Thursday 18 February 2021 6:30 am

Tracking the pandemic’s impacts on small business

Save our SMEs
Helen Brand is the chief executive of ACCA

Next week the Government will provide an update on the lockdown exit plan with a much-speculated upon roadmap to recovery out of the pandemic.

This roadmap needs clear signposts and barrier-free routes to help small and medium enterprises (SMEs) recover. It has been a turbulent year for them, evidenced in results from the ACCA UK and The Corporate Finance Network (The CFN) SME Tracker since last April.

This rolling poll tracks the responses of ACCA members about the state of their SME clients’ prospects and finances.

Through their connections with the SME community, we’ve gathered accountants’ feedback about 1,000s of their clients’ experiences and opinions during this pandemic year. It’s a startling picture of resilience – and of despair and loss too.

Many of the accountants who have taken part in the Tracker are small businesses themselves – what we call Small to Medium Sized Practitioners (SMPs). They understand and experience very keenly the shocks of economic activity because they’re at the coal face. They see and hear first-hand from their clients the challenges – and opportunities – experienced.

They work alongside SMEs, finding solutions and offering advice on a wide range of issues to help them survive including tax, company law, payroll, trade regulations and business continuity.

Over the months, their feedback has revealed just what SMEs have had to face over 2020 – and that’s the struggle for survival.

Looking back over the Tracker’s results helps us plot a way forward – we can learn from the issues they’ve had to face and hopefully find policy decisions to mitigate them.

Big decisions

SMEs have had to make huge choices – such as folding their business. Our Tracker first noted this in May 2020, and our latest poll showed even more SMEs making the decision to fold. Anecdotally, this mid-February jump in business closures is thought to be concentrated in certain sectors which have been hit hard in the pandemic, including construction, hospitality, retail and microbusinesses where many directors have received little or no financial support from the Government.

In April 2020, we saw SMEs trying to plan for business survival and manage cashflow. These have remained consistent themes across the Tracker. Around the same time, the introduction of Coronavirus Business Interruption Loans (CBILs) were welcomed, but we witnessed SMEs struggling to apply and secure the funding they needed to stay afloat. Businesses were thankful when the subsequent Bounce Back Loans were announced which made the application much easier for many.

The Coronavirus Job Retention Scheme provided some welcome relief in late April, but as the months progressed into the early summer, we saw how SMEs’ wellbeing was being impacted very profoundly.

Throughout last summer, practitioners said that around a quarter of clients were losing sleep over business concerns. This strain on business owner wellbeing has persisted into 2021 with 40% of practitioners in January reporting that clients’ deteriorating mental health and stress was interfering their ability to comply with company filing deadlines. 

Late summer saw supply chains under strain, and with the second lockdown in the autumn, results revealed staff were being furloughed. At that time, many small businesses did not have a clear view of their future, with ACCA UK and The CFN calling for a second fully inclusive bounce back loan to help SMEs move forward and plan for recovery.

In December, SMEs were concerned about their tax deferral payments, and in the new year it was clear that the start to 2021 was tough due to the winter lockdown and the reality of new Brexit trading rules.

Our 11 February Tracker results showed concerns about imminent legislative changes when a substantial figure of 8.5% of small firms said they would be affected by new off-payroll (IR35) rules, which come into force for the private sector on 6 April. This is expected to dampen the flexible contractor market when many businesses need flexibility, as companies become responsible for determining the tax status of contractors, meaning extra workload and a risk of penalties.

The way ahead

Looking ahead, SMEs face a raft of regulatory changes and refinancing deadlines in the coming months and weeks. For example, as things currently stand, they have until the end of March to apply for Bounce Bank Loans, CBILS and CLBILS (Coronavirus Large Business Interruption Loans). Many that have already taken out the loans are not yet able to confirm with lenders that they can extend terms to secure more manageable monthly payments while their businesses remain mothballed. Wage costs will increase from 6 April with National Minimum Wage rates rising around two per cent.

With concerns about SME owners’ welfare rising, we wait with keen anticipation for next week’s announcement, especially whether the furlough scheme, which is due to close at the end of April, will be extended. We want to see a focus on policies that help existing and new entrepreneurs, including business recovery, sustainable business measures and export improvements.

We know this is a big ask. It may well test to the letter the Chancellor’s comments last March that he and the government would do ‘whatever it takes’ to get through the pandemic. They have innovated with supportive policies. But the pressures a year on are more intense than ever.

We’ll be watching and listening attentively, and we’re sure many small business owners and their accountants will too.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.