Sunday 27 November 2016

Why small business do not become bigger businesses

running a small business
H M Government is very keen that Britain's small businesses do not sell out too early to overseas businesses.  The Government is clearly worried that jobs, expertise and IPR maybe lost to cash rich overseas companies before they have achieved their full potential.

The latest big number to appear in the business news was the acquisition of  Skyscanner Ltd an online travel portal that has been sold to a Chinese travel company for £1.3Bn .


Now I don't know about you but if someone wants to pay that amount for my business then why would I not take the money and run?

The fact is that running your own business requires you to be a marketing expert, financial wizard, lawyer, social worker and tax collector and that's before you start dealing with customers who are more familiar with their "rights" than they were 10 years ago.

You have to be tenacious and resilient be prepared to lien everything you own to the risk averse bankers for an overdraft to fund working capital and then be prepared to deal with customers who do not pay on time or at all.  It is not for the feint hearted!

Some of the legislation passed by Government that regulates business activity is clearly conceived and written by people who have never run businesses!

In my own businesses with a turnover of approximately £1.5M I employ 28 staff.  I work in a highly regulated area of business with an aggressive Regulator who believes that all the firms it regulates are in business to rip off their customers it does nothing to promote the sector.  It sometimes feels like you are walking a tightrope balancing between success and a stretch of minimum security.

I have had to employ an external contractor to manage all the HR issues that are caused by hugely complicated employment law I also buy in an employee assistance programme so that staff have someone to talk about their personal issues that may cause them to be off work.  Recruiting staff in our area is difficult despite 20%+ unemployment among young people.  Those that we do recruit seem to come with lots of "baggage" and many need a period of adjusting to actually be in work.

Whilst Government has lowered Corporation Tax it has raised taxes on dividends.  It has imposed the workplace pension and for larger businesses the apprenticeship levy, made employers responsible for paying statutory sick pay and imposed a nightmare called the Equalities Act that replaced the lesser nightmare known as the the Disability Discrimination Act.

Now the good news is that owning your own business is rewarding despite the above challenges.  I make very good money and have the freedom that would be denied to me as an employee. I am free to be a School Governor and to get involved in other community projects.

So returning to the original question why don't small business become big businesses I hope that I have set out some of the reasons why but I am a believer in proposing some solutions: -

Business Taxes
  1. No capital gains tax or inheritance tax on the founders of a business if they retain their shares for at least 10 years.
  2. Tax on share dividends should allow a full credit for the corporation tax paid on the underlying profits to ensure no double taxation.
  3. Abolish business rates and replace with a turnover tax applied to all businesses equally.
  4. HMRC to chase all businesses equally regardless or size or industry.  I have a sneaking suspicion that established businesses that pay their taxes are treated differently to those businesses that never pay their tax.  Certain sectors such as fast food  and the building trade may appear to the HMRC not to be worth the effort and tallowed to operate in a kind of tax twilight zone.
  5. Government does need to deal with the position that multi-national business are able to pay less tax by using complex transfers.  My own favoured solution would be a turnover tax that replaces Corporation and Business Rates. 
Employing People
  1. Change the ridiculous requirements that employees accrue all of their benefits when they are off sick or on maternity leave.  For example someone returning from a year's maternity leave immediately can take off their accrued annual paid leave the same with long term sick leave.
  2. The Government needs to either abolish Employers' National Insurance Contributions which is a tax on employing people or abolish the pension levy and reinstate recovery of statutory sick pay
  3. The Equalities Act imposes hugely unfair requirements on Employers which are particularly onerous for SME's.  For example employees are under no duty to disclose long term illnesses or chronic conditions that require them to have inordinate amounts of time off work.  The need to make so called reasonable adjustments which may be unfair on other employees and lead to resentment.  It is also very difficult to performance manage employees with disabilities without long, protracted and expensive process.
Getting Paid
  1. Enforce existing legislation on getting paid include forcing all businesses to publish stats on paying invoices in their annual accounts.  Government may want to consider having statutory allowable credit terms which stops big businesses bullying smaller businesses.
Dealing with Customers
  1. Regulation and legislation has titled so far in the favour of the consumer that businesses are floundering in dealing with customer dissatisfaction.  In my own business customer who are dissatisfied immediately invoke their rights whether they are right or wrong.  Our own regulator imposes a £500 case fee for each case referred to it and we have to pay it regardless of whether we win or lose. 
  2. The rise of personalities that champion consumer rights also promotes the point that the consumer has no responsibilities such as reading the terms and conditions before buying.
  3. I would like to see new consumer protection act that sets out clearly what a buyer of goods and services can expect from the supplier and also the buyer's responsibilities.  A statutory mediator dealing with disputes would also enhance the legislation. 

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