UK small businesses brace for more pain after surviving pandemic

UK small businesses brace for more pain after surviving pandemic

In the depths of the pandemic in 2020, owners of some typical small businesses that are the bedrock of the UK economy explained their struggles to the Financial Times.

On a return visit to the same contractors in Brickfields, a low-rise building in east London that has 98 offices and workshops, all of the businesses the FT had spoken to two years ago were still in business.

But some owners were almost as pessimistic as they were in 2020, their post-Covid optimism eroded by rising costs and stuttering demand as the UK slips into recession. Some had been affected by the fall in the value of the pound sterling and the disruption of the supply chain caused by the war in Ukraine.

The building, owned by Workspace, a FTSE 250 property company, offers a glimpse into the health of Britain’s small businesses. It has tenants spanning a range of sectors, from technology to cosmetics, many of which have international operations and are backed by venture capital.

“It’s fucking hard work,” sighed Philip Taylor, founder of Carbon Theory, which makes soap for problem or sensitive skin, as he considered selling the business after navigating the past two last years. “We had friends in the building who are no longer there, a lot of different models, different companies. It is difficult at all levels. »

“We have to be aware of the price of what we do” – Philip Taylor, founder of Carbon Theory © Daniel Jones/FT

Taylor said he was one of the lucky ones. Revenues rose, first through the boom in online sales during the pandemic, then through brick-and-mortar outlets such as Walgreens in the United States. But he may also see signs that consumers are becoming more cautious.

“Consumers are currently in buying mode but will be more selective. We have to be aware of the prices of what we do,” he said, pointing to rising costs for supplies, such as cardboard, as well as staff.

Pricing pressures were a common theme among others in the building, especially those who have to buy in US dollars given the decline in the value of the pound sterling this year.

“Honestly, it’s the worst thing in the world. . . you might break down and cry,” said Cecilia Di Vita, founder of Heart Aflutter Bridal, which makes wedding dresses.

She often purchases materials and designs denominated in dollars. “Our prices obviously have to go up, because we can only absorb so much. You have to pass it on. »

Adding to these pressures, she is facing the return to normal levels of commercial rates, at around £2,000 a month, after pandemic aid ends, while paying back £50,000 borrowed under the loan scheme. State-backed Covid ‘rebound’ loan. “It’s around £800 to £900 [a month]. It’s annoying because we didn’t have a loan when the pandemic hit.

People at a table in Brickfields
Brickfields, a low-rise building in east London, has 98 offices and workshops © Daniel Jones/FT

At least the pandemic’s deadly stop-start period – when successive lockdowns forced its customers to postpone weddings – was over, with sales recovering to near pre-Covid levels, he said. she declared.

She added, with typical entrepreneur optimism, “We’re still here. . . this is the main. Other bridal shops have not survived the pandemic. It’s going to be tough for a few months with all the extra costs, but hopefully things pick up.

Alex Heaton, founder of LiveSmart, also expected revenues to return to pre-pandemic levels after “two lost years”. But he worried that life as a start-up would get tougher as investors grew wary of backing fast-growing tech companies.

LiveSmart, a health tech start-up that provides blood testing and analytics to businesses, had raised £2.2million in new funding when Heaton last spoke to the FT in 2020. He said the mood was optimistic at the start of the year. “In January of this year, we all thought well – recovery, recovery, recovery. Right?”

But since then – in the wake of the war in Ukraine and wider political and economic unrest – things have gotten worse. “All the founders I know, anyone who raises money, finds it incredibly difficult and takes big turns.”

Emily Bendell, CEO and Founder of Bluebella
Emily Bendell, chief executive and founder of Bluebella, said the aftermath of Brexit weighed the most on her online lingerie business © Daniel Jones/FT

He, too, was struggling with rising costs, especially wages. “The reality is that you’re doing everything like a small business, but you’re trying to behave like a big business.”

Emily Bendell, chief executive of Bluebella, said it was the aftermath of Brexit that weighed most heavily on her online lingerie business.

Sales have increased since his last conversation with the FT, but revenue has been held back by having to invest in new systems “to try and find a way to make Europe profitable again”. She added, “It’s better but still more difficult than exporting to countries like the United States.”

Selling in the North American market, however, proved a welcome hedge against the fall in the value of the pound. “Most of the fashion industry buys in dollars,” she explained, which left her British rivals struggling.

For Nick Morgan, chief executive of We Are The Fair, which organizes more than 100 festivals in the UK, the outlook is uncertain after a busy summer as sales surged with people keen to make up for the social lives lost during the pandemic.

This “euphoria has dissipated over the past few months because of things like the cost of living crisis”, he said, adding that he expected “quite a few” festivals to disappear .

Nick Morgan, managing director of festival organizer We Are The Fair
“We’re lucky to be well established and have a lot of shows” – Nick Morgan, managing director of festival organizer We Are The Fair © Daniel Jones/FT

Costs, such as transport and independent technical teams, have increased “exponentially”, he said. Bands and other performers were also clamoring for more money, but he added it was difficult to charge more for events to cover extra costs as the UK was ‘on the ceiling in terms of ticket prices’ .

But Morgan, which had repaid the company’s pandemic loan before interest rates began to rise, remained optimistic about its ability to weather the downturn. “We’re lucky to be well established and we have a lot of shows.”

Owner Graham Clemett, managing director of Workspace, said there was “cautious optimism. . . real momentum” coming out of the pandemic, but said the “shadow of the Ukraine war and inflation has slowed that down”. Still, he insisted he was ‘still very positive about growth this year’, pointing to the ‘resilience’ of British entrepreneurs.

In previous recessions, there have been record levels of new business creation as founders look to start over. This time may be no different, with many expressing longer-term hope even in the face of short-term problems.

“Difficult times can be good because it cuts some of the chaff and as things start to improve, good companies hopefully have more opportunities to take advantage,” Heaton said. .

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