This coalition government (which I broadly support) has again disappointed today. George Osborne trumpeted the importance of small business to the economy and, as evidence of this, the drop in corporation tax rate. What a pity, then, that the 2% drop in the main rate does NOT apply to small businesses with profits of less than £300,000 per year. For us living in the real world, the rate drop is only 1% (or half as much).

George, if you really want Britain to be the best place to “start, run and grow a business” then you must reward small businesses first. Companies of all sizes generally start out small so getting low tax rates on their profits at the beginning is vital. What a missed opportunity.

So, the focus for all responsible small business people is to minimise their net profits (yes, really) and, in that way, minimise their tax. The simplest way to do this is to employ yourself (and your partner if possible) in the normal way at a rate equivalent to the personal allowance (just over £7k from April). By doing this, that part of your income is tax and NI free. Your profits are also reduced by that amount and you therefore pay less corporation tax.

If possible, you should also see if you can benefit from the new tax allowance for research and development. The best option is to talk to your accountant but, essentially, you could get a big allowance for innovation. Worth a look.

Otherwise, it’s back to normal – grinding away trying to make money on a day to day basis whilst trying to handle the idiots at HMRC (I recently had a demand for £0.00 threatening the bailiffs if I didn’t pay). Good marketing and cost cutting can more than offset the effect of the monkeys in the government.

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The Forum of Private Business is entering Dell into its late payment Hall of Shame after the company extended the time it takes to pay suppliers by 15 days.

Dell, which is one of the world’s leading information technology companies, wrote to tell what it called its ‘valued’ suppliers that it is ‘standardising’ its payment terms from 50 to 65 days from 10 July, citing ‘current economic conditions’ as the reason for the change.

The Forum has written to inform Dell it is being added to the Hall of Shame alongside other household names including Argos, United Biscuits and the brewer Carlsberg, all of which have been identified as poor payers.

The company has also been invited to sign up to the Government’s Prompt Payment Code, where signatories pledge to pay suppliers on time, give them clear guidance and encourage good practice throughout the supply chain.

Late payment causes serious cash flow problems for small firms, many of which are still struggling despite the UK’s economy entering a fragile recovery.

According to the Forum’s latest Economy Watch survey, almost one in five small firms (18%) said the problem of late payment and changes to payment terms and conditions has become worse. On average, 36% of respondents’ turnover is tied up in late payment at any one time.

Further research carried out by the Forum recently shows that 37% of late payers take between one and three months to pay invoices and, according to Bacs, more than £30 billion in outstanding payments is currently owed to small firms in the UK.

“Small businesses continue to suffer from the blight of late payment, which devastates cash flow and forces firms into administration. Companies like Dell have a responsibility to pay promptly – failure to do so can mean the whole supply chain seizes up,” said Forum spokesman Phil McCabe.

“When they receive a letter like this, smaller suppliers have no choice but to agree and stay silent. There is little room for bargaining. For the sake of small businesses and the economy the new Government must prioritise tackling the culture of poor payment, addressing the bully boy behaviour of these bigger companies.

“In the meantime we will continue to give small firms a voice by holding them to account publicly in our late payment Hall of Shame.”

Under the Late Payment of Commercial Debts Act 1998, small businesses have a Statutory Right to Interest, meaning they can in theory charge interest on late payments. However, few take advantage of this or are prepared to speak out publicly out of fears that large companies will simply take their business elsewhere.

Many larger companies take advantage of this culture of silence by imposing changes on their smaller suppliers’ terms and conditions, often mid-contract and with little warning, effectively sidestepping the redress provided by the late payment legislation.

One business owner who received Dell’s letter said: “As a ‘valued’ supplier of IT services to Dell I was dismayed to receive this notice via email regarding a change to their payment terms.

“Ironically, the reason for the change is apparently due to the current harsh economic climate.

“How is extending payment terms beyond the current draconian 50 days to 65 days going to help Dell’s legion of ‘valued’ SME suppliers, particularly when most of our suppliers demand 30 days net?”

Helping business owners beat late payment

The Late Payment Hall of Shame is part of the Forum’s ongoing lobbying to tackle the UK’s culture of poor payment. It is delivered by the organisation’sCommunications Director business support solution.

In addition, via its Finance Director business support solution, the Forum is helping members to get a grip on payment issues via its Credit Reporting, Debt Recovery and Business Monitoring member benefits.

The organisation also provides a Credit Control Guide, which is free to all intermediate, advanced and expert members, and a Legal Expenses Insuranceservice including a 24-hour legal advice helpline.

Phil McCabe
Media and PR Manager
Forum of Private Business

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As Microbusinesses, we often find ourselves as piggy in the middle. If your business is based around large ticket items or projects then you will, in all likelihood, have to pay your suppliers promptly but find yourself stuck as you wait for your client to pay. Big corporations are notorious for this and it’s been a particular problem for one of my companies: NlightN Multimedia. We develop media and elearning products for corporates and we have to pay other small companies who provide us with services: for example voiceover artists and video companies. At the end of the project, there comes a moment when you must hand over the working product and await final payment. This can take, literally, months and months to come through while you must keep your business afloat.

Research from NatWest and RBS shows that 71% of SME’s in the UK have suffered from late payments in the past year but less than half have done anything about it.

What can be done?

1. Change your business model so that you have many clients paying smaller amounts rather than a small number of large clients. This is difficult for micro businesses because it’s all too easy to become reliant on one or more big clients but the result is that these clients have complete control over your cash flow and this is bad.
2. If you can’t change your model, get staged payments. At NlightN, we insist on 50% upfront on all projects, 25% on delivery of the alpha version and only the final 25% at the end. Ideally, you should make sure that you can make a profit on the 75% you can be fairly sure of getting with the final 25% being, effectively, a bonus.
3. Consider offering a discount for early payment or using a credit factoring service. The latter is where a company buys the invoice from you (at a discount). You get instant money and they then chase payment and keep it.

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A press release from the Forum for Private Business says:

More than nine out of ten smaller businesses were left disappointed by this week’s Budget, a snap poll has revealed.

In a survey of its members, the Forum of Private Business found that just 5% believe Alistair Darling’s proposals will create an environment for their businesses to develop.

Similarly, 87% said the Chancellor’s measures will not increase business and consumer confidence.

More than two thirds (70%) of respondents said they expect a more realistic budget to be delivered after the general election. And when asked how they rated the budget overall, only 10% of Forum members described it as ‘good’ or ‘very good’, with 52% branding it ‘average’ and 38% describing it as ‘poor’ or ‘very poor’.

Reflecting widespread anger at the planned hike in National Insurance rates, the Forum’s survey also found that a third (45%) of respondents believed the Budget had a negative impact on employment.

However, some aspects of Mr Darling’s announcement did prove popular.

Just under 9% of those surveyed said they believed the Budget was designed to encourage short-term recovery. And around 19% said the Chancellor’s measures would have a positive impact on both cashflow support and business investment.

Meanwhile, a similar amount (18%) said the Budget would have a positive effect on business growth support and 14% thought it would improve access to finance.

Commenting on the findings, FPB chief executive Phil Orford said: “This research appears to support our initial assessment of the Budget – overall, it fell far short of what we were hoping for and there was a sense that it was very much a budget for the election.

“Judging from the feedback our members have given us, smaller firms don’t feel that the Chancellor laid the foundations for a better environment in which to do business. At the same time, they’re not taking the Budget too seriously because of the imminent election.

“However, there were some specific measures included in the Budget which should help some SMEs – things like the creation of a credit adjudicator for small firms, the extension to HMRC’s Time to Pay scheme and new targets aimed at helping small businesses get more public sector contracts.

“As long as they are administered properly, these schemes should provide tangible, on-the-ground support to smaller firms and the Forum’s members appear to appreciate that.”

Nine out of ten small firms unhappy over Budget 2010 More than nine out of ten smaller businesses were left disappointed by this week’s Budget, a snap poll has revealed. In a survey of its members, the Forum of Private Business found that just 5% believe Alistair Darling’s proposals will create an environment for their businesses to develop. Similarly, 87% said the Chancellor’s measures will not increase business and consumer confidence. More than two thirds (70%) of respondents said they expect a more realistic budget to be delivered after the general election. And when asked how they rated the budget overall, only 10% of Forum members described it as ‘good’ or ‘very good’, with 52% branding it ‘average’ and 38% describing it as ‘poor’ or ‘very poor’.  Reflecting widespread anger at the planned hike in National Insurance rates, the Forum’s survey also found that a third (45%) of respondents believed the Budget had a negative impact on employment. However, some aspects of Mr Darling’s announcement did prove popular. Just under 9% of those surveyed said they believed the Budget was designed to encourage short-term recovery. And around 19% said the Chancellor’s measures would have a positive impact on both cashflow support and business investment. Meanwhile, a similar amount (18%) said the Budget would have a positive effect on business growth support and 14% thought it would improve access to finance. Commenting on the findings, FPB chief executive Phil Orford said: “This research appears to support our initial assessment of the Budget – overall, it fell far short of what we were hoping for and there was a sense that it was very much a budget for the election. “Judging from the feedback our members have given us, smaller firms don’t feel that the Chancellor laid the foundations for a better environment in which to do business. At the same time, they’re not taking the Budget too seriously because of the imminent election.  “However, there were some specific measures included in the Budget which should help some SMEs – things like the creation of a credit adjudicator for small firms, the extension to HMRC’s Time to Pay scheme and new targets aimed at helping small businesses get more public sector contracts. “As long as they are administered properly, these schemes should provide tangible, on-the-ground support to smaller firms and the Forum’s members appear to appreciate that.”

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Today is Budget day in the UK. This means that our Chancellor, Alistair Darling, will be walking the incredibly difficult path between the economic realism needed in the face of this country’s huge overdraft and the need for his party to be re-elected in a few weeks time. (Incidentally, what a backward country we are to not have fixed term parliaments: we still don’t officially know on what day the General Election will take place!)

As a business-owner, I feel as though I ought to be interested in today’s budget but I simply can’t be bothered. There’s nothing new about this – I’ve been uninterested in budgets for years. Why? Because, in practice, they make little difference one way or another to the micro-business owner.

Very few measures have a significant positive impact. Even in the good times, there was a progressive removal of incentives to small business as well as business in general. Over the coming years, we can expect small and micro companies to take a significant part of the debt repayment burden (ironically paying back the debt owed by the very banks who refused to lend money to them) as they’re an easy target politically. Why? Because there’s still an underlying envy in many people – they see the small business owner and they’re jealous of the control and freedom (and, in some cases, wealth) that they enjoy. So, if small business is knocked in the Budget, who cares? Well, everyone should – small and micro businesses contribute hugely to the UK economy and will help pull the country out of the current dip.

But, in the end, whatever the Chancellor does now or after the election, the effect on your profitability should be marginal. Getting your product and its marketing right will have a much bigger impact on your profits than anything a politician does. Look at it this way, let’s say you have a microbusiness with a turnover of £50k per annum. Out of this your marketing costs, say, £20k (primarily Adwords costs). If you could increase your conversion rate and the clickthrough rates of your ads you might see turnover increase to £60k and the cost of marketing reduce to £15k. You’ve therefore increased your net income by £15k in total or 30%. Nothing any Chancellor does can affect you by that amount and this is comforting news – it means that, fundamentally, your business success is in your hands. Sure, politicians can help or (more often) hinder you through tax, regulations and bureaucracy but these are marginal effects: concentrate on what you can affect and don’t worry about what you can’t.

You might, quite reasonably, point out that if you run a business that depends on the cost of petrol/diesel or that derives its income from items that are traditionally highly taxed (smoking and drinking) then the effects of the budget are more significant. But even for most of those businesses, the impact of an individual budget is likely to be minimal. Focusing on marketing, product and service are far more important than mitigating the effects of this budget.

Update

Ok, I did watch the budget! Here’s my response to it.

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David Cameron made an impressive speech today at the Tory party conference. Now, hell would freeze solid before I’d vote Conservative but he made an interesting point about how it is us (people like you and me) who build an economy and not government.

Indeed, my experience of government involvement in my business has been universally negative. In the heart of a recession I can honestly say that my interactions with government and its agencies have been no different to how they were before. I haven’t been offered any handouts (heaven forbid), loan guarantees, extra time to pay taxes or even any free advice. Nothing. I run my businesses today exactly as I ran them last year and the year before that.

My priorities are:

• Fulfilling contracts effectively and efficiently (ie getting booked work out the door)
• Building new products
• Quoting for forthcoming projects
• …minimising the time I waste on government paper-pushing

The government is nothing more than a bother and a pain. My small business pays more corporation tax than it did, it pays more National Insurance than it did (and that went up BEFORE the recession). If the government really wants to get the economy moving, introduce a tax break for small businesses: we are where the wealth comes from.

Come on Cameron: if you get in (and you’d have to chuck it away not to be the next PM), get out of my face and let me get on with running my business. And give me the odd break now and again so that it feels like your on my side and not trying to squeeze every last penny out of me.

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Our very own Dear Leader is going to use the phrase “on the road to recovery” in a speech on Tuesday 15th September. There’s so much to say about the way in which we learn about a speech before it is even made (perhaps they’re concerned that Brown’s trademark bombastic delivery will have people turning off in droves) but what, exactly, does “on the road to recovery” actually mean? You can almost visualise the politicians chuckling to themselves at coming up with a phrase which, although it sounds positive, has absolutely no meaning. “Road to recovery”? How long is the road? Is it going to be a swift jaunt up a French motorway or a slog around the M25?

For those of us actually generating a large part of the money the DL is spending, all we do is continue slogging away. We didn’t jump out of the window when gleeful doom-monger Robert Peston of the BBC predicted the end of the world (even, on one memborable occasion, contriving to paint the drop in oil prices from $150 a barrel as a bad thing for us poor motorists) and we’re not getting the bunting out now. We’re just working, building businesses and getting our arses wrapped up in red tape and taxation while politicians state the bleeding obvious and completely fail to predict the future (100,000 cases of swine flu a day in August, anyone?).

Here’s my prediction. We all know the public services will have to be cut but we also know that taxes will go up. Politically, businesses (especially small businesses) are a soft target and I would be absolutely amazed if we didn’t find the taxes relating to small business (including Corporation tax and employer’s NI) going up significantly in the next few years. The main impact of this might be that people starting businesses choose to use the Sole Trader and Partnership models rather than Limited as the benefits of the latter have been continually eroded over the past few years.

At the end of the day, the fact is that we’re going to be taxed more and the consequence of that is that we, as business owners, need to work yet harder to be more profitable so that we can afford the taxes. As usual, it’s up to us, the unsung heroes (male and female) of the UK economy.

Source of the original news story: Reuters

All comment my own.

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