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For the 5.9 million small medium enterprises that make up over 99% of businesses and 47% of revenues for UK Plc, to say the last 16 months have been challenging would be perhaps just a slight understatement. To say the path to recovery is full of bumps and strewn with debris would be another one.

Throughout much of 2020 business owners were faced with the extreme disruption brought about by lockdowns, with many forced to close their doors, place staff on furlough, deal with absenteeism, whilst also finding ways to adopt new technology to enable remote working and hold culture together. All these operational challenges were felt at the same time of scrambling for cash flow, trying to ensure supply chain resilience, and attempting to hang on to longer term plans and not abandon strategy often formulated over many years.

Despite rising infection levels, concerns over new variants and increasing hospitalisation numbers, the decision for the removal of all Covid-19 restrictions later this month comes as positive news to many business owners, not least those operating in the most badly impacted sectors of hospitality and leisure. A full reopening of the economy might be welcome news then, but business owners are today facing into a environment that is more uncertain, and unstable, where change is accelerating at an ever increasing pace.

The challenges and headwinds then facing an SME owner today fall into the categories of (1) Immediate survival, (2) Business continuity and (3) Re-establishing a platform for sustained growth to thrive:

Survival = Cash Flow

With revenues suppressed during the worst of the lockdowns and now for many businesses raw material price rises driving up costs being a feature of the recovery, profitability challenges for many will persist beyond 2021. Whilst the Covid loan schemes provided much needed immediate cash flow support to the 1.7m businesses that took Bounce Back Loans or a CBILS facility, with ï¿¡73bn of lending now due to start being repaid many businesses will undoubtedly struggle to meet loan obligations at a time when accumulated rent arrears and deferred tax will fall due at the same time of business owners having to make full salary contributions to their staff returning from furlough.

Despite putting in place measures such as "pay as you grow" for the Bounce Back Loans and enabling businesses to discuss restructuring of their CBILS facilities with lenders, there will unfortunately be many owners that will simply be extending and pretending. The Covid Loan schemes and relief measures had sought to put businesses and the economy in a suspended animation, and whilst no doubt have served the purposes of enabling strong businesses with a temporary cash flow challenge to survive, there are many who even going into the pandemic were structurally struggling for viability. Now laden with debt and additional cashflow commitments their businesses are even more unstable and stretched than they were pre-pandemic.

The Recovery Loan Scheme seeks to focus on supporting businesses to "build back better" and invest for the future, and whilst undoubtedly there will be many that benefit greatly from cheap largely government backed borrowing to invest in capex and technology, for many more debt and fixed cash flow commitments are the last thing needed, and will only serve to weigh down the business from deploying resources towards possible growth opportunities.

Most business owners have become incredibly adept at building resilience into their planning and cash flows, and many have found the challenge of lockdowns and loss of revenues have "forced the focus", leading them to improve productivity, create efficiencies and seek out new revenue opportunities they might not otherwise have done so. Cutting costs hasn't just been about short term survival, but also a means to make the operating platform leaner and more adaptable to change. Businesses that have been able to replace fixed costs with variable costs are now much better equipped to deal with uncertainty and to respond quickly to changing market conditions. They will have also in doing so created some much needed breathing space to worry less about the day to day but more about how to deploy cash flow for future growth.

Trade needs continuity

Logic would suggest that the more barriers you remove to trade then the easier, more likely and able businesses are to seek out opportunities to invest and to transact with one another. Conversely then the more obstacles and barriers non-tariff or not that are put in place then the opposite with apply. With increased friction, delays, and costs associated with importing and exporting with individual EU member states, the burden of Brexit is falling hardest on UK SME's.

For the most part larger corporates and multi national firms have the bandwidth and resources to deal with new regulations and increasing friction, and are much more likely able to absorb the financial impact of Brexit through economies of scale and being able to operate in multiple countries. For the owner managed SME however who is often performing the roles of Sales, Finance, Operations and HR Director whilst trying to navigate through a pandemic- time, money and manpower are precious commodities they can ill afford to lose to friction and trading obstacles. For many the choices have become stark- Stop selling into the European markets altogether, attempt to absorb the increasing costs or as is becoming the cases for many seeking to avoid Rules Of Origin tariffs being implied, look to relocate factories and distributions centres.Whilst it is often argued that the vast majority of UK SME's don't export into Europe, putting up barriers to trade with a market that contributed 43% of total exports in 2019, and where supply chains have become increasingly interlinked represents more than just a minor hurdle for business continuity for UK SME's over the coming years.

By definition SME's are entrepreneurial and so despite the challenges brought by Brexit many still look to opportunities in post EU Markets with confidence and optimism. As the UK Government concludes more trade agreement there will of course be opportunities for businesses to expand into markets, but these decisions must be informed decisions born out of hard facts and data as many will find trading further afield with the inability to pass costs onto customers will squeeze margins, ultimately reducing productivity and cash flows.

Going for growth

Perhaps two of the most positive areas to have come out of the pandemic for UK Plc are the all time record number of new businesses created during the year, with these often being those where there is much more of a focus towards innovation and social purpose over profit. The pandemic has changed the way millions of people think about their lives and work, and after having spent over a year where the lines between working from home and living at work have blurred, more and more people are taking the opportunity to go into business for themselves.

This presents an incredible opportunity for the UK Government to focus its support on start-ups and growth businesses, creating the conditions for businesses to invest, innovate, scale, access talent and trade with as little friction and pain as possible. SME's have proved resilient, adaptive and creative, but now want to look to the future with confidence. To do so they'll need a framework and vision for growth, support to create new market opportunities, with much more being done to ignite equity investment for start-ups and scale-ups, and to enable businesses to quickly re-skill and redeploy their workforces. There will of course rightly so be the pressure to save struggling businesses and to ensure unemployment does not spiral, but through the storm clouds that will inevitably appear over the coming months, it must not detract from the opportunity, nor tie up the resources to support the new wave of business entrepreneurs and innovators.

Growth ambitions and plans need to be set against the three most important societal and economic trends already underway pre-covid-19 but which have now only been accelerated by the pandemic - (1) Ageing populations (2) Digitisation of societies & (3) Climate change focus sharpening.

With a new demographic of consumers and work force emerging over the last few years, the pandemic has helped lead to an even faster and greater change in consumer behavior. Throughout the last year more and more people have had reason to reassess the things they value most, no longer taking certain purchases for granted and being much more in tune to the wider consequences of decisions.

The consumers of tomorrow will be digitally native, and have grown up in a world of instant gratification where Facebook, YouTube, WhatsApp and Instagram have always existed. They expect experiences to be digitally delivered, customised and available at the click of a button, SME's of today will need to embrace digitisation and find ways to stand out in a world where the way we consume, transact and interact has permanently changed.

Most SME's are fully behind sustainability, no longer seeing it as a buzz word, appreciating the importance and urgency to reduce emissions and transition to a net zero carbon economy, but still for the most part are grappling with the "How" and the practicalities. Support will be needed to help SMEs better measure their own carbon footprint, and adopt greener technologies

Roadmap ahead

The next six months and beyond for UK Plc will be fraught with uncertainty as we navigate the unchartered territory of trying to fully reopen economies whilst dealing with a pandemic that remains very much at large, continuing to impact peoples lives on a daily basis. With supply chains still suffering, core inflation looking less transitory as more data emerges, and digital technologies continuing to collapse value chains, SME owners and entrepreneurs will need to call upon more than ever the skills of leadership, resilience and adaptability that so many have become masters at over the last year.