UK small businesses are hurting more after surviving the pandemic

In the midst of the pandemic in 2020, the owners of some of the typical small companies that are the basis of the British economy expressed their struggle to the Financial Times.

On a return visit to the same businessman in Brickfields, a low-rise building in east London that has 98 offices and workshops, all businesses FT had said two years ago are still trading.

But some owners are almost as down as 2020, their post-Covid optimism tempered by rising costs and stuttering demand as the UK slips into recession. Some have been hit by the fall in the value of sterling and supply chain disruptions caused by the war in Ukraine.

Buildings owned by Workspace, a FTSE 250 property company, offer a snapshot of the health of UK small businesses. It has tenants covering a range of sectors, from technology to cosmetics, many of which operate internationally and are backed by venture capital.

“It’s hard work,” said Philip Taylor, founder of Carbon Theory, which makes soaps for problem or sensitive skin types, as he pondered whether to sell the business after navigating the past two years. “We have friends in the building that aren’t here, a lot of different models, different businesses. It’s very difficult.”

Philip Taylor, founder of Carbon Theory
‘We need to be price conscious of what we’re doing’ – Philip Taylor, founder of Carbon Theory © Daniel Jones / FT

Taylor said she was one of the lucky ones. Revenues have increased, first on the back of online sales booming in the pandemic and then through physical retail stores such as Walgreens in the US. But he can also see signs that consumers are becoming more cautious.

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

Price pressure was a common theme among others in the building, particularly those who had to buy in US dollars due to the fall in the value of sterling this year.

“It’s the worst thing in the world. . . You can just break down and cry,” said Cecilia Di Vita, founder of Heart Aflutter Bridal, which makes wedding dresses.

She often buys dollar-denominated materials and designs. “Our prices obviously have to go up, because there’s only so much we can absorb. It has to be inherited.”

On top of that pressure, he faces a return to the normal level of the business rate, around £2,000 per month, after the pandemic relief is over, while paying back the £50,000 borrowed under the state-backed Covid conditions. ‘bounce back’ loan scheme. “It was around £800 to £900 [a month]. It’s annoying because we didn’t borrow when the pandemic hit.

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

At least the stop-start period of the pandemic – when successive lockdowns forced their customers to postpone weddings – is over, with sales recovering to pre-Covid levels, he said.

He added, with his usual entrepreneurial optimism: “We’re still here . . . that’s the main thing. Other bridal boutiques didn’t survive the pandemic. It’s going to be difficult for a few months with all the extra costs but hopefully things will pick up again.

Alex Heaton, founder of LiveSmart, also expects revenues to recover to pre-pandemic levels after a “two year loss”. But he worries that life as a startup is becoming more difficult as investors become more wary of backing fast-growing tech businesses.

LiveSmart, a health technology start-up that provides blood tests and analytics to companies, had raised £2.2 million 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 this year, we all thought it was great – recovery, recovery, recovery. Really?”

But since then – after the war in Ukraine, and the wider political and economic turmoil – things have taken a turn for the worse. “All the founders I know, anyone who raises money, finds it very difficult and takes a big round.”

Emily Bendell, chief executive and founder of Bluebella
Emily Bendell, chief executive and founder of Bluebella, says the post-Brexit effects will weigh heavily on her online lingerie business © Daniel Jones / FT

He, too, struggled with rising costs, especially wages. “The reality is that you do everything as a small business, but you try to act like a big business.”

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

Sales were up since he last spoke to the FT but revenue has been held back by having to invest in new systems “to try to figure out how to make Europe profitable again”. He added: “It’s better but still more challenging than exporting to countries like the US.”

Selling to the North American market, however, has proved a welcome hedge against the fall in the value of sterling. “Most of the fashion industry buys in dollars,” he says, whose only British rival is struggling.

For Nick Morgan, chief executive of We Are The Fair, which organizes more than 100 UK festivals, the outlook is uncertain after a busy summer when sales soared and people sought to make up for the social life lost during the pandemic.

This “euphoria has disappeared over the past few months due to things like the cost of living crisis”, he said, adding that he expected “some” festivals to disappear.

Nick Morgan, chief executive of festival organizers We Are The Fair
‘We’re lucky that we’re established, and we have a lot of events’ – Nick Morgan, chief executive of festival organizer We Are The Fair © Daniel Jones / FT

Costs, such as freight and freelance tech crews, have increased “exponentially”, he said. Bands and other artists are also demanding more money, but he added that charging more for shows to cover the extra costs was difficult because the UK was “at the ceiling in terms of ticket prices”.

But Morgan, who had already repaid the company’s pandemic loans before interest rates began to rise, remains optimistic he can ride out this downturn. “We’re lucky that we’re established, and we have a lot of shows.”

Landlord Graham Clemett, chief executive of Workspace, said there was “careful optimization . . . Real momentum” coming out of the pandemic, but said “the shadow of the Ukraine war and inflation has slowed it down”. But he stressed that he was “still very positive about growth this year”, pointing to the “resilience” of British entrepreneurs.

In previous recessions, there was a record level of new company formation as founders sought to start over. This time may be no different, with many expressing hope for the long term despite facing short-term problems.

“Difficulty times can be good because it reduces some chaff and as things start to improve, then hopefully there are more opportunities for good businesses to take advantage of,” said Heaton.

Leave a Reply

Your email address will not be published. Required fields are marked *