SME challenges in 2021 

Febuary 09, 2021

More than 4.72 million British SMEs also trade internationally. However a quarter have had to slow or halt overseas trading due to the restrictions of the pandemic and Brexit. Looking at the impact of COVID-19 alone, UK SME exports have dropped by around 10% costing the economy up to £20 billion.

It is safe to say 2020 was an extremely difficult year for small businesses. Owners across a wide range of industries were forced to close their premises for long periods. Some had to place employees on furlough while others overcame technological obstacles to enable employees work from home where possible. These are actions few in the business community could have imagined previously.  

Although vaccination roll outs are beginning across the world, there is a long way to go. It appears in the short term, 2021 will continue to challenge small business leaders before the long road to recovery begins:

The third and most aggressive wave of COVID-19 is gripping much of Europe and the USA in early 2021. SMEs from Britain and Ireland to the Czech Republic find themselves back under ‘work from home’ orders with all but essential retail forced to close. Just some of the COVID-19 related challenges businesses face this year include:

As expected research amongst British SMEs in 2020 showed their biggest financial concern for 2021 was their profitability and maintaining cash flow. Almost 80% of business owners said profitability would be a major challenge this year. Given the importance of the SME sector, SME profitability is not only essential to individual businesses but it has the potential to negatively impact the economy as a whole. 

A similar percentage of small and medium businesses are concerned about maintaining their cash flow. Reduced business opportunities and delayed payments left 1 in 7 UK SMEs unable to pay their employees during the initial lockdown period. In 2021 the availability of finance is likely to impact many decisions made by small businesses as they must continue to manage fixed costs in tandem with employee pay, product manufacturing and distribution costs.

Community transmission of COVID-19 continues to be a problem. Sick leave caused by illness or the need to self-isolate is likely to be a continuing challenge for smaller business into 2021. This may lead to other employees working longer hours to cover for those who are off. Although this may be a short term solution, research is showing longer working hours during COVID-19 are negatively impacting the mental health and wellbeing of employees likely to leading to further absenteeism.   
Employee wellbeing will also challenge SMEs across the world. At a time when resources and finance are stretched to the limit many are aware of the need to look after the wellbeing of their employees if they wish to retain them after the COVID crisis. Wellbeing support is particularly important to those employees who may have had to withstand periods of furlough and the financial stress associated with it during COVID-19. Those who unfortunately suffered a bereavement may also require assistance. 

For many SMEs in Europe, particularly those in or near the UK, Brexit is likely to pose challenges when it comes to the import and export of goods. Although larger businesses may have had the bandwidth to prepare for a number of Brexit scenarios, this has not been the case for many SMEs. 

Studies as recently as late in 2020 found many British SMEs inadequately prepared for the regulation changes in 2021. Although it was somewhat overshadowed by COVID-19 in 2020, almost 40% of British SMEs listed Brexit as a major challenge for their business. A similar percentage felt under prepared and that Brexit was likely to negatively impact their business with disrupted supply chains and distribution challenges.

Away from difficulties posed by political and economic changes for many SMEs online security remains an issue. Cybercriminals are aware that many smaller businesses may not have the IT expertise of their enterprise counterparts, making them an easier target. Ransomware attacks are a particular problem for smaller businesses. Research by Coveware showed 55% of ransomware attacks took place against organisations with fewer than 100 employees.   

2020 was a difficult year for SMEs, however, the good news from a COVID-19 perspective is vaccination roll out has begun and businesses of all sizes may see improvements from the end of Q2.



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