As we gradually emerge from beneath the shadow of COVID-19, many small businesses are struggling with the burden of unexpected debt. Disruption to supply chains, reduced customer demand and costs associated with essential business adaptations to the ever-changing pandemic conditions have all been major factors contributing to the heavy financial burden experienced by SMEs over the past 19 months.

Number Crunching

Bank lending to small businesses hit over £100bn in 2020 with nearly one third of businesses accessed grant funding compared to just 2 per cent in 2019. Overdraft applications “flatlined”, despite gross bank lending to SMEs rising by 82 per cent to £104bn.

Smaller outfits certainly seem to have been hit the hardest with the National Federation of Small Business reporting that 95% of small businesses said that they had suffered negative effects as a result of the pandemic. This is especially impactful considering that the research was conducted in March 2020, before the worst hit.

With the height of the pandemic lasting far longer than many businesses could have originally anticipated or prepared for, it’s perhaps unsurprising that by March 2021, almost half (49%) of sole trader and self-employed businesses reported a fall in turnover.

Despite Government lending, many small businesses have continued to struggle throughout the past year especially those in hard-hit sectors such as travel and events.

Integrating Risk into your Business Model

With every unforeseen event, there are valuable lessons that companies can learn in order to build a stronger, more resilient business model and safeguard against future disruption.

This means understanding that risk management should be an integral part of your business model. It also means recognising that the pandemic has rendered many traditional financial risk strategies less effective.

First of all, you will need to understand exactly how much impact the pandemic has had on your business. You should include a review of your profit and loss statements both pre-Covid and over the past 19 months and draw on key comparisons. Identify any areas where you have significantly adjusted your business process – e.g., ecommerce relying more on digital footfall than physical sales – and the subsequent impact on your wider financial picture.

Conduct a thorough SWOT analysis and review your competitors, especially those that have successfully adjusted to post-pandemic conditions. Stay abreast of new and emerging trends to identify opportunities that may not have existed pre-Covid and will ensure your business moves forward with optimum futureproofing.

Cash flow forecasting is one important way to manage liquidity and establish tailored responses to your company’s unique “what if?” scenarios – you can read about this in more detail on our recent blog post. Effective cash flow management will give companies a full picture of their financial position including identifying areas where cash can be saved and generated.

Funding and Loan Applications

Effective cash flow forecasting will also help to identify opportunities for funding, which may be the most effective recovery route for some small businesses. Business loans are extremely competitive right now, so make sure to complete thorough research to find the deals that offer the best return on investment and avoid unnecessarily high-interest fees.

The Recovery Loan scheme still remains a valuable option for many businesses. Available until 30 June 2022, it supports access to finance for UK businesses as they grow and recover from the disruption of COVID-19. As we head further into the post-Covid era, the conditions of the scheme are changing

While it previously provided Government-backed loans from £25,000 up to £10m with interest rates capped at 14.99%, new applications from 1 January 2022 will be eligible for a maximum of £2m per business. They will also be able to seek invoice or asset finance worth between £1,000 and £2 million per business.

Overdrafts and invoice finance facilities will be provided for a maximum of three years, while loan and asset finance facilities will be available for up to six years. The UK Government will also guarantee 70% of all funds provided to lenders compared to 80% previously guaranteed. In addition, the scheme will be open exclusively to SMEs.

Restructure Your Budgets

While it may sound counter-productive, some SMEs may actually need to “spend money to make money” when it comes to effective economic recovery. If you’re running a company that has been required to significantly readjust processes in the wake of COVID-19, examine the situation through a longer-term lens.

This might mean investing in marketing and/or recruitment efforts to ensure that your business effectively adapts to the new conditions and optimises the chance of long-term profitability. The good news is that effective cash flow forecasting may help to uncover areas where you can cut costs and redirect budgets to more valuable means.

Managing Absenteeism

As is always the case with strategic business planning, you will also need to consider the importance of your people. Research by CIPD shows that stress-related absence has increased significantly in the last year while mental health related absence remains one of the most common causes of long-term sickness absence in UK workplaces. Work-related stress, depression or anxiety accounted for 44% of work-related ill health and 54% of working days lost, in 2018/19 (HSE, 2019).

Poor mental health is linked not only to increased absenteeism and presenteeism but also higher staff turnover and reduced engagement, all of which can be catastrophic for small businesses at the best of times let alone as we emerge from the pandemic. Companies need to implement both preventative and management methods to minimise the impact of mental health on ongoing business profitability.

Offering protection insurance as part of an attractive employee benefits package is one way to both protect your business financials and create a supportive working environment. When choosing your benefits, it’s important to consider the size, age and other unique demographics of your workforce and business to gain the best return on investment. Income protection is one of the most popular and fast-growing protection options while private health insurance and critical illness cover can also prove invaluable.

For support with financial planning, cash flow forecasting and investing in protection insurance for your small business, contact our team today.

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Disclaimer: The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Corporate or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.