Annie Button offers advice on how smaller companies can remain solvent during a uniquely tough period for business.
The COVID-19 pandemic has been a difficult time for businesses of all sizes – but it may well be the case that small companies have suffered the most. Of course, issues such as fewer people spending money and reduced footfall to physical premises have certainly hurt companies, but there are some financial challenges that have held SMEs back unnecessarily.
However, this doesn’t need to be the case. Small businesses can do many things to ensure that they are not holding themselves back. Here, we take a look at five financial challenges that have been a problem for SMEs through the COVID-19 pandemic.
1. Failing to move away from manual accounting
Through COVID-19, the rise in people working from home has been highly noticeable, and it looks like the trend will be here to stay even after the worst of the pandemic is over. But the need for remote working has created some issues for small businesses that were still reliant on manual accounting and physical documents.
“Business is moving onto the internet and has been doing so since its creation,” says Oliver Spevack of OS Accounting. “Traditionally, computer-based accounting was the reserve of big business, and everyone else kept manual records in ledgers, but the advent of new technologies and software-as-a-service accounting platforms has made it possible for businesses of all sizes to operate online.”
If businesses were unable to work from their office through lockdown, it may have created a backlog in their accounts – many SMEs are still trying to recover from this. So, now really is the time to invest in a move away from manual accounting.
2. Lack of cash flow
Certainly one major challenge for businesses over this period has been a lack of cash flow. But many businesses had their revenue dramatically reduced, while still having to pay out for all of their normal expenses.
The solution that some businesses have taken to stem the issue of lower cash flow has been to make staff redundant or make other cutbacks. But there are other alternatives. The government has made a number of schemes available, and many lenders are offering more flexible lines of credit to allow companies to continue to pay staff and suppliers while waiting for cash flow to return to normal.
3. Not spending on marketing
Now, it might seem that, given the point above regarding cash flow problems, expensive marketing could be one of the first things to cut. However, this is a mistake. At a time when companies need any business that they can get, this is not the time to be reducing marketing spend.
This is especially true if your competitors are reducing the marketing budgets – this will simply make your brand stand out even more than before.
4. Not having a solid business plan (or any at all)
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years. So, you might be surprised to learn that over 1.5 million SMEs across the UK have no business plan at all. This can cause serious problems.
COVID-19 has certainly caused havoc for companies – but without a business plan to assess and understand what the company needs to do to survive, many SMEs have floundered and struggled. If your small business has no business plan, now really is the time to invest in drawing one up.
Having a robust business plan with a lot of thought put into it has been an absolute essential for small businesses for a number of years.
5. Failing to anticipate expenses
It is important that companies do not live at the edge of their means. In the ideal scenario, your SME should actually keep some money back so that you can deal with those annoying expenses that come up every now and again. If SMEs fail to plan for unexpected expenses they can be left in a very tricky situation.
There is no doubt that 2020 has been a tough time for SMEs, especially from a financial perspective. But if you can anticipate some of those challenges that your small company will face, it can give you the opportunity to come up with useful solutions. Ultimately, understanding where these challenges can come from gives you the chance to plan for ways to avoid them.