Three in ten businesses expect to collapse in the next 12 months, study finds
In this article, we look at which financial support schemes businesses have used, what business leaders think of how the government has handled the crisis and what their plans are for 2021.
By Sabuhi Gard and Rhiannon Philps
All types of UK businesses have been affected by the coronavirus pandemic. Companies have been struggling to survive financially following the nationwide lockdown in March and subsequent regional lockdowns.
In fact, 30% of firms expect to collapse in the next 12 months, according to a study with 534 business owners and key decision makers commissioned by NerdWallet and conducted in October 2020 by independent market research agency Opinium*. It lays bare the plight of many business owners, as they have been forced to deal with numerous challenges posed by the pandemic.
Exactly half of businesses said the lack of a long-term COVID-19 recovery strategy from the government is having a negative impact on them, while 44% believed the government had not provided UK businesses with enough financial support during this crisis.
In an October snap poll, business owner Ruth Bradford, founder of Bristol-based publisher The Little Black & White Book Project, said:
“The government needs to be a lot clearer with its advice. Stop with the multi-tiered rules. They’re too confusing by far and mean that some people end up living life as if the pandemic isn’t happening while others watch their businesses and livelihoods diminish. People need strong leadership not endless indecision and flip-flopping.”
One of the major changes that businesses have had to deal with is the new guidance to ensure that workplaces meet strict coronavirus guidelines. This has all come at a cost to business owners if they want to remain open, as 42% of businesses we surveyed said that their running costs have significantly increased since the beginning of 2020.
Nic Redfern, finance director and business spokesperson at NerdWallet, said:
“This research shows how UK businesses of all sizes have struggled over the past few months, with many relying on government support schemes to stay afloat. However, as it is becoming clear that there will be no quick recovery from the pandemic, businesses are struggling to plan for 2021 and beyond. With many businesses operating at a reduced capacity with some needing to spend more on making their workplaces COVID-secure, there is understandable concern among business owners about their finances and their overall survival.”
What schemes have companies used?
Since the UK-wide lockdown that started in March of this year, businesses have been trying to secure financial support from the government to keep themselves afloat. The government has provided businesses with many options including the Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loans, and the Job Retention Scheme.
We asked, what government financial support packages has your business applied for?
Our study shows that 21% of UK businesses who applied for a coronavirus business interruption loan were successful in securing support through this type of government initiative, in contrast to 14% who were unsuccessful.
A further 5% have applied for a loan from this scheme but are still waiting to find out whether they have been successful. This delay could be due to high demand for funding, excessive administration with the process and a reluctance by lenders to issue the loans to businesses due to the risk that businesses will be unable to repay the loans.
The CBILS is not the only source of funding where applicants are experiencing delays. According to our study, 39% of UK businesses have been left waiting two months or longer to receive funds having successfully applied through one of the state-backed schemes. Businesses have also been making use of another government initiative – the Coronavirus Job Retention Scheme, more commonly referred to as the furlough scheme.
According to our study, 68% of UK businesses applied and were successful for the furlough scheme, whilst only 13% of businesses didn’t apply.
Government not doing enough
Unfortunately, despite the help of the furlough scheme and the new Job Support Scheme, according to our study, 45% of businesses said they were still planning on making redundancies. Furthermore, our study says that 44% of organisations are likely to be employing fewer people in 2021 than they did in 2020.
The reason for possible redundancies being made after furlough is that companies are still struggling to survive in the current economic climate. Many businesses are dealing with a reduction in demand for their product due to changes in consumer behaviour, which not only reduces their income but also means there is less work available for their employees to do.
Nearly half (46%) of organisations surveyed feel the demand for the products and services they provide fell in demand, so it is likely that many are cutting costs from their workforce to try to prop up their business in the longer term.
Even though the government launched a range of state-backed financial support, our study showed over 50% of UK businesses feel the government has unfairly favoured the protection of certain industries over others. Furthermore, our study shows that just a fifth of firms think the government has done enough to support UK businesses through the pandemic.
We asked, how supportive have government schemes been?
UK businesses react
Below is some reaction from small business owners from around the UK, who feel that the government measures have not gone far enough to help UK businesses in this time of crisis.
Their reactions were documented after a snap poll carried out by small and micro business free membership organisation The Great British Bounce Back on October 4 after the Prime Minister Boris Johnson’s interview on the Andrew Marr Show on BBC 1.
**Jonathan Planner, director of the High Wycombe-based head-hunter, Jonathan Planner Associates believes the government is not doing enough to help small businesses:
“The government needs to urgently find extra funds to support small businesses, otherwise the resulting collapse will lead to a massive tax hole in the future plus a phenomenal drain on the public purse in the form of ongoing benefits.”
**Helen Skripek, director of the Derby-based caterer, The Butler’s Pantry believes that the government needs to give specific sectors additional support:
“What’s urgently needed is targeted support by industry sector. Those that can’t open due to government restrictions should receive additional assistance in the form of grants or a tailored government-backed payroll scheme to see them through to Spring 2021. Anything less would be a travesty.”
Bearing these worries in mind, below are some cost-effective tips for businesses navigating the recession.
Eight tips to help businesses to prepare for 2021
- Start your business planning early and be realistic. If you haven’t already, start your 2021 business plan as soon as possible. This will give you more time to create a solid plan of action. It might sound obvious, but make sure you use the past 9 months as a basis for any financial forecasts - this will give you a more cautious projection but will help you to prepare for worst-case scenarios.
- Make the most of government schemes and interest-free loans. Keep an eye on gov.uk for any new government support available to your business, as well as any local support schemes that may be offered. And if you haven’t already applied for the Coronavirus Business Interruption Loan Scheme, Bounce Back Loan Scheme, or the Future Fund Scheme, applications for these schemes have been extended until into 2021, as has the furlough scheme.
- Consolidation of debt. Too much debt is a disaster for any business. Of the organisations we surveyed, 38% have debt to repay but lack a clear plan for how and they will repay it. Debt consolidation could allow you to consolidate multiple debt payments into one monthly payment. This could streamline the process, but be aware that it could increase the overall money you need to pay back. The government-backed loan schemes listed above will offer more favourable terms (e.g. you won’t pay interest for the first 12 months), and some providers of these schemes may allow you to consolidate your existing debts through these schemes.
- Reduce overheads. Look at reducing the amount you spend on office space. Especially if remote working has been successful for your business, this could make up part of your long-term business strategy. However, if you do keep your office space, check that you aren’t being overcharged for your business energy and business insurance. Finally, consider any administration processes that can be automated to save time and costs to your business. An example of this could be using accounting software if you’re a smaller SME.
- Business contracts and terms. Our research found that 40% of businesses are struggling to get out of contracts to reduce their overheads. And although it's not always possible to get out of contracts and you may need to seek legal advice, it's worth taking the time to understand the types of contracts that you have, or plan to enter into, to see if there is anything you can do to reduce costs. The Small Business Commissioner has a useful guide to explain the different types of contracts.
- Take services ‘in-house’. If certain aspects of your team’s roles are slower at the moment, for example an external sales representative who can’t visit customers, you could consider getting existing staff to do tasks that you normally outsourced as a business. This could include social media management, marketing and administration duties.
- Don’t forget your existing customers. When times are hard it's easy to focus on the fact that new business isn’t coming in. However, don’t lose sight of the existing customers you do have. Keep communication going with your customers on any updates to trading through social media and newsletters. And where possible continue with your marketing efforts. These don’t always need to cost the world, and there are plenty of ways to market your business for free.
- Invest in your employees. While money is tight this may not seem like the most obvious point. But by encouraging staff to upskill around this time by shadowing other employees, or by accessing free courses online, they will learn new skills to bring to the business. And by maintaining a good company culture it could make for more productive and happier employees that want to stay with your business longer, mitigating the need to invest money in recruiting new employees due to a high turnover of staff.
Nic Redfern, finance director and business spokesperson at NerdWallet, said:
“Although businesses can’t control the pandemic, there are elements they can control. Firstly, every business should make the most of any government schemes they are eligible for and, if they take out a loan, ensure they have a strategy to repay it back.
“But while planning is vital, flexibility is just as important. With the situation evolving every day, businesses need to be able to adapt to changes in restrictions and government support to improve their chances of survival. Whether that’s researching ways to cut costs or finding new sources of income, by keeping positive and taking action businesses can work to make the best of a bad situation.”
There is no doubt that 2020 has been a tough year for UK businesses, however it is important to remain upbeat, and look at the business factors that you can control to put the best possible business plan in place for 2021.
*Disclaimer: The market research was carried out between 1st and 6th October 2020 among 534 UK adults via an online survey by independent market research agency Opinium. Opinium is a member of the Market Research Society (MRS) Company Partner Service, whose code of conduct and quality commitment it strictly adheres to. Its MRS membership means that it adheres to strict guidelines regarding all phases of research, including research design and data collection; communicating with respondents; conducting fieldwork; analysis and reporting; data storage. The data sample of 534 UK adults were all decision-makers (managers, C-level employees, owners and founders) within UK organisations.
**Snap poll carried out by small and micro business free membership organisation, The Great British Bounce Back on October 4th, 2020 of 310 small business owners after the Prime Minister Boris Johnson’s interview on the Andrew Marr Show on BBC 1.
Sabuhi Gard has over 20 years' experience as a UK national newspaper business journalist. She has contributed articles to the Guardian, Sage, Yahoo Finance UK and Raconteur Media. Read more
Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more