‘Waves of pent-up demand have tested the supply chain’s ability to cope, leading to steeply rising prices for global logistics’
Many of 2021’s challenges look set to persist, and what’s worse, they’re coupled with rising inflation that few in the small business community believe will be “transitory”, the favored word of policymakers to describe the current rise in prices, and higher levels of debt due to the emergency loans many had to take out simply to survive.
If this year left an unpleasant taste in the mouth for small businesses then 2022 doesn’t seem like it will be a delectable picnic either.
Today’s difficulties have been exacerbated by the coronavirus pandemic, which has had almost unrivaled impacts on the labor force as well as supply and demand dynamics. Waves of pent-up demand have tested the supply chain’s ability to cope, leading to steeply rising prices for global logistics, with shipping container prices rocketing and the cost of goods climbing.
This has been compounded by labor shortages in the UK, a particularly acute issue among HGV drivers, meaning that even once goods arrive here, getting them to their final destination has been extremely problematic.
Ali Cooke, co-founder of Devon-based ethical and sustainable home and lifestyle products firm Nkuku, imports roughly 95 percent of its stock from India, Vietnam and Indonesia, and so has felt the importing pinch.
“I’ve been importing for 20 years and containers have been around the $2,000 mark, but now, from China, it’s $18,000 a container, and from India, it is up to $8,000,” he said.
“This means cost pressures are going to be the main challenge next year, as with small businesses, once costs go up, it’s quite hard for them to come down.”
Mr Cooke said not only were the costs of raw materials rising, but wages were too, with the third-party warehouse he uses reporting labor charges rising by about 30 per cent “just so they can hold on to staff”.
Like all small businesses, Mr Cooke said managing price rises was key, balancing what can be passed onto customers with reduced margins for his business, a decision navigated through “sensitive conversations with suppliers”, especially as suppliers’ mostly commodity-related price rises can normalize.
His main wish for next year, though, is stability, even if that’s at elevated costs.
“At the moment, it’s firefighting; we’re reacting to a new challenge each month with cost pressures here, or labor shortages there. Next year, hopefully, there will be some stability, even at higher prices, as it will mean we can get on and run the business.”
Even if this stability appears though, one major distraction that might be present for large numbers of small businesses is the enlarged debt pile many will have accrued during the coronavirus pandemic. Many accept that the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme were vital lifelines, but it’s most likely money they wouldn’t have borrowed without the pandemic, and it still needs to be repaid.
“Debt levels will be a real concern,” says Lynne Darcey Quigley, founder of Glasgow-based Know-it, a credit management platform for small businesses.
“Small business owners will be wondering how to pay them back and will be focused on restoring cash flows; I think we’re in new territory as small- and medium-sized businesses often find it hard to borrow money, but they will have taken advantage of low rates and the fact that personal guarantees weren’t required for these emergency loans. I think insolvencies will come like a wave in the first or second quarter of 2022.”
Ms Darcey says Quigley’s clients are spread across various industries, providing her a broad insight into different sectors. She notes that the seafood industry in Scotland is “really struggling with Brexit” because of issues with exporting to the EU, while she expects the construction sector to struggle in 2022 with the sourcing of materials and securing the required labour.
Michelle Ovens CBE, founder of Small Business Britain, highlights that the efforts made by small businesses during the coronavirus pandemic have led to them becoming better, more resilient businesses with more routes to market and new products and services. Nevertheless, she acknowledges that 2022 will present challenges.
“The biggest challenge will be cash flow,” she says.
“There are six million small businesses in the UK and not a single one has said that costs aren’t going up. Businesses have bought stock early but revenues are coming later and so there is a cash flow gap. There was a hope that there would be a big Christmas boom, that consumer-facing businesses would have a big moment and this would trickle down to the supply chain but we haven’t seen that.”
Ms Ovens reiterated the issue of small businesses trying to move goods in and out of the EU as a major headache, adding that staff shortages in 2022 would also be an ongoing problem.
She added that the government had “an economic and a moral obligation” to support the army of small businesses that played vital roles during the pandemic, potentially via extending debt repayment terms, or delaying forthcoming tax payments to “give people an opportunity to get back on their feet”.
This notion of support is backed by Mike Cherry, national chair of the Federation of Small Businesses (FSB), who criticizes the government’s “very regressive, anti-growth, anti-investment taxes”.
“If there’s one really serious message, it is that if you’re looking for an economic recovery, which SMEs will be a part of, you have got to stop front-loading business with increases in upfront costs like national insurance and business rates, “Hey says.
The government announced this year that both individual and employer national insurance contributions would rise by 1.25 per cent from April, which the FSB estimates will mount up to a £ 5.7bn bill for the small business community. Mr Cherry urged the government to extend its Employment Allowance scheme, which reduces NI bills, from its £ 4,000 level now to £ 5,000.
And business rates, “a tax that goes back to 1603”, needs fundamental reform he adds – something that Ms Ovens agrees with, stating that “while we should all expect to pay tax, it shouldn’t be to the point where it’s crippling , and you can’t run your business, pay staff or feed your family”.
The government’s business rates relief, which currently allows businesses to only pay 66 per cent of their bill, ends in March.