Defying Gravity? – U.K. SMEs Are Optimistic But A Second Covid Spike Could Bring Them Crashing To Earth

It’s not easy to defy gravity. Witness the findings of Survival, Resilience and Growth, a U.K.  report commissioned by accountancy software provider, Sage. Based on a questionnaire sent to managers and owners of 2,000 small and medium-sized enterprises, the study finds a broadly shared optimism about the medium and long-term economic future is undercut by fears that a second spike of the pandemic could bring recovering businesses crashing back down to earth.  

Sage polled SME decision-makers in late June when some aspects of Britain’s lockdown were in the process of being lifted. It was a time, in other words, when many managers were beginning to formulate plans for a post-Covid future.  

There was a certain amount of bullishness on show. For instance, eight of ten SME leaders were satisfied that they had handled the challenges thrown up by the pandemic well. What’s more, 75 percent of respondents were expecting be profitable again by June 2021, and just under half were hoping to shore up their finances by putting a greater emphasis on exporting.  

But is this our old friend “normalcy bias” at work? As a species, we humans often downplay the threats that we face. We assume that even in the face of a crisis, normality will quickly be restored – perhaps more rapidly than is realistic.  

In fact, the survey reveals that businesses are very well aware of the risks. A relatively small, but nevertheless significant minority – 15 percent, to be precise – believe they would not survive a second spike of the virus. A much larger group, comprising half of all respondents said they could not sustain a further drop in revenues of 20 percent or more.

The Confidence Question  

And that gets to the heart of the confidence question that could well undermine a recovery, even as the government is encouraging the UK workforce as a whole to return to some kind of normality..You can be confident about your own handling of the crisis to date, but what you can’t know is whether or not the virus will return in strength and whether a second lockdown will follow the first.  

And a second downturn would be a bruise on top of a still very raw wound.  More than 60 percent of the respondents said they had already made redundancies or planned to in the near future. Sage says this equates to the loss of 1.4 billion jobs across the economy. Arguably this relates not only to the current economic circumstances but also to extreme caution about the future.   

A lot will depend on the shape of the upturn. Optimists – and according to the report, they tend to be centered in London –  are expecting a V shared recovery – in other words, a sharp downturn followed by an equally rapid climb. But a second spike would put paid to that.   

“The insights in this report are a gut-wrenching’ read,  said  Sabby Gill, managing director of Sage UK and Ireland. “Behind the stark statistics lie thousands of individual stories of people whose livelihoods and passions are under threat.”  

It has to be said that not all sectors are facing the future with trepidation. Digital economy companies see themselves as relatively immune to a second wave. Perhaps that’s not surprising as there has already been evidence that sectors such as fintech, video conferencing, healthtech, and edtech have seen the adoption of their products accelerated by the pandemic. More counter-intuitively perhaps, manufacturing businesses are looking forward to a strong recovery.  

Digital Solutions

And as a technology provider, Sage sees at least a partial silver lining. “Businesses have had to radically change their plans and strategies, adapting to unprecedented ways of working. But this has created the potential to drive up productivity, especially where processes have been digitized,” said Gill. 

However, as the report highlights, many small businesses can’t afford to buy new technology, even if will boost productivity in the longer term. With that in mind, Sage has taken the publication of the report as an opportunity to call for a government-backed “Digital Grant” to help businesses upgrade their systems and processes. Around 40 percent of businesses said they would benefit from such a grant, although that might have been something of a leading question.   

Would such a grant help? Well, probably. But given fears about a second wave, the real game-changer is likely to be a timely vaccine, coupled with more effective treatments. Fingers crossed.