In the last two years, small businesses have experienced a more demanding business environment than anyone could have predicted. While COVID-19 has been the unwanted center of attention, the impact of Brexit, supply chain disruptions, rising energy prices and a war for talent have created an uncertain and test market.
As a result, small businesses – the mainstay of our economy – are being held back to realize their potential. But in the hard-as-nails role of SME owner, you usually win either or you learn. Looking back on the past year may bring fresh optimism for next year. Most notable for small businesses is that the technology, and the benefits it can bring, are more accessible than ever.
Although traditionally slower to adopt emerging technologies than larger counterparts, the COVID-19 crisis has overwhelmed digital spending among small businesses, with a 20% increase in the UK after a period of prolonged stability. This looks set to continue and will define many of the trends affecting small businesses this year.
New customer behavior continues to drive ecommerce
While online shopping is already booming, many more consumers have realized that they can shop safely and more comfortably from home – COVID-19 or not.
In many ways it can be more efficient to run small businesses online. Without the need to worry about overhead costs – and no requirement to maintain a brick and mortar location – ecommerce has the opportunity to balance the playing field for those without capital to invest in physical space.
To capitalize on this, it is key for small businesses to work with ecommerce platforms that support online growth. SMEs could also consider looking for tools and software that can help save time on administration by reducing manual data entry and the documents associated with the disclosure and interpretation of sales information, online or otherwise, and giving them an up-to-date View on their finances, cash flow and business performance.
A new era of pay
In addition, small businesses should expect more payment options to be available this year. Cashless payments have already taken precedence thanks to the pandemic, while contactless cards, digital wallets and even tapping on your watch to pay for goods bring all new levels of comfort that customers love.
This has an impact on small business providers. As they reduce cash usage by including tap-and-go payments, they benefit from faster reconciliation and reduced deep risk, as well as less storage, transportation and security costs. Essentially, it’s the best of both worlds and should become a priority for small businesses, if not already.
When choosing which payment types to offer, small businesses need to make sure that they continue to care about their entire customer base while staying abreast of the latest developments.
A growing need for labor management
Three-quarters of UK workers say work-life balance is more important than it was before the pandemic. Flexibility is increasingly a basic expectation of employees, and as evidenced by ‘The Great Resignation’, many are willing to resign from their roles if they do not get it.
In the ongoing war for talent, small businesses have no choice but to respond when they want to hire and retain the skills they need. As a result, long-term vacations have increased by around 20% since 2020. But there is still a long way to go. To adapt to this, small businesses need to focus more on flexible work arrangements – whether hiring or retaining staff. This heightened desire for flexibility also contributes to a boom in freelancing.
However, working with contractors can create more paperwork and legislation. This further increases the need for small businesses to plan for the evolution of their workforce forensically and to have access to tools that can calculate wages more accurately, which are often their biggest expense.
Making sustainability a priority
While small businesses face many challenges, they still have a responsibility to contribute to the fight against climate change, but costs and awareness can hold them back.
Calculating a business’s carbon footprint – often the first step in addressing its environmental impact – can be a granular, tedious process. So, while many small businesses are looking to make a concrete impact, they require more support, especially with the perception that sustainability initiatives can be complicated and expensive.
Fortunately, there are apps and digital tools that make it easier for small businesses to go green. Not only will it be vital for the environment, but it will be the key to retaining loyal customers who are increasingly prioritizing doing business with sustainable companies.
Prepare for new legislation
Digitalisation offers a number of benefits for small businesses, not least enabling them to operate more efficiently. However, this is not the only reason to deal with it. In areas such as taxation and financial compliance, it is a government mandate. Now, VAT-registered businesses with taxable sales under £ 85,000 should prepare for the HMRC legislation, Making Tax Digital (MTD), which will come into force from April 2022.
It states that companies that file VAT via the HMRC portal or via mail must maintain digital records and file VAT returns through MTD-compliant software. It may sound scary, but the transition to digital tax returns does not have to be. Instead, businesses can use it as an opportunity to accelerate wider digital transformation this year, to drive efficiencies to make customers happier.
Are you ready for a digital first year?
Many small businesses remain uncertain about the adoption of technology – but research has found that companies with the lowest IT expenditures saw their sales increase by as much as £ 33,600 between 2019 and 2020. Quartil. So, in light of the digital trends that are accelerating in 2022, it will be an essential component for small businesses to fly in the coming months and years.
So much technological change can be intimidating but responding to it does not mean that a hard-built small business is completely overhauled. Owners and entrepreneurs should focus on making small, incremental changes – choosing digital tools that make life easier for them.
The ultimate goal is to put digital into the heart of the business to help it run as efficiently as possible – something that takes time, but it will be absolutely worth it.
Damon Anderson is Director of Operations UK & EMEA, Xero
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