Business leaders forging a path through the “recovery phase” of the coronavirus pandemic need to forecast future turnover, staffing needs, that all-important cash flow and more to ensure they survive. The Federation of Small Businesses shares its sage advice.

Now that the lockdown has been partially lifted, businesses are preparing for a return to the office. We caught up with the UK’s largest grassroots business lobbyist, the Federation of Small Businesses (FSB), to discuss how workers can get back into the office, when business owners can expect to get clarity on the winding down of the furlough scheme, how companies can get £3,000 of free advertising in the Daily Mail and more. As head of policy at the FSB in Westminster, Sonali Parekh has a voice in the ear of government policymakers. She shares her expert advice and reveals what the FSB is lobbying for ahead of the government’s important Spending Review.

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Sonali Parekh at the FSB

The prime minister has said that people can go to work if they can’t work from home. What does this announcement mean for Britain’s small to medium-sized businesses?

One of the critical things is that business owners want to be safe, with smaller businesses treating their staff as family, not people separated by layers of bureaucracy. They want to take a sensible, proportionate, practical approach to work that can’t be done from home. Smaller businesses need to undertake risk assessments and engage with staff to create a safe environment and give confidence that proportionate precautions are being taken.

How can businesses get back to working safely alongside one another in shared office spaces like business centres? 

Landlords will be keen to ensure that offices are safe for people to work within them, and that they comply with – and have due regard for – the carefully considered government guidance that has been put out. Some of the changes that may apply in an office space are perhaps more manageable than other types of spaces, like making sure people work side by side instead of face to face. [It’s things like] making sure there are hand sanitizer points at entry and exit, and trying to make sure wherever possible that the 2 metre distance rule is applied. 

I think there is mutuality there in terms of interest. Landlords want to make office space safe and individuals working in those shared office spaces will also want to operate in a safe way. A lot of our members have been pleasantly surprised how effective working from home has been, but the conceptual reasons why those shared office spaces can be so valuable for start-ups and fast growing companies is not in question. It’s that cross-fertilisation, the externalities and benefits of being close to other businesses in a similar stage of growth to you, that are as hungry as you, that have complementary skills sets you can capitalise on. You can benefit from your peers.

Around half of Britons are on furlough but the Chancellor has stated that employers will need to start contributing to the scheme. When can businesses expect to get clarity on how much they need to contribute, and how can they start preparing for this shift?

Our understanding is by the end of May, there will be clarity on what the employer contribution will need to be. We would hope it’s set at an affordable level. From August 1st, employer contribution of some proportion will be required – it is important to remember that part-time furloughing will be allowed. This means that employers don’t have to take back all their furloughed staff in one go, but can stagger a return in accordance with how fast economic activity is picking up. Overall, the FSB is very pleased that the scheme has been extended irrespective of sector, region or nation.

I think businesses do need to start to plan. To do that, you need to know what proportion of contribution you will have to make [to furloughed staff’s wages] and the government guidance on when businesses can re-open. A lot depends on the R rate (how fast the virus spreads) and how the pandemic plays out over the next couple of months. Economic forecasts for the second quarter point to very low activity. All businesses will be thinking about their actual level of business activity in the second quarter and the proportion of staff they want to un-furlough that is proportional to the amount of work that will be available. 

Each business will forecast its level of turnover and revenue generation in June, July and August and, on that basis, decide how many staff they want to un-furlough and how many to remain furloughed. They will be thinking about orders in their pipeline, how exposed the business is to consumer demand and the nature of that demand. 

A lot of places will struggle terribly but some types of goods and services have seen a spike in demand. Some businesses are managing to pivot. One of the FSB’s members, an engineer in Inverness in Scotland, has joined up with other small [local] engineering companies to design, produce and deliver a batch of “Corran” full-face visors, to meet a specific request from the intensive care unit at Raigmore Hospital.

The FSB has partnered with the Daily Mail (DMGT) to offer businesses £3,000 of free advertising in the DMGT’s stable of newspapers. What does the FSB hope to achieve by this, and what other useful initiatives should business owners be aware of?

It’s positive for smaller businesses that are looking to increase demand and remind customers that they’re open again. The FSB is aligning our brand with DMGT because we have a massive reach into the small business community. The initiative can’t help everyone that applies, but hopefully larger corporations will think how they can help small businesses – to see if they can replicate [free advertising] or find other ways to help.

Government support is absolutely critical but there is also a role for larger corporates to play, many of whom want to help smaller businesses and local communities, of which small businesses are an integral part. The recovery from this crisis won’t rest in the hands of one institution or sector, it will need a lot of cross-collaboration between government – local and central –, the private sector of all sizes and the third sector.

Cash flow has historically been the biggest barrier for SMEs’ growth. What advice does the FSB have for businesses that are under pressure? The government’s new lending schemes have come under fire for being too difficult to access. How much progress has been made on getting state funds into businesses’ pockets?

Cash flow is definitely the number one challenge for smaller businesses – feedback from our members consistently shows us that. Depending on circumstances, there is a range of potential options. The Coronavirus Job Retention Scheme might apply for small businesses with employees. 

Retail, hospitality or leisure businesses in England with a rateable value of between £15,000 - £51,000 can get a one-off £25,000 grant. The vast majority of those should have been received. We recognise there will be many smaller businesses that don't directly pay business rates that are struggling with cash flow. We lobbied the government hard because the emergency loan scheme (CBILS) wasn't really working for smaller businesses looking for lower value loans, particularly below £25,000. 

The Bounce Back Loan Scheme launched on May 4th; the feedback has been very positive. Smaller businesses are getting the loans they need. Businesses receive funding between 24 - 48 hours, and the application process is far more straightforward. There is no requirement to show forecasts for what income may look like in the future; relatively speaking it is a light-touch approach. You just need a business current account. Within the first year, there is no requirement to make capital repayments and no penalty for early repayments. The key thing is that there is a cap: the maximum loan is the lower of 25% of your turnover or £50,000.

With large-scale government interventions, there will always be gaps. It is important local authorities have sufficient discretion to make discretionary grants. We are keen to see what more can be done through local authority hardship funds. 

These new government loans are interest-free for a year, but they must be paid back. Given UK GDP is predicted to dive by 14 per cent this year and the UK faces the worst recession for three centuries, how concerned is the FSB that smaller firms will end up loaded with too much debt that they cannot pay back?

That’s clearly a concern. Once the immediate crisis is over we will talk to the government about how to ensure smaller businesses survive the recovery. The early stage of the recovery phase as government support tapers off is the moment of greatest danger for smaller businesses. This is true of all recessions and economic shocks. We want to work with the government to make sure they can survive those crucial first few months and [figure out] the right incentives through business support and the tax system to ensure they not only survive, but thrive.

To avoid companies being overloaded with debt, some commentators are calling for the British equivalent of Germany’s KfW, to provide equity financing to avoid loading companies with too much debt. What is the FSB’s view on this? How does the new Future Fund Initiative match up?

We welcome it. The government recognised that, particularly in the tech sector, fast-growing businesses don’t always meet the state aid requirements because they are unprofitable. It’s good that the fund is in place to try and support those businesses so they can survive this crisis. Equity financing more generally is an area of development for the UK. Alternative finance is an area where smaller businesses still need more support and help in terms of not just thinking about traditional debt vehicles, but other forms of financing that may be more appropriate, like asset-based finance, invoice financing or equity financing. 

We are keen more broadly to ensure the fallout from the crisis doesn’t result in losing some of the gains made over the last few years to diversify the lending market and open up smaller businesses’ horizons. There is more we can learn from Germany and other countries that do it better. It will be interesting to see what the success of the start-up fund looks like. 

What are the main things the FSB is lobbying for right now, on behalf of UK businesses?

The FSB lobbied for part-time furloughing, which has now been achieved. We are lobbying to make sure the SEISS scheme doesn’t have a cliff-edge ending to it, so self-employed people can gradually ramp up their activities in accordance with economic activity levels. We’re pressing hard to ensure that smaller businesses are in the best possible position to recover and that those early months of recovery are managed in an efficient way. We are keen to ensure smaller businesses falling through the cracks get some form of relief. As we look ahead we have some big moments coming up – the government’s Spending Review will be extremely important.

The delay to implementing IR35 (new tax rules) is positive, but we want the government to think more profoundly about whether further delay needs to be built in. The Chancellor announced a budget fundamental review of the business rates system – we lobbied long before that it’s crippling many companies. We really welcome the rates holiday, but many smaller businesses will face a challenging set of economic circumstances and will need significant further relief, such as another holiday or increasing the rate relief threshold from £15,000 to potentially all the way up to £51,000. We are lobbying and influencing, because the autumn budget will be an incredibly important one. 

Sonali Parekh is the Head of Policy for the Federation of Small Businesses. She oversees the overall policy and research of the FSB’s Westminster Office. Sonali has led the FSB’s research programme on the impact of Brexit on small businesses.

Further resources

For the latest news, advice and guidance that can help you manage your business through COVID-19 and beyond, head to Workspace’s Back to Business hub. Find out how we are reconfiguring our business centres to implement social distancing and more robust hygiene facilities, and get up to speed on settling back into the office after lockdown.

For more information from the FSB, speak to an FSB adviser and check out their coronavirus hub for advice and guidance.