Britain’s small businesses braced for more pain after surviving the pandemic

In the depths of the pandemic in 2020, owners of some typical small businesses that are the bedrock of the UK economy explained their struggles to the Financial Times.

On a return visit to the same entrepreneurs at Brickfields, a low-rise building in east London that has 98 offices and workshops, all the companies the FT had spoken to two years ago were still in business.

But some homeowners were almost as depressed as they were in 2020, their post-Covid optimism eroded by rising costs and faltering demand as the UK slips into recession. Some had been affected by the fall in the value of the pound sterling and the disruption of the supply chain caused by the war in Ukraine.

The building, owned by Workspace, a FTSE 250 property company, offers a snapshot of the health of British small businesses. It has tenants covering a variety of sectors, from technology to cosmetics, many with international operations and backed by venture capital.

“It’s fucking hard work,” sighed Philip Taylor, founder of Carbon Theory, which makes soap for sensitive or troubled skin, as he contemplates whether to sell the business after sailing for the past two years. “We had friends inside the building who are no longer here, a lot of different models, different businesses. It’s tough across the board.”

“We have to be aware of the price of what we do” — Philip Taylor, founder of Carbon Theory © Daniel Jones/FT

Taylor said he was one of the lucky ones. Revenue has been growing, initially thanks to the boom in online sales during the pandemic and then through physical retail outlets like Walgreens in the US. But you can also see signs that consumers are becoming more careful. .

“Consumers are in buying mode right now, but they will be more selective. We have to be aware of the price of what we do,” he said, pointing to the rising costs of supplies, such as cardboard, as well as staff.

Price pressures were a common theme among others in the building, especially those who have to buy in US dollars given the drop in the value of the British pound this year.

“Honestly, it’s the worst thing in the world. . . you could just break down and cry,” said Cecilia Di Vita, founder of Heart Aflutter Bridal, which makes wedding dresses.

He often buys materials and designs denominated in dollars. “Obviously our prices have to go up, because there’s not much we can absorb. It has to be passed on.”

Adding to those pressures, he is also facing a return to normal commercial rate levels, at around £2,000 a month, after pandemic relief ended, while paying back £50,000 borrowed under the state-backed Covid. ‘catch-up’ loan scheme. “That’s around £800 to £900 [a month]. It’s annoying because we didn’t have loans when the pandemic hit.”

People at a table in Brickfields
Brickfields, a low-rise building in east London, has 98 offices and workshops © Daniel Jones/FT

At least the painful stop-start period of the pandemic, when successive lockdowns forced her clients to postpone weddings, was over, with sales recovering to near pre-Covid levels, she said.

Adding with the typical optimism of an entrepreneur: “We are still here. . . that’s the main. Other bridal boutiques did not survive the pandemic. It’s going to be tough for a few months with all the added costs, but hopefully things pick up again.”

Alex Heaton, founder of LiveSmart, also expected revenue to bounce back to pre-pandemic levels after “two lost years.” But he worried that life as a startup was getting harder as investors became wary of backing fast-growing tech companies.

LiveSmart, a health technology start-up that supplies blood testing and testing to businesses, had raised £2.2m in new funding when Heaton last spoke to the FT in 2020. He said the mood was optimistic at the beginning of the year. “In January of this year, we all thought very well: recovery, recovery, recovery. Right?”

But since then, after the war in Ukraine and the broader political and economic turmoil, things have gotten worse. “Every founder I know, everyone who is raising money, is finding it incredibly difficult and taking big rounds.”

emily bendell
Emily Bendell, CEO and founder of Bluebella, said the fallout from Brexit weighed more heavily on her online lingerie business © Daniel Jones/FT

He was also struggling with rising costs, especially salaries. “The reality is that you are doing everything like a small company, but you are trying to behave like a big company.”

Emily Bendell, CEO of Bluebella, said the fallout from Brexit was weighing the heaviest on her online lingerie business.

Sales are up since you last spoke to the FT, but revenue has been held back by having to invest in new systems “to try to figure out how to make Europe profitable again”, adding: “It’s gotten better, but it is still more challenging than exporting to countries like the United States.”

However, selling into the North American market has proven to be a good hedge against the falling value of the British pound. “Most of the fashion industry buys in dollars,” he explained, which has left UK rivals in a bind.

For Nick Morgan, chief executive of We Are The Fair, which organizes more than 100 festivals in the UK, the outlook is uncertain after a busy summer in which sales surged with people wanting to recapture the social life lost during the pandemic. .

This “euphoria has dissipated over the last few months due to things like the cost-of-living crisis,” he said, adding that he expected “quite a few” festivals to die down.

    nick morgan
“We’re lucky to be well established and have a lot of shows” — Nick Morgan, CEO of festival organizer We Are the Fair © Daniel Jones/FT

Costs, such as transportation and independent technical crews, had grown “exponentially,” he explained. Bands and other artists were also demanding more money, but he said charging more for events to cover extra costs was difficult as the UK was “at the ceiling in terms of ticket prices”.

But Morgan, who had paid off the company’s pandemic loan before interest rates began to rise, remained optimistic that he could ride out this recession. “We are fortunate to be well established and to have a lot of shows.”

Owner Graham Clemett, CEO of Workspace, said there was “cautious optimism. . . a real boost” coming from the pandemic, but he said the “shadow of the Ukraine war and inflation have held it back”. However, he insisted that he “remains very positive about this year’s growth”, pointing to the “resilience” of British entrepreneurs.

In previous recessions, there have been record levels of new company formations as founders have tried to start over. This time may be no different, with many expressing long-term hope even as they face short-term problems.

“Difficult times can be good because they reduce some of the chaff, and as things start to get better, hopefully there will be more opportunities for good companies to take advantage of,” Heaton said.

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