UK SME Tracker: Sage's industry insight into COVID-19
The severity of the COVID-19 pandemic, and necessary Government restrictions to curb the spread, has thrown millions of the UK’s small and medium sized businesses into a period of uncertainty, and in many cases, hardship. The Government has announced a series of sweeping, comprehensive and extraordinary measures for businesses to help them weather the storm
Sage is a large tech company and provider of software to support one million UK Small or Medium Sized Enterprises (SMEs). 50% of private sector businesses rely on to pay their people and we are working around the clock to support customers through this pandemic.
To stay close to businesses claiming Government support and to understand the impact on the wider economy, Sage have been regularly tracking SME sentiment and sharing updates with key stakeholders throughout the crisis on a weekly basis.
WEEK 9 RESULTS - W/c 18 May 2020
Last week, the Government provided clarity on its three-phase strategy for gradually lifting the current restrictions and re-opening the economy. It also announced a more flexible furlough scheme from August through to October providing greater medium-term reassurance to the huge number of SMEs depending on it. As businesses digest the changes, Sage has taken the pulse of the SME community to understand how they are adapting.
Week 9 of Sage’s SME Sentiment Tracker showed SMEs were still severely impacted by the pandemic and identified a dramatic reduction in productivity caused primarily by social distancing measures and lower consumer demand.
Businesses are therefore being forced to start to make some critical decisions in the coming weeks, with more than half of SMEs considering redundancies and 42% planning to cut expenditure on workplaces.
Technology will be essential to helping businesses pivot into an undefined period of operating within social distancing restrictions, and with the ever-present threat of a return to full lockdown.
SMEs also believe there is no easy solution around the corner with more gearing up for a longer term outbreak. Total preparedness for a six-month outbreak has risen by 20% since the beginning of the pandemic to 56% and 90% believe a second spike in the pandemic is likely.
The impact on productivity, sales and operations is still acute, with 76% of SMEs surveyed having witnessed decreased productivity due to the current social distancing guidelines.
Social distancing guidelines are having a dramatic impact on productivity and commercial performance. 76% of SMEs say the measures are decreasing their productivity in some way - to an average of 13%.
So clearly, while 70% of SMEs agree with the government’s latest messaging and the social distancing restrictions, these same restrictions are having a significant impact on businesses’ performance. Almost half of SMEs say this is the primary reason for their sales decline, while 30% attribute it to low consumer demand, 17% to supply chain issues and 10% to low staff numbers from furloughing. Despite the Government having published its plan for the gradual re-opening of the economy, SMEs do not expect sales levels to change in the next few months. 34% of businesses expect that their businesses will still be making less than 50% of their normal level of sales in July.
And when it comes to working within the new guidelines, 32% of SMEs surveyed are not feeling confident they will be able to keep their workforce safe over the next three months, while adapting to the social distancing measures, even after the implementation of the new Government guidelines to support safe return to work.
Only half have shared a COVID-19 risk assessment with their employees so clearer guidance for smaller companies about what is expected of them will be needed imminently.
The longer term outlook is now more positive for certain sectors than three weeks’ ago
Whilst the total expected financial impact of the crisis has stabilised at around -15% of revenue, over the last three weeks, there has been a gradual improvement in the outlook in the construction and real estate, professional services, manufacturing, and retail sectors in particular.
SMEs will have to shrink their workforces, cut cost on workspaces, and contribute to furlough cost in the next few months. 63% of SMEs decision makers say they are considering redundancies in the next six months
SMEs continue to see the extension of the furlough scheme as the most important measure to help them get through the coming months. Businesses continue to lean heavily on the furlough scheme, and it remains the most important measure to get them through the coming months.
Almost half agree with the current government approach to incorporate more flexibility in the furlough scheme from August, but 24% would have preferred for it to be made flexible earlier.
As the Government prepares to reduce its contribution to salaries post-August, the most popular option among SMEs is for Government to continue to pay 60% - but 40% and 60% are also popular. Opinion is fairly divided between the 40-80 range.
Although the furlough scheme is providing a lifeline to businesses to prevent immediate large-scale job loss, a number are looking ahead with trepidation and expecting to have to make changes to the size of their workforce in the foreseeable future. This is spread across a broad timeline, with 16% saying they plan to make redundancies imminently, 27% likely to act when the furlough scheme changes in August, and 20% expecting to do so when the scheme finishes in October. 36% have no plans to make redundancies for the foreseeable future.
As the majority of SMEs are looking at reducing the size of their workforce and most have moved to more flexible working. It doesn’t come as a surprise that 42% of them expect to reduce expenditure on workplace such as offices and production sites.
However, in the longer term, the outlook for employment may be more positive. Over the next 6 months 22% plan to increase think their workforce will increase by an average of +19%. and 43% think ultimately levels could stay the same, the sizes of their workforce, while 35% except their workforce to reduce.
Technology will be a key element as businesses pivot with nearly three-quarters of SMEs seeing technology as vital to their post-COVID recovery - and grants to enable investment are the most popular form of further support
70% of SMEs surveyed believe technology will play a key role in helping their business adjust to the impact of COVID-19. A third of this group believe investing in technology will help them increase online sales, 22% believe it will help them manage their business operations remotely and 18% think it will help them reach new markets abroad.
Outside of Government support measures, a grant to help businesses invest in technology to support an agile response to the crisis is now the most popular form of further support (38%), followed by a cut in VAT (33%) and an extension of the 1-year business rate holiday (19%). 39% have already paid for new technology services to support their business during the crisis.
Although businesses are feeling more prepared for the immediate future, there remains a large amount of uncertainty on the horizon - and businesses should be encouraged to plan for a potentially volatile and erratic recovery curve, rather than a steady and predictable improvement. Resilience and agility will continue to be key - and technology will help equip businesses to demonstrate this.