Productivity, delayed growth investment, staff cuts

Prior to the recent L4 national lockdown, SMEs spoke out about the impact of another lockdown:

With outbreaks of the highly virulent Delta strain of COVID-19 in Australia plunging several states into increasingly strict lockdowns, New Zealand businesses say – while the right approach to take – another lockdown here would have a major impact on local businesses.

New research from MYOB’s COVID-19 SME Snapshot, a survey of over 500 local SME owners and decision-makers, revealed nearly half (46%) of SMEs feel a short-term Level 3 or 4 lockdown (7-14 days) would put their business under quite a lot/extreme pressure. In comparison, more than a quarter (28%) believe their business would handle another lockdown with little or no pressure.

Understandably, for SMEs that can’t rely completely on technology and remote working to complete their work, a new lockdown would be more likely to put significant pressure on their business. Just over two thirds (67%) of construction sector SMEs say another lockdown would put their business under quite a lot/extreme pressure, while more than half (55%) of the hard-hit retail and hospitality sector say the same.

MYOB senior sales manager SME, Krissy Sadler-Bridge, says businesses expect to be hit hard by a lockdown, if another COVID-19 outbreak occurred in New Zealand (which has now, occurred).

“After the experience of 2020, local SMEs are fearing significant disruption if New Zealand is forced to respond to a recurrence of COVID-19 in the community, such as that seen in Australia in recent weeks,” says Sadler-Bridge.

Major loss of productivity predicted

The findings also highlighted what the anticipated repercussions of another lockdown would be for our local SMEs.

More than two-in-five SMEs (42%) would experience a significant loss of productivity if another Alert Level 3 or 4 lockdown occurred, while more than a third (38%) say they would seek financial assistance to cover expenses or overheads, 28% would delay growth plans and a quarter (25%) say they would review staffing capabilities.

Additionally, 15% say they would have to reduce staff numbers, and more than one-in-10 (11%) SMEs anticipate they would run out of stock.

“Even though most businesses are likely to be better prepared for a short-term Alert Level 3 or 4 lockdown, through both the use of technology and the operating practices they put in place last time, a longer-term lockdown would likely put the brakes on the emerging recovery of our SMEs,” says Sadler-Bridge.

“While we’ve seen there is a high level of confidence the government will provide the appropriate level of financial support, when you consider that more than a quarter of SMEs will be delaying investment in growth and the 15% of businesses who plan to reduce their staffing numbers, it is these outcomes that could have a knock-on impact on spending and confidence across the broader economy. And that’s all on top of existing supply chain disruption.”

Lockdowns still the preferred approach

“Despite the potential for major impacts on the sector, a small majority of SME operators believe a lockdown is still the right action for the government to pursue – possibly because of the certainty it provides and also in the current absence of any other proven strategy being put forward,” explains Sadler-Bridge.

When asked what action they believe the government should take in the event of another large community outbreak of COVID-19, nearly a third (32%) of SME owners and decision-makers say a localised or region-specific lockdown should be actioned, while a fifth (20%) of SMEs say businesses should be kept open, but with masks mandated for all gatherings and in public areas (eg, supermarkets, transport).

Nearly one-in-five (17%) SMEs say the government should implement a national lockdown at Alert Level 3 or 4 for an unknown period until the outbreak is fully contained, while just 13% believe we should remain operating as normal and need to learn to live with the virus.

Confidence in financial support from government high

With over $14 billion worth of COVID-19 wage subsidies paid out to protect 1.8 million jobs, the government’s financial assistance proved vital to many during the height of the pandemic in New Zealand in 2020 – a response that may be driving SMEs’ confidence when considering the broader response to the pandemic.

According to the MYOB COVID-19 SME Snapshot, 43% of SMEs would be confident that if another lockdown was to happen, the government would provide their business with the appropriate level of financial support.

However, more than a quarter (26%) of SMEs say they wouldn’t be confident they could rely on financial support from the government.

Sadler-Bridge says that the financial support in 2020 acted as a safety net and prevented many businesses from closure, which seems to have built confidence in the government’s approach.

“The experience to date in terms of the financial support they’ve received, could be what’s underpinning the current confidence among SME operators in the lockdown strategy. These insights show local businesses are fairly certain that the government will step-up with wage subsidies and other support if another lockdown is necessary.

“However, while this support may mitigate some of the impact and provide some welcome relief, there are still some lockdown consequences that will be difficult for businesses to overcome and likewise, that financial support can’t necessarily solve – like productivity levels,” says Sadler-Bridge.

Vaccines likely required for employees

According to the Snapshot, two-in-five (40%) SMEs said the progress of the current roll-out of the COVID-19 vaccine in New Zealand is having a positive impact on their confidence, while just over a quarter (29%) said it is having a negative impact on their confidence.

“What is also worth noting when it comes to opinions on the vaccine, is that nearly half (48%) of SMEs are planning on requiring all staff to be vaccinated against COVID-19 in order for them to continue to work for their business, while more than a quarter (28%) said they will not,” says Sadler-Bridge.

“It will be intriguing to see what sentiment is like in 12 months from now, after the total COVID-19 vaccine roll-out should have been completed and whether that changes SMEs’ thoughts on how we should respond to any emerging outbreaks of the virus moving forward.

“However, in the meantime, what businesses can do to keep confidence high is prepare for disruption, test and refine systems – especially any business-critical technology – ensure business and financial plans are in place, and stay positive.”