Small businesses bounce back but concerns remain for COVID-19 having a long economic tail

Entrepreneurs are almost twice as likely to cite the legacy of COVID-19 as a risk to business growth than the long-term economic impact of Brexit, finds new Hitachi Capital Business Finance research

Excitement may be ramping up due to reduced social restrictions but the long-term impact of COVID-19 is the biggest worry for small business owners for the months ahead. New research from Hitachi Capital Business Finance reveals that entrepreneurs are almost twice as likely to cite the legacy of COVID-19 as a risk to business growth than the long-term economic impact of Brexit (47 per cent vs 27 per cent).

Joanna Morris, head of insight at Hitachi Capital Business Finance said: “Whilst we all look forward to a summer of optimism, our survey shows that many business owners are conscious that there would still be long-term implications from both the pandemic and Brexit.”

The new research suggests that even though the nation will meet the ending of social restrictions with excitement and optimism, many small business owners remain alert to the potential economic disruption that may still lie ahead. Whilst the percentage of small enterprises predicting growth has hit a two-year high, (April 2021: Hitachi Capital’s Business Barometer research also found that the percentage of small business owners predicting growth at the start of April has soared from 26 per cent to 36 per cent since January, with growth forecasts recovering in troubled sectors such as retail, hospitality and construction) the Hitachi Capital survey of 1,306 small business owners found that 78 per cent of enterprises were keeping a close eye on the risks that could hold back growth plans.

Overall, the top concerns for small business owners are dominated by three macro-economic factors – principally, the direct impact of COVID-19 on their operations (47 per cent), general market uncertainty (39 per cent) and the economic impact of Brexit on their business (27 per cent).

This represents a marked shift from the year before COVID-19 where - aside from general market uncertainty (31 per cent) - the top worries for business owners related to more specific issues within their operational control, such as red tape (20 per cent), taxation and pensions (21 per cent), volatile cash flow (17 per cent), rents/rates (15 per cent) and the cost of skilled labour (15 per cent), according to Hitachi Capital’s Business Barometer quarterly research from April 2019.

Who is most worried most about COVID-19?
Smaller companies in hospitality/leisure (70 per cent), retail (58 per cent), education (58 per cent) and medical services (49 per cent) were most likely to be concerned about coronavirus having a long tail in terms of economic impact. The findings for the retail and hospitality sectors were of particular note because these were also sectors where a significant rise in growth forecasts was recorded for the current quarter. This suggests that whilst these sectors hope to bounce back after a troubled lockdown, confidence is in fact fragile - with many business owners acutely aware of how further COVID-19 developments could destabilise their enterprises.

Regionally, small businesses in the North East (57 per cent) and the East Midlands (52 per cent) were those most concerned about the legacy of COVID-19 continuing to adversely impact their business operations.

Who is most worried about Brexit?
Small business owners in Wales (33 per cent) and Scotland (32 per cent) were those most concerned about the economic impact of Brexit on their business – places where worries about the commercial impact of COVID-19 were significantly lower (42 per cent and 43 per cent respectively).

Beyond concerns over the lingering impact of COVID-19 and Brexit, other factors listed by UK small businesses as threats to growth included: red tape (12 per cent), volatile cash flow (11 per cent), high fixed costs and overheads (10 per cent) and the cost of skilled labour (8 per cent).

“After repeated lockdowns in the last year, small business owners are being pragmatic,” continued Morris. “There is a record quarter-on-quarter upturn in the proportion of small businesses predicting growth, but this is not blind optimism: Business owners have their eyes wide open to the risks that lie ahead and, in today’s market, this has become an essential part of robust business planning.”