By Bernadette Spofforth, a CEO with over 20 years international business experience in electronics, consumer goods and leisure.
The impact the Covid-19 lockdown restrictions on the small and medium enterprise (SME) sector of the UK will be devastating on profits and also jobs.
There are 5.9 million businesses in the UK categorised as such, making up 99 per cent of all businesses. Many range from small two man operations, through to much larger businesses with up to 250 employees. The majority, however, are in that micro sector.
Eight weeks ago my co-directors and I took some of the very hard decisions most other SME businesses had to take, to close a profitable business, take the government support offered and hold on tight.
For many businesses, they knew how to do that, they have spent years dealing with challenging circumstances, trying to survive on knife edge cash flows, raising funds, fighting law suits, juggling too much stock after cancelled orders and worse, not having enough stock when they didn’t have the money to fund it. To some, these are familiar issues.
But dealing with banks, applying for loans, arguing with HMRC, negotiating into of and out of personal guarantees (PG’s) and rents are all areas of daily challenges that only a few micro businesses will ever have had to deal with. It was and is incumbent on the government to understand that, to know that legal jargon, applying for loans and even having a business bank manager to contact, are for the few not the many.
By early April, it was clear that businesses were struggling to access the help being offered by the Government, the website was confusing, the information sparse and the language intimidating. Chancellor Rishi Sunak did a pretty good job of making it all sound warm and fluffy, but in reality, no bank was ever going to make it easy. The 80 per cent government backed loans actually meant, if the director defaults on debt and if the bank has explored all avenues, including calling on personal guarantee to recover monies, then the Government would cover that loss. It didn’t provide a safety net, it simply prevented businesses from accessing cash. How could a business owner ever have control over a debt, when they had no control over the virus in the first place?
Furlough payments would take weeks to be paid to companies, putting additional pressure on already catastrophic cash flows for some. Small business owners would have to find cash to pay salaries until the Government did. It was as simple as that.
Bounce Back Loan scheme
The Bounce Back Loan scheme announced on the 27th of April was of huge benefit to many businesses, as were the grants and rates relief, especially for micro business owners who couldn’t fund their own salary and were unable to be furloughed. But many owners, fearful of their first appalling experience, were reluctant to apply.
I decided to offer to advice to SME businesses, all of them who needed or wanted help. Free of charge, I have helped them apply for the Bounce Back Loans, defer their tax, apply for overdrafts and grants, explain cash flow and forecasting and how to Furlough. I even put a 15 point step by step guide on Twitter, in the hope that it would provide an easy reference.
Here’s my advice for small and medium businesses trying to survive the Coronavirus.— Bernie’sTweets (@berniespofforth) March 20, 2020
I am also willing to help small and medium businesses free of charge. So DM me. pic.twitter.com/Y27HyOQN8s
And as I was bombarded with responses, I despaired at the lack of available and easily understood help aimed at this SME sector. It mostly made no sense, much of it was theoretical, often using technical jargon and always expected an SME to have the same financial controls as a FTSE 500 company.
Organisations like the CBI and the Institute of Directors who are supposed to represent the sector, are often out of touch, they are intimidating, unwelcoming and make people feel stupid. I know this first hand, there is a reason why I belong to neither. The information was available on their websites, but how to forecast wasn’t, what do with a cash flow hole wasn’t. Those were the questions I was being asked.
Webinars, networking websites, consultants and Government bodies can churn out all the advice and information they want, but it doesn’t make up for a friendly person with real life experience saying, “let’s see your cash flow” or “chop that bit out” And frankly, many of these businesses don’t have time for a webinar, or a self helpblog, they are too busy trying to cover their costs – especially during the Coronavirus pandemic.
The CBI and the Institute of Directors are removed from the everyday toil of running legacy sector businesses, such as mechanics, window cleaning, small factories, restaurants, even online handbag resellers. They have no idea the very real consequences of a customer not paying, or demanding extended credit terms, so they can’t pay their supplier, or worse, the staff. A referral to a £1k an hour lawyer to write a letter, isn’t the answer. But it’s the one most often suggested.
The answer I have found, is simply allowing these small businesses to lean on each other, competitors, suppliers and even those in completely different industries began to repay me by sharing their own information, for me to pass to everyone else. Sharing templates of furlough agreement letters, risk assessment documents and experiences with avoiding PG’s. No one asked for any money, no one wanted to. They just wanted to help everyone else to survive.
One of the easiest ways for the government to now support these businesses, as they begin to struggle to reopen, is to move the part time furlough scheme into July. This lifeline is intended to help businesses open with fewer staff hours, their salaries then topped up to 80 per cent by a flexi furlough until October. But by bringing forward the date from August as announced, it would mean these businesses could get back on their feet faster.
Vital to the country’s economic recovery
The Government should tweak help still further, at little cost. Take for instance sick pay. The public sector and large businesses tend to offer full salary sick pay, but most SME’s can only afford to pay Statutory Sick Pay at a rate of £18.85 per day. The government has provided Sick Pay relief but only at the statutory level. This will mean staff exposed to the virus, or who think they may have been infected, won’t be able to afford to stay at home and self isolate for 14 days, it simply isn’t practical, which reintroduces risk back into the work place, transport and public spaces. Further support from the Government to top up these sick payments to 80 per cent of salary, would help companies to manage their staff and their businesses better, as we transition back into a fully operating economy.
SME businesses provide half the turnover of the UK’s private sector and with an estimated turnover of £2.2 trillion. They are vital to the country’s economic recovery. They employ 17 million people which is almost 60 per cent of the UK’s total workforce. The directors and owners of these businesses are incredibly knowledgeable, hard working and desperate to survive. Without further help and the correct support, I fear Coronavirus crisis job losses will be even higher than expected.