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How SMEs can use digital technology to drive a V-shaped recovery

(Image credit: Future)

The world needs its small and medium-sized enterprises (SMEs) to succeed. They account for over half of the GDP of most countries and almost 70 per cent of jobs. In the UK alone, there were nearly six million SMEs at the start of 2019, more than 99 per cent of all businesses, and they made around half of total private sector turnover. Unfortunately, they have been disproportionately affected by Covid-19. Yet there is hope.

SMEs may have fewer cash reserves than their larger counterparts, but they are more agile. If small business owners make the right investments in digital systems, they can quickly trim costs and enhance efficiencies — providing the perfect springboard to recovery.

The world under lockdown

That means some sectors have been affected more than others. Any business reliant on the congregation of people in confined areas has suffered a serious blow. That means the entire hospitality industry, transportation, and many retail stores, among others. Even those able to provide their goods online have come up against creaking supply chains as air freight prices soared on the back of grounded passenger planes, where most international cargo is carried.

These are remarkable times. Never in living memory has there been a combined economic and health crisis of this magnitude. Unlike the financial crisis of 2007-8, there is no one immediately to blame, although government handling of the situation is increasingly scrutinised. Demand for certain goods and services is being suppressed not simply because of economic hardship but because most B2C businesses were forced to close their doors to customers.

Grim figures

Unsurprisingly, the economic outlook is tough. The IMF in April predicted global GDP would fall 3 per cent in 2020 and by 6.5 per cent in the UK. Britain suffered a 20.4 per cent GDP decline in April: the largest month-on-month drop since regular records began in 1997, thanks to lockdown.

With smaller cash reserves and often reliant on larger business partners for regular income, SMEs and freelancers have been hit hardest. Despite the government eventually creating three loan schemes for these businesses, administrative problems delayed approvals and put many firms off applying. Research from late April claimed that a third of SMEs will be unable to cover their costs by the end of July, even with government help, with 39 per cent pausing operations entirely. The smallest firms have been worst affected. Separate research revealed that 76 per cent of sole traders and 74 per cent of micro-businesses reported negative business impact, versus 70 per cent across all SMEs.

Turning things around

Those SME owners now looking for new sources of revenue and formulating fresh business plans may be better placed to do so with greater agility than their counterparts in large organisations, which have often required large injections of cash to stave off bankruptcy. Just look at multibillion-dollar TripAction’s recent $120 million debt financing.

However, despite the doom-laden headlines there is cause for optimism, as lockdowns are eased across Europe. According to one lender, many businesses owners are “fighting back” against the adverse conditions with new business plans (37 per cent), and the majority (67 per cent) are looking for new income sources.

The truth is that SMEs as a whole have been hit hardest by the pandemic, but they also possess the flexibility to bounce back fastest. Many were founded following the last financial crisis and have developed strong customer relationships that can withstand the current turmoil. It’s also true that SMEs are more likely to have been working along distributed lines prior to lockdown, to save money, drive productivity and attract the best talent. As far back as 2016, one survey claimed 66 per cent of UK SMEs employed remote workers. This arguably made the transition to lockdown easier.

Digital for the future

Expense management is a great example. It might not be at the top of every SME owner’s priority list right now, but there are major savings to be made. Expenses are outdated, error-prone and costly. Especially in smaller companies, employees are often expected to do them manually, eating into time they would otherwise spend on growing the business.

The biggest winner out of the Covid-19 pandemic thus far has been technology. Online digital platform providers have kept workers sane, productive and safe. Just look at video conferencing start-up Zoom, which grew from 10 million daily meeting participants in December to roughly 200 million in March. Streaming giant Netflix, meanwhile, recorded a 27 per cent year-on-year revenue increase for the first quarter of 2020.

Technology has helped countless businesses reach their customers during lockdown, whether it’s selling via their e-commerce websites or simply staying in touch with them via social media. But it also has a part to play in the recovery, by empowering SMEs to trim costs and become more efficient internally.

Avoiding unnecessary losses

Managing corporate travel costs and expenses administration were cited last year as UK SMEs’ biggest concern. In fact, small businesses are estimated to lose over £8.7 billion annually due to the time taken to complete menial tasks such as expenses. Fraudulent claims, which are harder to spot when using manual processes, could be costing them a further £1.9 billion each year. Even small incidents can add up to big losses.

By failing to digitise their corporate expenses processes, UK firms may also be losing out in more other hidden ways. Those with ambition want to attract the brightest and best of the next generation of workers entering the jobs market today. According to Deloitte, millennials will represent a massive 65 per cent of the global workforce by 2025. Yet this new bunch is unlike any that have gone before. Raised in an internet-first world and on user-friendly consumer technology platforms, most have high expectations of the tech they use at work.

That means those faced with old-fashioned manual processes for expenses and other admin tasks may become quickly de-motivated, and could even be inclined to look for work elsewhere. With 85 per cent of millennials admitting to procuring their own workplace technologies, there’s also a concern that they may go off-grid, creating a further shadow IT challenge for the organisation which could create new security and compliance issues. In short, to get the best talent, businesses must arm them with the right digital tools.

Overall, the message is clear: seek out automated platforms that can help your business with the repetitive, time-consuming administrative tasks no employee enjoys in areas such as financial reporting, expenses, HR and payroll. It will free up those workers to focus on higher value tasks and minimise human error and fraud, reducing business risk and potential compliance fines in the process.

That’s the kind of win-win SMEs need as they navigate the return to business-as-usual that they, and the country, desperately need.

Billel Ridelle, CEO, Sweep

Billel Ridelle, CEO at Sweep. Billel founded Sweep in 2018, and leads company operations in all key markets.