The COVID-19 pandemic has been an unprecedented event, with personal lives and businesses being disrupted in a way that has never been seen before. With multiple lockdowns experienced within the UK and across the world, businesses have had to adapt to new ways of working in order to minimize the financial impact. Here, we’re taking a closer look at the financial impact COVID-19 had on businesses and the disruption that they experienced.
Reliance On Funding
In the UK during the COVID pandemic, a range of business support was announced by the government to help minimize the financial impact that they suffered, despite many businesses having to close due to restrictions. The following support was announced alongside schemes being introduced to help widen the eligibility for support:
- Coronavirus Job Retention Scheme
- Statutory Sick Pay for employees who catch coronavirus
- Deferred VAT due to coronavirus
- Business rates relief eligibility for retail, hospitality and leisure
- Business rates relief eligibility for nurseries
- Recovery loan scheme and bounce back loans
- Additional Restrictions Grant (England only)
While businesses are not able to take out short-term finance such as short-term loans or payday loans, many individuals needed to turn to this form of finance as a result of loss of employment and/or furlough. Despite this, payday lenders began to suspend new loans and tighten lending.
Fall In Sales
According to The Bank of England’s Quarterly Bulletin Q3 2020 report on the impact of COVID-19, businesses reported a fall in sales of around 30% in Q2 of 2020 alone, with reductions in employment and an increase in uncertainty around future prospects. Many businesses ‘ expectations changed towards a downturn with many businesses seeing a high level of risk of bad outcomes occurring.
However, it was determined that the fall in sales across many businesses was not as sharp as initially feared, however, while there was a gradual recovery throughout the latter stages of Q2 mand moving into Q1 of 2021, Q2 sales were expected to be lower than they would’ve been prior to the COVID-19 pandemic.
The table below from the BoE report further highlights the dramatic drop in sales and also investment, while unit costs saw an increase likely due to the restrictions on travel and other importation issues (also correlating with Brexit measures). Employment, on the other hand, saw a steady decline with a large proportion of employees being placed on furlough or being made redundant throughout this period. While this is starting to slowly improve and begin to recover, the employment line has not yet reached where it was at the start of the pandemic.
Disruption In Business
A paper conducted by PNAS based on a survey of more than 5800 small businesses offers an insight into the financial fragility of some businesses and also the significant impact that the pandemic had not just in the long term but within the first few weeks of the disruptions. Generally, the financial impact of businesses was significant, and the road to recovery is set to be a long journey particularly for those companies who had to remain closed for a large proportion of the lockdown (such as nightclubs and other leisure facilities).
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