Digital investment reduces pandemic impact on UK small businesses

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Small businesses that invested in digital tools during the pandemic experienced better sales outcomes and fewer job losses than those that don’t use digital tools. This is according to a new report from global small business platform Xero, which reveals that higher technology spend is linked to greater resilience for small firms.

The Xero Small Business Insights special report, ‘Picking up the pace: trends in small business technology adoption and use’, draws from the anonymised and aggregated data of hundreds of thousands of Xero small business subscribers across the UK, Australia and New Zealand.

As small businesses battle with the impact of Covid-19 and other challenges, many are turning to technology to adapt and thrive. IT expenditure by UK small businesses had increased by 20 percent by June 2021 compared to pre-pandemic levels.

Firms prioritising tech spend saw a positive link between digitalisation and performance. Businesses in the lowest quartile of technology expenditure  saw their sales fall, on average, by £33,600 between 2019 and 2020. However, those in the top quartile of IT spend experienced a much smaller drop of just £1,200 year-on-year – a difference of £32,400.

Many small businesses had to make redundancies or lean on the government’s furlough scheme during the pandemic, but those investing in technology were able to keep more people on the payroll. Companies in the top quartile for technology spending experienced just one-third of the job losses compared with those in the bottom quartile.

Dan Capper, Landlord at the Old Hall Inn said: “The pandemic undoubtedly accelerated our IT investment as we developed our own app and infrastructure to provide customers with a way to order online or independently at their tables. Investing upfront in digital tools and systems before the lockdown gave us something to build on. It meant we could react quickly to the barrage of challenges thrown at the hospitality industry.”

“In a small team that was going above and beyond in extraordinary circumstances, technology was a crucial asset for us,” said Louisa Ziane, co-founder and COO at Toast Ale. “Automating workflows freed up time for key staff to focus on more strategic and rewarding work, while the adoption of cloud-based software allowed us to work flexibly, not only improving the employee experience but helping the business by giving staff access to information on-demand.”

Glen Foster, Director, Small Business & Accounting Partners, Xero said: “We’ve already seen the transformational role that technology has played in helping many small businesses to survive. With the next phase of Making Tax Digital – the government’s new digital tax rules – landing early next year and many small businesses in the hospitality sector still struggling, helping businesses to embrace technology will be essential for our economic recovery.”

Small businesses in the professional services sector were most open to digital adoption, spending an average of 7.6 percent of their total expenditure on technology in the first six months of the year. In contrast, the construction and hospitality industries allocated just 2.1-2.6 percent of spend on IT.