A budget unfit for small business
There will always be winners and losers on the day of the Chancellor’s Budget announcement. While there are many deserving recipients of investment, it comes at a particularly crucial time for small businesses, says Piers Linney (pictured), entrepreneur, investor and chief executive of Moblox.
The double-edged sword of Covid-19 and Brexit has had a disastrous impact on small businesses. Euler Hermes predicts that 37,000 businesses will go bust before 2023 and profits are suffering from spiking fuel prices, supply chain issues and the endless documentation required for moving goods between borders.
The Budget presented a new opportunity for the government to lend its support to the economic recovery of small businesses. Rishi Sunak announced £150m in funding for angel investors to help budding entrepreneurs and a 50 per cent business rate discount for retail, hospitality and leisure sectors to rejuvenate the high street. Whilst these new measures were warmly welcomed by many small businesses, others were not as appreciated.
The Treasury increased the national living wage from £8.91 per hour to £9.50 to allow employees to compete with rising inflation. Higher wages are something that I steadfastly want to support – but now is not the right time to add further burden to business owners. For many small businesses, increasing staff wages at a time when they are already feeling the pinch could make the difference between survival and collapse.
The Federation of Small Businesses recently surveyed its members on this proposal and found in response that one third of small businesses are now planning to increase prices to pay for higher wages. On the other hand, for companies that are already struggling to pay their employees, this will also damage their prospects of hiring more staff.
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The Budget also states that current business rates will remain in place. Although Sunak has promised that from 2023, the existing system will be made fairer, this is a promise that has been made several times before. Small businesses have been asking for a change in business rates since the last general election, and the government are still yet to deliver.
The 20 per cent VAT fee that was eradicated during the pandemic to encourage customer spending in hospitality has now been reintroduced. Another disappointment for the hospitality sector who were one of the worst impacted by national lockdowns.
Rising corporation tax, in combination with national insurance, inflation and the winding down of VAT cuts, are all challenges that have been glossed over by the Treasury. With such high rates of small business insurgency, these announcements are just plastering over a far larger wound. The responsibility has now shifted from the government to the laden shoulders of businesses.
My advice to these businesses begins with finance. Most small companies do not understand their finance options and pre-pandemic, British Business Bank research found that 73 per cent of small business owners were reticent about raising external finance. To build a business, you need access to capital, whether for growth, or to manage working capital. To level up, businesses need access to capital across the UK. Although capital may not be distributed evenly, ambition certainly is.
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Working capital can be improved by downsizing to optimise costs, digitising or adaptations along the supply chain. But for cash inflows, there needs to be an ongoing emphasis on sales and marketing and using technology to access new customers in new ways. By improving consumer engagement, customer experience and the quality of the product or service, a business is able to grow and retain existing customers.
Since the traditional finance world is not providing all of the funding small businesses need, there needs to be another option. I believe technology can provide the answers. Digitisation has accelerated during the pandemic and disrupted industries along with the traditional work environment. The companies that will struggle the most are the ones without a digital strategy to take advantage. Adopting technology can help a business become more productive, more effective and provide the competitive advantage that can only benefit cashflow.
The key to surviving the new year is planning. The budget may help some small businesses, but it will also injure others. My advice is plan ahead, reassess spending and adapt to the times.
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