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17 February 2022

Small firms face tough times, but have reason to hope

Covid has taught businesses how to respond to the present, but the future will demand a more strategic approach.

By Andrew Harrison

Small and medium-sized enterprises (SMEs) are facing a new set of challenges in 2022, most notably the rising cost of energy, the hike in National Insurance contributions, staff shortages, and post-Brexit trading relationships and regulations. All this while the global pandemic continues, with the Omicron wave disrupting economic recovery at the end of last year.

It is perhaps no surprise that NatWest’s recently published Sustainability Business Tracker found fewer businesses were prioritising sustainability than the previous year. The evidence so far points to a growing divide, with larger businesses being more likely and able to focus on, and invest to prepare for, the net-zero future. 

At the most recent meeting of NatWest’s national SME Taskforce we heard about these challenges first-hand and explored how the financial sector and government can support businesses through the short-term challenges while looking to net zero.

CoGo is a purpose-first business (one that has a purpose beyond making a profit) focusing on building tools to help SMEs transition into the low-carbon economy. CEO Emma Kisby said SMEs want to do the right thing, but they are dealing with competing pressures so need solutions that can be implemented simply and quickly. Those challenges could include certification, financing, implementing carbon reductions and offsetting. “We’re seeing that us as an SME, and other SMEs, are really able to capitalise on not only coming up with solutions that address the climate challenge, but also on the ability to collaborate,” she said.

Each vertical will also need its own set of solutions to meet their own challenges – what works for a restaurant is not necessarily going to work for a taxi company. One of the government-backed schemes to skill up our business leaders, Help to Grow, could be the model to develop a “Help to Green” programme, said Martin McTague, policy and advocacy chair at the Federation of Small Businesses.

Kathy Caton, who runs Brighton Gin, outlined how businesses need confidence to borrow and invest in themselves. “Our overall agenda is totally focused on growing, but in an ethical and sustainable way,” she explained. “But we’ve got some really, really huge challenges on the costs front.” While the company actively sources locally, the costs of transport and glass within the UK have risen as export markets in Europe become harder post-Brexit, she said.

Businesses responded well to Covid-19, adapting and learning quickly in order to survive, but the future challenges of net zero and technology will need stronger strategic planning, said Paul Edwards, who chairs the regional SME Taskforce in the south-west. “There is an enormous amount of support available; it’s quite disjointed, it’s hard to navigate and it’s often quite dependent on the end person that you end up speaking to,” he said. McTague reported that many councils are yet to start disbursing their support funds, while there is also doubt about the future of Local Enterprise Partnerships (LEPs). Edwards summarised the situation as a multiplicity of pots of money combined with the impossibility of finding out what they are. Tackling this disjointed picture of support is something several of our regional taskforces are looking to address as they develop and strengthen themselves.

“There is a strong desire to engage and to decarbonise, but navigating all the new big commerce stuff that is out there is extremely difficult for SMEs,” added Kevin Morgan, chair of the Wales regional task force. They too are helping businesses navigate the complex system of support by mapping the available schemes, and are looking to provide a similar offer on sustainability – providing information, tools and steps that are clear and simple for SMEs.

Mark Sterritt, director at the British Business Bank, agreed that information on net zero for businesses was at a relatively early stage compared to other areas. The bank has a finance hub on its website and is looking at creating a section called “net-zero accelerator”. The aim is to develop a place where SMEs can take the quick steps to help them on their sustainability journey.

One of the key issues with accessing support and information is ensuring that diverse businesses are reached. Businesses led or owned by Black, Asian and minority ethnic people were particularly hit during the pandemic. Again, the challenges are different for each business and each person.

“I think it might need some reshuffling and rethinking of how we can level the playing field for a broader entrepreneurial sector that includes many more people,” said Dirk Bischof, founder of Hatch – a business that supports under-represented entrepreneurs. Bischof spoke of how its core offer revolves around the “three Cs” of capital, access to customers, and access to connections and support. “Over 53 percent of black and brown founders currently cite capital as a major barrier for growth,” he said. “Often they can’t apply to the various schemes and start-up schemes that are out there because they’re micro businesses.”

“The biggest issue for us is about pipeline, and making sure entrepreneurs from diverse communities make their way to the right sources of funding,” said Jenny Tooth, CEO of the UK Business Angels Association, which represents angel investors. She explained how it has recently launched guidelines for business angel investment in diversity. They aim to improve access to opportunities for under-represented groups and  to change the composition of the angel investment community itself. Around 11 per cent of angel investors are Black, Asian and minority ethnic people, and there have been encouraging moves to create Black and Asian investor groups. Only 16 per cent of angel investors are women.

The challenges in 2022 and beyond are real, but with an engaged business community and the right support from the broader business sector and government, we can navigate them and lay the foundations for a stronger and more sustainable sector.

Andrew Harrison is Head of Business Banking at NatWest Group.

[See also: SME climate focus falls due to pandemic]

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