How small businesses can survive Covid-19

It is hard to predict the best way to support UK small businesses to recover and adapt in the new norm. But we can learn some essential points that can help small businesses weather the crisis.

For businesses, the key to decision making during a crisis is to reduce the severity of the impact on business and society. Understanding and being aware of where business is in relation to the business and crisis life-cycle are critical. If the company understands the life-cycle of their business then they can assess current challenges and adapt accordingly. 

The liability of smallness often comes with flexibility, which can help towards adapting the current way of working into something that works. Greater flexibility allow the new firms to identify opportunities in the market and their quick decision making help them to observe stability at a different phase of their life cycle. For example, since crises go through a series of progressive stages, understanding the crisis management stages can help businesses to be ready. The objective at this point is to restore the community to normality as quickly as possible. The question that SME businesses should ask is “What can our business do to be part of the restoration process?” This can help in the organisation strategic development to deal with such incidents. A more effective strategy can be developed to reduce the severity of their impacts not only on business but also on society, despite their complexity.

Research has shown that most small businesses that survive the previous crisis manage to do so with the help of their local community. When a small business is embedded in their local economy, they are with one another and be seen as working jointly to get the community, city or town up and running. During a crisis, a business needs to make the purpose of the business very clear. In all media, we find that with the reduction of customers during the crisis, businesses are operating for their neighbours, and providing jobs for the local community. Building a strong reputation among the local community, can also help to build trust and product familiarity (e.g., Costa, including other big brands and small business serving the NHS staffs and vulnerable). This can be a good thing as it reflects a more accountable business to their local communities. 

For a small business, the strength of the network is vital for strategic decision making. Exploring viable resources and opportunities with peers in the network allows the small business to adapt to the changes in the market in a collective manner rather than feeling alone. This is where relying on the goodwill of the business partners and suppliers, and support from brokers are important. Being a member of a business network can also help. Other examples include accessing university network resources, such as flexible payment options, and flexible staff rotation are encouraged.

Moreover, a more collaborative approach to opportunity identification can be something to look for. Having joint sales initiatives of complementary services can not only reduce cost but also increase exposure, shared between the business partnership. Build your sphere of influence – access advice and be part of a community.

The existing evidence states that if the small business can increase sophistication in their risk management practice, then they can accordingly adjust their risk-taking attitude. But there is an indication that the SME’s growth and survival at various life-cycles is affected because of lack of stable risk management policy. For a small business, a strong financial position can compensate for any tolerance of high risk by the business. A small business that struggles for collateral is mostly dependent on their risk management practice. Because of low equity ratio of small business, they are considered as vulnerable to external events (like Covid-19), when compared with big business.

In the 2008 financial crisis, we learnt that based on risk management practice, small business managed to get a financial package in the short term from government and financial situation. The high growth business managed to recover from crisis quite quicker compared with others. But because of the high concentration of small business finance provision and existence of retail banking services in the UK, overall the recovery from the crisis was much faster in the UK compared to other countries. 

The existing finance structure benefited the risk management mechanism of small business before the Covid-19 crisis hit them. Comparatively more robust risk management practices by the UK small businesses and the concentration in the finance provider to small business together can support the heterogeneous population of small business in the UK. 

Universities could play an essential role in maintaining the flow of information between the finance provider and reduce their risk by enhancing the quality of risk management mechanism that exists in the small business of any size in the UK.

If you are a small business, reach out to your local university. Based on the existing evidence, these are the area of focus that university can help to support businesses to manage their business better during the crisis. Understanding the level of difficulties in the above factors can be used as an initiator of collaboration with the university. Usually, small businesses are not able to afford to build a risk management department, take time for the reflective decision-making process, invest in innovation, take the risk of assessing the suitability of new technologies etc. 

University and business collaboration can provide an avenue to innovative action in the sector in the post Covid-19 period. The Local Chamber of Commerce, which works with universities and local business, can act as a mediator in this proposed business model to link vulnerable small business with the university.

This was first published by the institute for small business and enterprise. Read the original here

Dr Suman Lodh is a Senior Lecturer in Finance in the Accounting and Finance Department, Middlesex University. Dr Ainurul Rosli is a Reader in Enterprise and Entrepreneurship and Director of Business Engagement at Brunel Business School. Dr Monomita Nandy is a Reader in Accounting and Finance at Brunel University London.