure on services that will help them tackle practical issues like late payments – with only 11% reducing legal costs compared to 18% of medium sized businesses.
This trend continues when turning attention to companies with a higher turnover. Larger SMEs are more likely to reduce their legal services expenditure, with those earning more than £10m reducing their legal spend by 25%, whilst just 8% of businesses generating less than £1m have reduced legal costs. Older companies were also more likely to reduce their legal services, further emphasising the importance of legal support for start-ups.
Q.4 Which, if any, of the following changes in commercial activity/ society would help your company grow and thrive in the future?
Beyond the pandemic, we also wanted to explore how long-term commercial and social change could help SMEs grow and thrive in the future.
Further underlining the importance of technology for SMEs, 26% believe that ‘streamlined digital engagement with customers and partners’ will support future business growth. Positively for LawBite, which is streamlining law through technology, there’s a strong appetite for this in the legal sector (51%).
It also appears that Brexit remains on the minds of SMEs, with one in four stating that the most positive change for them would be ‘seamless trade beyond country borders’.
Meanwhile, the government faces an uphill struggle to convince the UK’s SME population of the merits of their green agenda with just 16% of businesses identifying a ‘greener, more carbon friendly society’ as a boost to future growth. It’s vital that policymakers begin to adopt an approach that is pro-business both in terms of policy and rhetoric if they want to get enterprise fully on board with net-zero.
Of course, as the previous polling demonstrated, many businesses simply cannot afford to look too far into the future due to the challenges they are facing now. That’s why the most common response from SMEs leaders was not knowing what change would help their company grow (34%).
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