Over the last few weeks, I’ve been talking to a lot of founders of new and growing businesses about the impact of the Covid pandemic on their firms and the subsequent recovery since 2020.
One of the things that I noticed immediately was how hard many entrepreneurs have been on themselves as their businesses have taken longer to get back to where they were three years ago.
But to be honest, these entrepreneurs shouldn’t be so self-critical given what they went through at the time.
Indeed, it’s easy to forget that in April 2020 when we were experiencing the first national lockdown, UK GDP was 26% lower in April 2020 than it was only two months earlier and this was the worst economic performance since 1709 when an exceptionally cold winter brought European commerce to a halt.
In many customer-facing sectors such as leisure and hospitality, there was essentially no economic output as businesses were forced to shut completely by government regulations.
Surprisingly, due to the short lockdown and the fiscal support from the UK Government, many businesses that would normally have closed during any other economic slowdown were eventually able to open their doors.
Yet whilst they started trading again, many were forced to borrow money from various UK Government schemes to keep themselves afloat and with business owners reluctant to let their staff go during the crisis, employees were kept on with a subsequent impact on the bottom line.
Of course, whilst some of the expenditure on wages were supported by the furlough scheme, it meant businesses still had to cover staff costs when the economy started to reopen. Indeed, out of a working population of over 32 million, only the costs of 8 million employees were covered by the scheme.
Worst still, these ongoing costs were not covered by the comparatively low income they were receiving from customers as the economy began to slowly reopen, resulting in a worsening financial situation every month for so many firms.
This is the situation many businesses are facing today because of what happened three years ago and despite many recovering their markets since then, there are considerable debts that have been accumulated that continue to have a drag on the business going forward.
In many cases, there are successful firms that in any other situation would be thriving but that now must deal with the cost of not only repaying the loans they took out to save the business at the time, but also to deal with the debts that were increasing every month as they tried to keep going when the market was still struggling to recover.
And as if that wasn’t enough of a challenge for businesses, the last twelve months has seen rapidly increasing inflation, a cost-of-living crisis which has affected consumer spending, strikes that have disrupted travel and a labour market situation where it is increasingly difficult to access the talent needed by entrepreneurial firms.
Given the unprecedented challenges that have faced business founders since 2020, one positive factor that has shined through during this period is the incredible resilience of entrepreneurs and their businesses when faced with these challenges.
For example, an examination of the characteristics of many of the growth firms we are working with through the expansion of the Wales Fast Growth 50 project across the UK is that most of the growth between 2020 and 2022 is due to the business having to focus on regaining its market position rather than delivering the expansive growth that many associate with scaling businesses.
The fact that these businesses are focusing on rapid recovery after a plunge in their economic fortunes demonstrates that entrepreneurs will rarely throw in the towel despite the odds being against them. More importantly, the future of these businesses will have been forged through a recession that would normally have closed many of them down and therefore will have future-proofed them for the next few years.
Yet there seems to be little appreciation from politicians and policymakers of the situation being faced by many businesses as they struggle to put their finances back in order three years after the Covid pandemic.
In fact, if the UK economy is to grow during the next 12 months, the focus of government must be to support those businesses to recover their position so that they are in a sound financial state to create prosperity and employment across the nation.
Encouraging greater investment into such businesses is critical and there must be a more pragmatic approach by banks and government agencies to ensure the right financial support is made available.
Entrepreneurs are the lifeblood of any economy, and they shouldn’t be criticising themselves, as many do, for the position they find themselves in after a torrid three years. Instead, they should be proud of the fact that they have not only survived the most difficult economic conditions in over three hundred years but are still here making a difference when the easy option would have been to shut shop and leave the economy.
