The effect of COVID-19 on SMEs

by Alexandra Pasareanu

7 March 2022

In this article, Alexandra Pasareanu, Manager at Ecovis, discusses the impact COVID-19 has had on SMEs and the important lessons that can be learnt from the crisis.

As economies began to turn around in 2021 after the global 2020 and early 2021 lockdowns, SMEs have had to take into consideration one possibility: the unexpected can happen and change the way we do business and prioritise. A global pandemic – something no one would have imagined could bring the world to a standstill – can occur. The fact that the effects of Covid-19 are still being felt in 2022 has forced many businesses to be cautious and less optimistic about the current year.

Truly speaking, there is hope on the horizon. Some countries seem to be recovering faster than expected and the variants that had everyone worried may not be as bad as the first waves, especially now that vaccines are in place and have boosted immunity levels.

For SMEs to survive the after-effects of Covid-19, business owners need to meditate on the lessons learnt through the pandemic, the success stories of those who managed to adapt to new ways of doing business, and how they can apply these lessons in the future.

Important points SMEs should consider from 2022 onwards.

 

1. Dealing with previously unforeseen Covid-19 effects on businesses

Post lockdowns and post Covid-19 crisis, many businesses expected revenue generation to be their biggest challenge. But many business owners did not consider the impact the pandemic would have on employees’ mental health and how their employees would cope with the whole Covid impact in their personal and professional lives – an indirect factor but a big factor, nevertheless.

Another area is regaining and retaining old customers, who may have moved on during the pandemic – or who may have shifted their loyalties. Take for example, customers who began to have takeaway delivered to their doors during the pandemic. Many are likely to continue with the trend instead of returning to the old lifestyle.

Firms and businesses may also find themselves grappling with the need to hire new staff to replace staff they may have lost in different ways during the pandemic. Many businesses may find themselves having to start all over again and may be faced with the looming danger of closure. It would be wise for business owners to “insure” themselves against these possibilities in the future.

 

2. Lesson: Expect the unexpected

The most exciting yet biggest challenge about building a successful business is that you never quite know what will happen next. It could be anything from a great opportunity that will catapult the business to greater heights, or a natural disaster that hits the business hard. The covid-19 lockdowns, for instance, is one of those unexpected events that rocked the business world and saw many SMEs come to an unprecedented halt.
Despite many counties opening up after the pandemic, businesses are still experiencing challenges due to the growing inflation, low demand and supply, and inadequate cash flow. The pandemic caused many SMEs to run down while some were unable to meet their debt payments which ultimately led to them becoming bankrupt.

The good news is there are measures a business can put in place to protect itself against the unexpected. An SME should always stay in the best shape to either embrace or absorb unexpected events.
Heading into 2022, SMEs can expect the unexpected by doing one of many things. They could establish a solid business plan, maintain a healthy diversity of income streams, save for rainy days, stay one step ahead of the game, take advantage of the right financing and most important of all, prepare for the unexpected.

 

3. Equip your team and prioritize employees’ wellbeing

Employees are the backbone of any business – your staff can either run your business down or help build it up. Having high valued employees will help to hold your business together in turbulent times.
Equip your employees with the necessary skills and support to run your business effectively. Ensure your team is properly informed across the board on how to cope with different situations and they receive the adequate mental support. Covid changed many CEO’s way of seeing labour, and according to Bupa research, post Covid, nearly 30% of UK CEOs plan to put employee mental health at the forefront of their priorities in 2022.

The Covid-19 pandemic took a great toll on everyone, especially the working professionals. Some had to work in their business premises while ostracized from family while the isolation of working from home for some was too much. The human mind can only take so much, and the mental health of many have taken a hit.

SMEs need to recognize the challenges and individual struggles of their employees and find out a way to help and support them. Employers should prioritize employees’ mental health. Additionally, when employees feel valued and seen, they will remain loyal to their employers. Employee retention became a big issue following the pandemic and reports from Bloomberg News by the Chartered Management Institute show a massive voluntary employee departures from businesses.

A healthy staff makes for a productive workforce. With that in mind employers will have to consider to treat employees with attractive work packages. The main factors for employees who are on the market on the post-Covid era are: (a) flexible working, (b) mental and health support, (c) healthy working conditions, and (d) adequate remuneration for employees to be able to keep up with the country’s inflation.

 

4. Ensure that your business is equipped to withstand adversities and natural disasters

One thing the Covid-19 pandemic has taught us is that we never know when disaster may strike, and often, neither can we do anything to stop them. Natural disasters are a great impediment to the operations of a small business. They can impact the business premises, the supply chain, infrastructure, and consumers.

In as much as businesses can’t know when disaster will strike, one should anticipate them and put down measures to protect the business in the event of said disasters.

Every business should put in place a business disruption plan that outlines operational procedures and policies to help guide a business in the wake of an unpredictable disasters. Without a plan, a business is bound to make mistakes due to the highly stressful situation.

Significant disruption to business can be due to inflation and increased interest rates that may make it hard for businesses to receive financing.

Inflation in the United States is expected to hit 7% and in the United Kingdom in April 2022, the experts are expecting it to reach 6%, a 30-year high. As a result, the cost of doing business will rise, and clients may begin to tighten their belts.

The Bank of England is expected to raise interest rates again in the following months, therefore, SMEs should make sure they are not economically vulnerable to any unexpected increases and have prepared for a drop in demand.

Therefore, SMEs should ensure there is a good cash flow in the business, and they have various financing sources. The business can diversify the streams of income sources to ensure when difficulties arise there is still cash flowing into the business. There should also be a proper budgeting in place to manage the business finances.

 

5. Enable the digitization of SMEs

If there is one thing that the Covid-19 crisis has brought to light, is that the future of the global economy heavily relies on digitalization. The pandemic brought a lot of businesses to a standstill and the “social” setting and “in-person” way of doing business became unviable. Transforming into the digital world is key for SMEs to survive current and any future crises.

So why digitalization? Going digital will not only increase the value of the SME but also increase its productivity. According to Salesforce, 77% of SMEs already have or plan to introduce an ecommerce service in 2022, indicating that the trend will continue. In a similar vein, 71% of respondents stated their customers anticipated an online service, and 72% said they had improved their online presence in the previous year.
In the event of a crisis or pandemic, digital tools serve to avoid a total economic halt for SMEs. SMEs that demonstrated the ability to go digital in the Covid-19 pandemic were able to survive and stay afloat.
This was proven in the Small and Medium Business Trends Report 2021, the report showed that 71% of SMEs that went digital during Covid period were able to survive. This is an indication that the future of business may be online – or remote business is quickly replacing the traditional business design.

 

Conclusion

Many SMEs may have been struck down by the pandemic, but it is time to fortify themselves against similar occurrences. A business should always stay relevant and effective if it wants to survive changes and future challenges – including things like pandemics. The best way to do this is by being prepared for anything and taking the necessary steps to “insure” themselves against future emergencies.

You may also like these

Here are some more articles that might interest you

Expert Advice

If you’d like more information on anything you’ve read, we’re here and happy to help