The solo entrepreneur boom of the COVID-19 pandemic bucked the typical pattern of company creation during other economic times of crisis, according to new research by the Bank of England (BoE). But there are signs this boom could be short-lived if startups do not prepare their businesses for inflation and uncertainty. We look at why so many startups emerged from the pandemic and share tips on how they can survive the Cost-of-Living crisis.
This explosion in company creation helped the UK’s rapid economic recovery in the short term by creating new jobs and hiring quickly, the BOE says. However, long-term implications are less clear, according to the ICAEW.
Simon Gray, head of business, ICAEW, says: “What the pandemic did was force people to work from home and to reconsider what their priorities were and what their future career trajectory might look like. People had time to reflect and question what they were doing and where they wanted to go next. Also, people enjoyed the flexibility of home working.”
This most recent rise in entrepreneurship cannot be explained by government support policies such as furlough (coronavirus job retention scheme), eat-out-to-help-out and the bounce back loan scheme because they all required companies to have been set up before the pandemic began.
Most new businesses created during the pandemic were “disproportionately” focused in the online retail sector and established by solo entrepreneurs starting their own companies, the research reveals. Online retail accounts for 20% of excess entry.
Pre-pandemic, 65% of monthly company entry is attributable to solo entrepreneurs and 43% to new solo entrepreneurs; these numbers increase to 75% and 57% respectively, according to the BoE.
Despite the entrepreneurial spirit flourishing during the COVID-19 crisis, the BoE’s research found that companies created during the pandemic were more likely to be dissolved once the economy was allowed to grow again.
“We find that cohorts of firms created during the pandemic are more likely to dissolve, and changes in the composition of ownership structure, [all other things being equal], implies weaker hiring and higher dissolution rates in the long run,” the report says.
Gray agrees with this finding: “The report backs up what I’m hearing anecdotally from our members. I think the boom might be short lived. Setting up on your own is complex and fraught with uncertainty. With external pressures, including spiralling energy costs, rising inflation and the cost-of-living crisis, the security of employment and a regular salary looks increasingly attractive.”
The BoE says the report’s findings will help it understand how targeted policy interventions such as furlough affected companies’ survival, growth and employment.
What can solo entrepreneurs do to survive in times of high inflation?
ICAEW Insights provides some useful tips that should not be ignored. You are a business owner and have to start preserving your business’ future by making some tough, yet crucial decisions.
Price increases: you are a business, start acting like one
Regardless of what the economy is doing, you must always re-evaluate your costs and prices, such as your day rate or project fee year-on-year or in times of inflation, quart-by-quarter. Ask yourself, are you valuing your time correctly? Are your clients?
“Price increases are a given in any inflationary environment,” says business advice hub Startups.co.uk’s Helena Young.
“However, many SMEs that we have spoken to are understandably reluctant to introduce them. Raising prices amid inflation has the potential to hurt customer relationships and, ultimately, profit margins,” she tells the ICAEW.
A workable alternative to raising prices, Young suggests, is to apply optional fees to specialist service offerings or the activities that put the greatest strain on your supply chain – for example, a surcharge on next-day delivery.
If you provide a service/product such as copywriting or graphic design, then you should raise your project or daily rate, especially if you have not done so in the past couple of years or your client hasn’t. You can easily justify increasing your rate in line with inflation and perhaps even corporation tax hikes, so look at rising them between 20% to 35%.
Client revenue analysis
If you feel you might be more productive and better off with some clients than others, do a client revenue analysis to see which ones bring in the most revenue with the least amount of manhours. Then consider offering additional services to those that pay better or that you feel are a better use of your time. Or re-evaluate the fee or offerings with those that do not pay as well or seem to be draining you of your time the most.
If you cringe at the thought of talking about money or negotiating your pay with your client, then you should seriously think about how you can change your stance on that. We’d sometimes negotiate better for a friend or stranger than we would ourselves.
Long-term freelancer and copywriting business owner Sarah Townsend states in her book, Survival Skills for Freelancers, “If you don’t value yourself, your clients won’t, either.”
Negotiate everything
Mortgage rates and whether it will pay off staying or switching to a new provider.
Check out: When is it worth paying early redemption charges on a fixed-rate mortgage? – Freelance Informer
Credit cards and loans – how much could you save with a balance transfer deal?
Energy rates – could going green save you money and convenience?
Do not accept late payments
If you are experiencing late payments, then it’s time to take action. Why should a solo entrepreneur be handing out 30+ day credit to clients with higher revenues?
Freelancers, small business owners and even umbrella company workers face late payments, which in effect could impact their credit rating if they can’t pay their bills on time.
Gary Brown, founder of Debt Register, used his system to successfully collect a £2,502 debt that was more than four years (1499 days) overdue – and it did it within 45 minutes of the new software-as-a-service platform going live and the debt being uploaded.
Gary invented the system having spent his life working in credit management and becoming fed up with customers who sat on their invoices without paying them: “It’s an industry-wide problem and I was determined to do something about it,” he explains.
Read about his debt collecting service and the full article here: This debt collection platform claims it has a foolproof way to get you paid fast – Freelance Informer
Consider offering a new product or service line
If you had the gumption to set up a business in the middle of a pandemic, then you might just have what it takes to set up a new business or at least a new product or service line that serves another economic upheaval: the Cost-of-Living crisis.
Think of ways that you could make your clients’ lives easier, better, healthier, etc. and tell them about it through social media or catch-up calls.
Use the knowledge you already have of your customers or network and build on that to create new revenue streams or even attract new customers.
Inside IR35 contractors consider new tactics
If you are on an inside IR35 contract right then you could use this time to start building your own business in the evenings and weekends. That way when the contract ends you can gauge if you are ready to launch solo again without an umbrella company structure.
Or you might be considering launching your own company and calling in ad hoc skills from fellow freelancers to cover areas that you do not specialise in. If they are freelance themselves then they can bill your limited company. As they are not directors of your company they will be handling their own tax affairs.
You must ensure you have the money to pay for their invoices. This may mean asking your client for a deposit on any projects to cover these costs, with the rest going to your business as you must factor in a margin for your company.