Small businesses in Britain braced for more pain after surviving the pandemic

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

On a return visit to The same entrepreneurs In Brickfields, a low-rise building in East London with 98 offices and workshops, all the companies the Financial Times spoke to two years ago were still trading.

But some owners were almost as pessimistic as in 2020, their post-Covid optimism has been eroded by rising costs and faltering demand as the UK enters a recession. Some have been affected by the devaluation of the pound and the disruption of the supply chain due to the war in Ukraine.

The building, owned by Workspace, a FTSE 250 real estate company, offers a glimpse into the health of Britain’s small businesses. It has tenants that cover a range of sectors, from technology to cosmetics, and many international operations and is backed by venture capital.

“It’s hard work,” sighed Philip Taylor, founder of Carbon Theory, which makes soap for sensitive or problem skin types, as he contemplated whether to sell the company after navigating the past two years. “We had friends inside the building who are no longer here, many different models, different companies. It’s hard across the board.”

Philip Taylor, founder of the carbon theory
“We have to be conscious of what we are doing” – Philip Taylor, Founder of Carbon Theory © Daniel Jones / FT

Taylor said he was one of the lucky ones. Revenues have been growing, initially on the back of booming online sales in the shadow of the pandemic and then through physical retail outlets such as Walgreens in the US. But he can also see signs that consumers are becoming more careful.

“Consumers are in a buying mode at the moment but they will be more selective,” he said, noting the rising costs of supplies, such as cardboard, as well as staff.

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

“It’s honestly the worst thing in the world… you could break down and cry,” said Cecilia de Vita, founder of Heart Aflutter Bridal, which makes wedding dresses.

You often buy dollar-denominated materials and designs. “Obviously our prices have to go up, because there is only so much we can take in. It has to be moved.”

On top of those pressures, it faces a return to normal levels of business prices, at around £2,000 a month, after the pandemic relief ends, while repaying the £50,000 borrowed under state-backed Covid law. ‘Back-back’ loan plan. “That’s between £800 and £900 [a month]. It’s annoying because we were loan-free when the pandemic hit.”

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

At least, the downtime from the start of the pandemic — when successive shutdowns forced her clients to postpone weddings — has ended with sales recovering to pre-Covid levels, she said.

She added with the typical optimism of a businessman: “We’re still here…that’s the main thing. Other bridal boutique stores haven’t survived the pandemic. It’s going to be tough for a few months with all the extra costs but I hope things get back up again.”

Alex Heaton, founder of LiveSmart, also predicted revenue would recover to pre-pandemic levels after a “two-year loss.” But he was concerned that life as a startup was getting more difficult as investors became more wary of supporting fast-growing tech companies.

LiveSmart, a health tech startup that provides blood tests and analyzes to companies, raised £2.2m in new funding when Heaton last spoke to the Financial Times in 2020. He said the mood was upbeat at the start of the year. “In January of this year, we all thought it was cool — recover, recover, recover. Right?”

But since then — in the wake of the war in Ukraine, and broader political and economic turmoil — things have gotten worse. “All the founders I know, everyone who raises money, find it very difficult and they go through the big rounds.”

Emily Bendel, CEO and founder of Bluebella
Emily Bendel, CEO and founder of Blubella, said the post-Brexit effects were significantly impacting her online lingerie business. © Daniel Jones / FT

He, too, was struggling with rising costs, especially wages. “The truth is, you do everything like a small business, but you’re trying to act like a big business.”

Emily Bendel, chief executive of Blubella, said the after-effects of Brexit had been drastically affecting her online lingerie business.

Sales are up since I last spoke to the FT, but income has stalled due to having to invest in new systems “to try and figure out how to make Europe profitable again”. “It’s gotten better but it’s still more difficult than exporting to countries like the United States,” she added.

However, selling in North American markets has proven to be a welcome hedge against a depreciation in the pound. “Most of the fashion industry buys with dollars,” she explained, which has left UK-only competitors struggling.

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 as sales soared with people wanting to make up for the social lives lost during the pandemic.

“This euphoria has dissipated over the past few months due to things like the cost of living crisis,” he said, adding that he expected “not a few” festivals to disappear.

Nick Morgan, CEO of Festival Organizer We Are The Fair
“We are fortunate to be well established and to have so many offerings” – Nick Morgan, CEO, Festival Organizer We Are The Fair © Daniel Jones / FT

He said costs, such as transportation and independent technology crews, had grown “significantly”. Other bands and artists were also asking for more money, but he added that charging more for events to cover the extra costs was difficult because the UK was “at the ticket price ceiling”.

But Morgan, who paid off the company’s pandemic loan before interest rates began to rise, remained optimistic that the downturn could be weathered. “We are fortunate to be well-established and have a lot to offer.”

Owner Graham Clemett, CEO of Workspace, said there was “cautious optimism . . . real momentum” coming out of the pandemic, but said that “the shadow of the Ukraine war and inflation have slowed that.” However, he insisted he “remains very positive about growth this year”, citing the “resilience” of British entrepreneurs.

In previous downturns, there were record levels of new company formations as founders sought to start over. This time may not be different, with many expressing hope for the long term even when facing short term problems.

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

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