Let's face it 2020 has been tough and businesses of any size operating in the current pandemic are needing to change the way they do things. There is no getting back to normal.
Before you get too depressed to read on, it's not all bad news. We look at the current challenges ahead which owner managed business (OMBs) are facing - and indeed some of these challenges represent themselves as opportunities in the longer term.
What is an Owner Managed Business?
Just so we're all on the same page, we're categorising OMBs as those companies where the day to day management responsibility rests with those that own the business. Family businesses, sole traders, technical start-ups, entrepreneurial businesses, typically with 1 to 100 employees.
OMBs won't have the same infrastructure behind them as larger organisations and corporations but will still be facing the same issues:
- Funding and investment
- Managing supply chains
- Sales leads and marketing (building brand awareness)
- Regulatory compliance (e.g. GDPR, Health & Safety, Employment Law)
- Applying best business practices
- Recruiting and retaining staff
- Tax legislation (and keeping abreast of the constant changes)
- Disputes, litigation, debt recovery
- Succession planning
- Impact of Brexit
This list isn't exhaustive but demonstrates what an OMB is expected to be control of. It's a tall order in any economic climate.
OMBs are the typical model in the UK and their success are indicators of growth (or not) in the economy. From before 2000, OMBs were the fastest growing part of the labour force in the UK:
2000-2001 = Number of self-employed = 3.9 million
2015-2016 = Number of self-employed = 4.9 million
Between 2000 and 2015 the number of company owner managers doubled from 9 million to 1.8 million.
Between 2007 and 2014 foreign born business owners represented a third of the growth.
(Source: Institute of Fiscal Studies)
With growth, comes risk - the statistics show that 20% of new sole trader businesses close within the first year, by Year 5, 60% and by Year 12 only 20% are still in operation.
OMBs must seek a balance between growth and quality whilst being exposed to change, fluctuations of the economy, the whims of the consumer and competitive forces. However, it's not putting a lot of potential business owners off the concept and according to the Office for National Statistics, around 70 new UK businesses are formed every hour.
Is Brexit the biggest challenge?
Well, here the statistics start getting interesting.
In a recent (January 2020) YouGov survey, 24% of SME owners were either very positive or fairly positive about Brexit, with 34% of the sample neither positive or negative. This compares to 39% of SME owners who were either very negative or fairly negative.
Geographical differences also start to come into play - 49% of small business owners in the London area feel more exposed; compared to 47% in Scotland and 44% in South West England.
Unsurprisingly, there are different opinions depending on which sector a business operates in with 47% of manufacturing firms feeling Brexit will have a negative impact compared to 45% in retail and 42% in the hospitality sector.
Happy days if you work in the professional sector; 57% of legal firms and 52% of accountancy companies said they would be unaffected.
Ask any OMB and managing cashflow is still a major concern and debtor late payments is the leading cause of cashflow issues. BACS figures reported by Guidant Financial are the highest they've been since 2015 with 54% of small businesses experiencing debt issues.
It's estimated that the average debt burden is £25k per company. With the introduction of the UK government's Payment Practices Reporting we might have more reasons to be cheerful - with the ability to now check how promptly large organisations pay their suppliers.
Recruitment and retention of staff is a challenge for any company and not being able to find the right talent prevents growth when needed. This may result in OMBs going to contractors instead - ultimately a more costly exercise. Workers (assuming they have the mobility) can shop around. This is a big assumption; the cost of affordable housing in London is 17x the average local household income. In Liverpool, affordable housing is just 5x the average annual income.
So whilst small business owners report that there isn't a shortage of a skilled workforce in the London and the South East area, it may be the case that the lack of affordable housing is the bigger issue.
Combine this with a recent poll of homeworkers and 57% who currently work from home, want to continue to do so. OMBs need to think of innovative ways of hiring staff.
For companies to survive through to the new post-pandemic 'normal' the current working practices of adopting a more digital strategy could be the answer.
Facebook's report on the state of small businesses does however, demonstrate there is optimism and positivity out there. Of the 86,000 US Facebook respondents, 57% said they were optimistic or extremely optimistic about the future of their companies. Of those that responded, 35% had adopted digital payment systems and 23% had instigated digital ordering tools for their sites.
Regarding business leaders, 56% (who used online tools) reported that sales from digital sources now constituted over half their overall sales figures. Women-led businesses were more likely to adopt new digital practices, turning to online advertising and digital payment tools more so than their male counterparts.