Understanding the Impacts of COVID-19 on Entrepreneurialism in Terms of Growth Trends

Goals

To understand the impacts of COVID-19 on entrepreneurialism in terms of growth trends (increasing or declining). To find statements and statistics explaining the financial impact of COVID-19 globally, in the United Kingdom, Germany (DE), Australia, and Canada.

According to a survey conducted by the University of Edinburgh Business School in April, more than 50% of surveyed entrepreneurial firms in the United Kingdom expected that their business would shrink due to the pandemic. About 58.9% of UK entrepreneurial firms saw a reduction in their business turnover levels between 2019 and April 2020. In Germany, about 40% of entrepreneurs retained earnings and used their personal savings to help their businesses cope with the crisis.About one-third of Australian businesses have reduced their staff. Sixty-seven percent of these businesses are planning to rehire their existing staff.Fifty-four percent of Canadian business owners claimed that their sales have dropped due to the pandemic.

Feel free to look at other high-level research reports on How Small and Medium Businesses are Coping With the Virus Outbreak in Terms of Managing Their Workforce and Deliverables and Understanding of the Impact of COVID-19 on Small Businesses Across the United States.

United Kingdom: COVID-19 Impacts on Entrepreneurship

Overview

• Since March, the lockdown in the country negatively impacted entrepreneurial firms of all sizes. “The overnight collapse in revenues meant that a demand and supply shock reverberated throughout the economy.”
• The Business Impact of COVID-19 Survey (BICS) conducted by the Office for National Statistics (ONS) in May found that 45% of firms “are not sure when they might reopen and are at risk as a result.”
• The pandemic significantly impacted particular subgroups, such as self-employed freelancers and ethnic minority businesses (EMB). As of August 2020, the number of self-employed freelancers and contractors dropped by 150,000.
• According to a survey conducted by the University of Edinburgh Business School in April, more than 50% of surveyed entrepreneurial firms expected that their business would shrink due to the pandemic. Six percent of firms anticipated that their business would close, while 15% said their business would continue to grow. The chart below highlights the survey’s main findings.

Impacts on Business Turnover

• About 58.9% of entrepreneurial firms saw a reduction in their business turnover levels between 2019 and April 2020. On average, these firms saw a reduction of 58.3% in their business turnover levels.
• On the other side, only 8.3% of entrepreneurial firms recorded higher business turnover levels between 2019 and April 2020. On average, turnover levels increased by 37.8%.
• Moreover, nearly 32.8% of entrepreneurial firms said their business turnover levels did not change between 2019 and April 2020.
• Business-to-Business (B2B) and Business-to-Consumer (B2C) companies were equally affected by the pandemic. Thus, two-thirds of firms in both categories recorded a reduction in their business turnover levels. “This falling turnover affected entrepreneurs’ satisfaction with their cashflow. Only about a quarter of them expressed dissatisfaction with their cashflow situation before COVID-19. Subsequent to the outbreak, 68% of them were dissatisfied.”

Impacts on Exporters

• Among entrepreneurial firms, about 47.1% of exporters saw a decline in export revenues. On average, export revenues declined by 23.6%.
• On the other side, only 11.3% of exporters recorded higher export revenues. On average, these firms experienced an increase of 17.7% in export revenues.
• Moreover, nearly 36.4% of exporters said their export revenues did not change.

Impacts on Supply Chain

• About 25.2% of entrepreneurial firms said the pandemic had no impact on their supply chain. Moreover, 23.8% of firms experienced a limited impact on supply chains.
• Nearly 38.1% and 12.9% of firms said their supply chains were disrupted and halted, respectively.

Entrepreneurial Firms Responses

• The chart below shows the strategic actions taken by entrepreneurial firms to survive the cashflow crisis. The preferred action was stopping strategic investments (41.7%).

• Around 40% of firms chose to change their staffing levels (laid-off and reduced staff). “Firms are twice as likely to shed freelancers, contractors, and agency workers than permanent staff.
•  Ninety percent of firms will keep their core employees, while around 33% already furloughed staff. Other options included cutting hours, cutting pay rates, and giving unpaid leaves.
•  Forty percent of entrepreneurs retained earnings and used their personal savings to help their businesses cope with the crisis.

Germany: COVID-19 Impacts on Entrepreneurship

Impacts on Revenue and Sales

• A DIHK Blitzumfrage survey found that 80% of companies, or four out of five companies, anticipated a reduction in their sales revenues. The survey also found that one-third of companies were closed in May 2020.
• Another study conducted by KfW Research and Gruender Plattform between March and April found that 90% of entrepreneurs reported a decline in their business sales due to the pandemic. Moreover, “one-third of all surveyed entrepreneurs lost their entire income, and half lost 75% of sales.” Seventy-nine percent of entrepreneurs said they are planning to use the startup support provided by the German government.
• According to the German Startups Association, “nine out of ten companies have been affected economically.”

Impacts on Business Operations

•  Fifty percent of German companies based abroad reported an increase in restrictions on foreign trade and businesses, according to the German Chamber of Industry and Commerce.
•  Eighty percent of new businesses are at higher risks of permanent closure and going out of business due to economic uncertainty.
• According to the German Startups Association, about 70% of companies fear their existence.

Shift towards Digitalization

•  Forty-three percent of small and medium-sized enterprises (SMEs) implemented significant changes to their business model to cope with the pandemic. Implemented changes included modifying their product/service offerings and sales processes. “New businesses are being registered in the digital space, particularly in online retail. Similarly, digital capabilities have been expanded at established companies, to allow for teleworking, virtual meetings and events, teleteaching, and telelearning.”
• According to Germany Trade & Invest (GTAI), the crisis led entrepreneurs to embrace the introduction of digital business models and technologies. In fact, four out of ten German companies are working towards increasing their digitalization efforts “by accelerating the digitalization of their own business model, leading to a change in the range of products on services being made available.”

Australia: COVID-19 Impacts on Entrepreneurship

Overview

• The initial negative impacts of COVID-19 were supply chain disruptions, sudden closures, and social distancing policies. Between February and June 2020, “Australia lost close to 800,000 jobs, with the largest declines being in the arts and recreation services (down 35%), accommodation and food services (down 31%), and information and media telecommunications (down 10%).”

Impacts in March 2020

•  Eighty-two percent of firms said that the most common impact is the reduction in local demand.
• Other impacts included staff shortages (36%), the reduction in supply levels (27%), the reduction in international demand (23%), and the increase in supply costs (17%).
• The chart below explains how businesses were impacted by the pandemic in March 2020.

Impacts in November 2020

• For the first time in months, In November, Australian businesses reported increased revenue compared to previous months. Moreover, for the first time, more businesses reported increased revenue compared to decreased revenue.
• In July 2020, 16% of Australian businesses reported increased revenue, while 47% reported decreased revenue.
• In November 2020, 24% of Australian businesses reported increased revenue, while 22% reported decreased revenue.

Impacts on Demand, Staff, and Cashflow

• As per The Department of Education, Skills, and Employment, 58% of businesses reported a severe impact of COVID-19 on their business. Twenty-two percent reported lower impacts.
• The most common impacts of the pandemic are the following:
  • Lower demand for services and products: 67%
  • Cashflow issues: 37%
  • Having to change business practices: 33%
• About one-third of Australian businesses have reduced their staff. Sixty-seven percent of these businesses are planning to rehire their existing staff, while 14% of businesses are planning to “rehire some of their existing staff.”
•  Twenty-eight percent of businesses “expected to reduce staff in the coming months.”

Canada: COVID-19 Impacts on Entrepreneurship

Overview

•  Twenty-nine percent of Canadian business owners said it would take 1-2 years to get back to their pre-COVID business volumes.
• The most common strategic actions that Canadian businesses are applying to cope with the pandemic are the following:
  • Reducing operating expenses: 34%
  • Dipping into savings: 29%
  • Laying off staff: 25%
  • Applying for more credit: 15%
• The major concerns for Canadian entrepreneurs are cashflow and business volumes. “Owners are searching for ways to improve, with 52 percent trying to reduce debt levels, 44 percent looking for more credit to support operating capital, and 39 percent seeking cash management and advice.”
•  Seventy-four percent of business owners said that their companies are not able to operate online because they are not equipped for online operations.
•  Twenty-six percent of businesses are operating online. Of these firms, “30 percent have seen an increase in sales and 25 percent say they’ve remained the same compared to pre-COVID-19 levels.”

Impacts on Staffing

• By April 2020, unemployment in Canada had doubled to reach 2.4 million.
• About 39.9% of businesses reduced their staff hours/shifts. Moreover, 28.4% of businesses laid off staff.

 Impacts on Cashflow, Sales, and Revenue

• Ninety percent of entrepreneurs reported a loss in their business revenue. “One-third of businesses reported a decline in revenue of 40% or more in the first quarter of 2020 compared to the previous year. As of mid-May, there were no reports of a significant increase in bankruptcies, but a surge is expected in the fall.”
•  Fifty-four percent of business owners claimed that their sales have dropped due to the pandemic.
• According to a CIBC study, 81% of Canadian small businesses reported negative impacts on their operations. Thirty-two percent of owners are worried “about the viability of their business over the next year.” On the other side, 76% of owners are confident they will rebound after the crisis.