Notes from a Small Company (Not in the Style of Bill Bryson)

Hindsight is a wonderful thing. And things that might previously have seemed difficult or insurmountable hurdles at the time can be put into perspective when looking back, especially if that is from an even more difficult time.

There are many reasons for starting and growing a new business but it is fair to say that looking for an easy life is not one of them. And having the skills of David Hemery or Sally Gunnell (select based on age) always helps. Although the Government regularly states that “the success of small businesses is central to their long-term economic plan”, a philosophical discussion on whether that message has reached all sections of the Government is probably for another time.

In the ‘good old days’ most Small Medium Enterprises (SMEs) had two relatively simplistic challenges – how to win business and then how to get paid promptly, so life would be:


Create an annual business plan based on the current year’s performance plus an organic growth target, all within a known and relatively stable market, and then manage any unexpected changes or hurdles as they come along. Yes there have been cross sector issues such as Brexit which created widespread uncertainty and made winning business that bit harder. And yes there have been sector specific issues such as the off-payroll working rules (IR35) which disrupted an established and efficient private sector contract market with business gradually disappearing as end-clients re-modelled their supply chain. However, you just dealt with those hurdles as they presented themselves.

Cash Flow & Fiscal Prudence

Try to get paid promptly which should be straightforward but not if you have had to sign up for 60 or 90 day payment terms in order to get the work. SMEs are often working in an environment where some (but to be fair not all) end-clients and prime contractors have clearly designed their processes and payment terms around protecting their own cash flow and with no concern whatsoever for their supply chain despite what their Corporate Social Policy might say.

As a member of the Small Business Panel reporting into the Cabinet Office, TORI have used that forum to highlight the issue of late payments to SMEs. Although the Panel’s primary brief is to increase the amount of Government spend through SMEs, whether direct or indirect, it also looks at other aspects of SME engagement with Government such as the flowdown of unreasonable or disproportionate terms and unfair payment terms.

The Government has had a number of well-intended initiatives in this area such as the ‘Prompt Payment Code’, the ‘Late Payment of Commercial Debts Regulations’, the ‘Duty to Report on Payment Practices and Performance’ and it is now giving them more focus by pulling a number of initiatives together under the remit of the Small Business Commissioner. However, as in life generally, ‘good’ companies will treat their supply chain fairly regardless of the rules and ‘bad’ companies will ignore or seek to get around the rules unless there is a penalty for non-compliance.

This has led to more emphasis on compliance such as the exclusion of suppliers from Government procurements over £5m if they do not meet the standards of paying 75% of all supplier invoices within 60 days (and submit an action plan to achieve 95%).

Those issues seemed very important at the time, and they still are of course, but none of us could have envisaged that the whole business landscape would change almost overnight. The reality is that most SMEs have had to move into tactical survival mode that effectively equates to across the board cost reductions (as they have no control over revenue which in many cases has simply fallen off a cliff) and rigorous cash flow management.

As a CBI Regional Councillor and member of the CBI SME Council, I have been one of many people and organisations that have been trying to present the SME agenda through their direct channels into Government. This has covered areas such as:

Job Retention Scheme

This is clearly a valuable support scheme although not as beneficial for SMEs as it could have been. Unlike larger companies, SMEs typically do not have roles where there is a pool of people who can be furloughed 100% on a rota basis. If an individual’s role includes a task that is necessary but only requires a small proportion of their time then they could not be furloughed. For that reason there was pressure on the Government to allow partial furlough going into lockdown but at least there will be partial furlough coming out of lockdown which is essential if SMEs are to build up recovery capability and capacity incrementally.

Access To Finance

The Government has actually been very creative with ideas in this area but the implementation has not always been ideal and its approach in many cases has been reactive rather than proactive. An example would be CBILS which is a good support scheme for SMEs in principle but it was painfully slow to gain any momentum.

This was mainly because the Government failed to appreciate that very few loans would be granted if 20% of the risk remained with the lending bank as they would still want to perform their normal level of due diligence, try to channel requests into standard commercial loan products and require security such as personal guarantees.

The banks were also being asked to implement a new manually intensive scheme with very little notice. Although the Government has reacted to issues and refined the scheme rules and broadened the access to finance, such as by introducing fast track Bounce Bank Loans of up to £50k, a lot of time was lost and many SMEs would have been measuring their survival and ability to pay bills in days or weeks rather than months.

Commercial Rent

Premises is typically the second biggest cost for many SMEs. There is no legal precedent for frustration of contract in the current circumstances so any rent waiver or rent deferral is reliant solely on the goodwill of the landlord. Some landlords have acted collaboratively, as requested by the Government, but many others have been unhelpful. The Government initially put a moratorium of 3 months on evictions (residential and business) and, when it was flagged that a landlord could still start recovery action during that period which could then be followed by a claim to strike-off the company, the Government did extend the moratorium to cover the initiation of legal action which was very helpful.

Business Rates

One of the Government’s support measures was to give 100% business rates relief to all retail and hospitality businesses even though some of them (e.g. food retailers) are actually doing more business and many of them (e.g. general retailers) will be out of lockdown well before 12 months is up. However, many SMEs are paying significant business rates for serviced offices and, although they are clearly not currently receiving any services, they are not a business that qualifies for the 100% relief and, as the rateable value of most premises in London would be over £51k, they would not qualify for any grants under the Small Business Grant Fund (SBGF) or Small Business Rate Relief (SBBR). If this support measure had instead given 3 months business rates relief for all businesses then that would have helped substantially more SMEs.


Many SMEs are experiencing significant overdue debts from large PLCs who claim that they cannot pay down their supply chain because of their own cash flow issues. Slow payment by just one such company can then impact 10s or even 100s of SMEs. And some large companies are seeking to unilaterally increase their existing contractual payment terms under an implied threat of blacklisting suppliers for future business if they do not agree. The Government’s “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency” is commendable but ‘good’ companies don’t need guidance to do the right thing and ‘bad’ companies will just ignore the advice anyway unless there are sanctions of some sort to make them follow the guidance.

10 Weeks Into The New World, What Is Currently On The TORI SME Radar:

  • Urge the Government to extend the moratorium on legal action on commercial rent arrears as otherwise there is likely to be a flood of recovery actions initiated on 1-July which could push many companies into administration. An extension for another three months could also bring more landlords to the negotiating table as that would make them start thinking about a cash flow impact (as they currently don’t really have one as rents are payable three months in advance) plus the increased risk of getting nothing (and an empty property) because of tenant insolvency
  • It is still not too late for the Government to give 3 months’ business rates relief across the board. Rates relief is deliverable through a simple process that would also target bona-fide businesses
  • Try to get maximum flexibility in the partial furlough scheme for SMEs as, for example, many will not have been able to furlough partial jobs going into lockdown and it currently looks like the return to work scheme will only apply to staff who are already on furlough
  • The Government could do more in the area of large companies extending payment terms down their supply chain
  • Government support could be more than just financial and, for example, it would be really helpful if they could issue templates and checklists of what ‘good’ looks like for office based businesses both in terms of what constitutes good employer behaviour around employee health and safety and also from a legal liability perspective

As the only real objective for many SMEs is still to just survive through to the other side, whenever that might be and whatever the ‘new normal’ might look like, it can be hard to look far beyond the short-term day-to-day issues. And even when looking forward, many SMEs cannot really plan as they can only follow the lead of others. Our future actions are very much driven by our own client’s behaviour so:

a) Firstly we need to understand the Government’s plans for the release of its lockdown restrictions (together with the plans for public transport) which are still pretty unclear; and

b) Then we will need to assess both our client’s re-occupation plans and their timetable for re-engaging on discretionary projects rather than Business Continuity; and

c) Then we will need to assess and plan our own staffing levels and office re-occupation which will be linked to our ability (or not) and the need (or not) to physically engage with those clients in their own offices as opposed to remotely.

At a macro level, a major concern is that many SMEs are building up debt (CBILS, loans, deferred  VAT/PAYE, rent arrears etc.) and it just may not be possible for them to repay those debts down the line out of future profits as SMEs do not typically make ‘super-profits’ at the best of times. This could therefore just be pushing inevitable business failure into the future for many SMEs.

At a more specific sector level, issues such as IR35 haven’t gone away as the Government has indicated that it still intends to implement the new rules in Apr-21. Perhaps one consequence of COVID-19 might be that the Government performs a root and branch review of the income tax and NI system as it is arguably unfair and inconsistent to treat someone working through a personal service company as an employee for IR35 purposes when the Job Retention Scheme has excluded them from any financial support on drawings from their company.

And one overarching success must be that the Government has been working very closely with organisations such as the CBI, FSB and TUC and it has clearly been both listening to, and acting on, their business and employment concerns. Hopefully this collaborative approach will continue into the future, but only time will tell.