South: Nearly half SMEs planning redundancies

Nearly half of SMEs are planning redundancies in the next three months, despite the government assistance through the furlough scheme.

That’s according to a tracker published by Sage, the UK’s largest listed technology company, highlighting the latest sentiment from the UK’s small and medium sized businesses (SMBs) in the wake of the COVID-19 outbreak.

As the UK enters Phase 2 of its lockdown, the SMB Tracker confirms there is a growing sectoral divide in the impact of the pandemic on the small and medium business community. As SMBs in consumer-facing sectors like retail and hospitality struggle to plan a return to operation, other industries are becoming more optimistic about the overall financial impact.

Average projected 2020 revenue impact has reduced consistently from -30% at the beginning of lockdown to -10%, a +6% improvement in the past week. But businesses in hospitality and retail are the exception, expecting -75% and -32% hits to revenue respectively. Meanwhile, SMBs in technology, media and healthcare expect a net positive impact on revenue.

Despite some early signs of recovery, severe financial challenges are projected to continue for SMBs well into Q3 2020. This week the survey finds 61% are currently operating at a loss, and over 50% expect this to continue beyond the end of June; 20% expect it to continue until September or beyond. 39% of businesses have seen their sales halve since the beginning of the pandemic, and most do not expect this to improve by July.

Over a third of SMBs say they cannot yet afford to bring back any furloughed workers. However, 28% have started returning furloughed employees back into the workplace and a further 21% plan to do so in June or July.

Despite the support provided by the furlough scheme, 46% of businesses are considering redundancies over the next three months. This is in contrast to 20% of businesses intending to increase their workforce, by an average of 16%.

Key findings from the survey of 500 decision makers in UK SMBs also include: 
  • Technology is a key enabler for business success in this new operating environment – 28% have begun conducting business online in direct response to the pandemic, with 41% using video conferencing or consultation to resume operations, 36% using online retail and 26% using apps
  • 38% of SMBs are still not confident that they can keep their workforce safe over the next three months, despite detailed government guidance. The hospitality sector is the least confident (39%), whilst the manufacturing sector is the most confident (74%)
  • 32% of SMBs believe their business will still be making less than 50% of normal sales compared to pre-COVID-19 levels by July
  • 65% of businesses say they are preparing for a second spike in the outbreak, and a similar proportion think this is likely to occur
  • A substantial majority of SMBs remain committed, or have become more committed, to reducing their environmental impact. 67% indicate that they plan to maintain or increase their environmental sustainability efforts after the COVID-19 pandemic

Sabby Gill, managing director of UK&I at Sage, said: “We are starting to see some green shoots of recovery as the SMB community begins to return furloughed workers and the average financial impact continues to reduce; with technology and e-commerce proving a key enabler. 

“However, we must treat this with caution. The outlook remains deeply concerning as we look towards Q3 and the relaxing of lockdown, with financial challenges continuing to bite for many. 

“There is also a significant and growing divide between the sectors as the crisis continues. As the retail and hospitality industries remain at a standstill, the financial fortunes of these businesses are diverging even further from those of the average SMB. They will also face a whole different set of operational challenges. Meanwhile, some businesses – particularly in technology and healthcare – are projecting growth in sales and making plans to grow their teams.  

“This underlines the need for a tailored, more sector-focused approach to support as we move into the next phase. We must ensure small businesses in critically challenged sectors do not get left behind.”