Authors: Suman Lodh, Ainurul Rosli, Monomita Nandy
The context: Critical issues in the recent crisis created by the coronavirus badly hit the SME sector in the UK, like other countries around the world. The government support is not enough for many businesses to survive with a sustainable model. Given the ongoing uncertainty, SMEs’ aren’t sure what is the best course of action moving forward.
The numbers: According to The Department for Business, Energy and Industrial Strategy (BEIS), any business with less than two hundred fifty employees is identified as small and medium-sized enterprises (SMEs). In 2019, BEIS report mentioned that there are 5.9 million SMEs in the UK, which count as 99% of all businesses in the UK. The composition of the population of the SMEs is very complex as they belong to different sectors (Wijewardena et al., 2008) and depending on the purpose of the business there is a variety in owners’ abilities (Forsman, 2008).
What can we learn from previous research?
As all sectors are affected by the Covid-19, it is hard to predict the best way to support the SME to recover and adapt in the new norm. We can learn four essential points from existing academic literature that can help small businesses weather the crisis.
- Understanding business and crisis life-cycle
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 (Storey, 2011). If the company understands the life-cycle of their business then they can assess current challenges, and adapt accordingly for survival (Beck et al., 2005). The liability of smallness often comes with flexibility, which very often 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 (Steffens et al., 2009). 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.
- Going Local
Research has shown that most small businesses that survive the previous crisis manage to do so with the help of their local community (Doern, 2016). 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.
- Strengthen business and personal network:
For a small business, the strength of the network is vital for strategic decision making (Singh and Delios 2017). 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 (Blackburn et al., 2013). This is where relying on the goodwill of the business partners and suppliers, and support from brokers are important (Kuckertz et al., 2020). Being a member of a business network 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 to advice and be part of a community.
- Managing risk
The existing evidence state that if the small business can increase sophistication in their risk management practice, then they can accordingly adjust their risk-taking attitude (Acar and Göç, 2011). But there is an indication that the SMEs growth and survival at various life -cycle 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 (Bruns and Fletcher (2008)). 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 (Altman et al., 2010). In 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 to 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. Thus, 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. University 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.
Call to action: If you are small businesses, 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, who work with universities and local business, can act as a mediator in this proposed business model to link vulnerable small business with the university.
About the authors:
Dr Suman Lodh is a Senior Lecturer in Finance in the Accounting and Finance Department, Middlesex University. He has over 10 years of research experience focusing critical issues in Finance, Accounting and Innovation. His PhD thesis focused on the economics of technological knowledge spillovers. Suman’s research interests include financial econometrics, innovation and entrepreneurship, dividend policy, momentum trading strategy, CEO compensation and their risk-taking behaviour, corporate governance in emerging markets, earnings management, and sustainable development
Dr Ainurul Rosli is a Reader in Enterprise and Entrepreneurship and Director of Business Engagement at Brunel Business School. Her current research interests include: university-industry collaboration, engaged scholarship, business adaptation, social impact, entrepreneurial ecosystem, and team entrepreneurship.
Dr Monomita Nandy is a Reader in Accounting and Finance at Brunel University London. She is the Director of Internationalisation and Exchange Coordinator at Brunel Business School. She follows interdisciplinary approach to address emerging issues in Corporate governance and Finance. Monomitais expert in Sustainable Business Modelling.