Following discussions with political and business colleagues I think we need to explore business support differently, below is my considered and honest view of where we are and what we should do moving forward.
I have run both successful and failing small businesses for the last 15 years. I have enjoyed good times and bad times, and I believe this puts me in a position where I think I can speak with some experience of what businesses require to operate, grow and succeed. However, I am by no means an expert.
I have spoken to business colleagues across the country and county to try and ascertain some collective wisdom on what the issues are, and what potential support may look like. Below is a summary of what I have heard and seen:
1 Cause: As I mentioned on our call last week it is important to recognise that the current difficulties are the direct result of government intervention, the fact the computer shop in Grantham has no customers walking in or the pub in Louth is closed is entirely down to government’s decisions and actions. Regardless of the merits of these decisions, we need to avoid assuming that struggling businesses are in the position due to their miss management.
2 Failure: Some businesses were failing before this crisis and are destinated to fail, regardless of how hard their owners work or how much support they receive. Some of these businesses will take help just to prop up their already failing business.
3 Company Directors: We need to avoid falling into the trap of believing company directors are all wealthy. The self-employed car mechanic who operates in your local village is probably a company director, and there are tens of thousands of limited company directors in the county, the vast majority of whom are not driving jags, playing golf and lighting cigars with £50 notes. Micro-businesses have 0-9 employees. There were 5.6 million microbusinesses in the UK in 2019, accounting for 96% of all businesses. When people think of supporting businesses, they instantly think of Siemens and Co-op and Lindum. The reality is 96% of all businesses are tiny. I think it helps to dissolve the assumption that supporting businesses is about maintaining shareholder profits. It isn’t, it’s about putting a turkey on the table at Christmas.
4 Tax Avoidance: Some people, including council colleagues, have suggested to me that small businesses don’t deserve support because they have used Limited Company status to avoid tax. While it is true you can reduce your tax liability by shift income tax liability to capital gains tax; you are still liable for high levels of tax on dividends (7.5% basic, 32.5% higher) as well a blanket tax on profits before dividends of 19%. In reality, the gains are marginal, and the system is legal. Pensioners make use of a tax avoidance scheme (i.e. pensions), and no one suggests they are not deserving of further support.
5 Left behind: The current support packages are designed with little knowledge and experience of business. They are focussed on businesses with premises and employees – which while a key metric is only part of the sector. Current estimates are that 3 million UK taxpayers excluded from UK Government Covid-19 support., they fall into the following categories:
- Newly self-employed
- Those earning less than 50% income from self-employment
- Self-employed with +£50k trading profits
- PAYE freelancers
- Directors paid PAYE Annually
- Directors paid in Dividends
- Directors of Companies not in Profit
- New Businesses
- Businesses ineligible for Business Grants
Another local example is a district council-run scheme where you only qualified if you could prove 3 of your suppliers had been made to close during November only – a test so challenging as to be embarrassing.
6 Capital Grant Ratio: Current grant schemes tend to focus on capital expenditure and require crazy weighting. For example, Grants4growth has been providing 28% match up to £10k value, and they can’t give the money away for the past two years. If a small business wants to buy a £10k new bit of kit and are looking at grants the chances are they don’t have the £7,200 required to be matched by the grant.
7 Revenue Support: No real access to money to keep the lights on and the business ticking over.
8 Support Quality: The harsh reality is that almost all business support offered is of deficient quality:
- Very low-quality advice and support. It tends to be run via public sector or 3rd sector organisations whom either employee failed business people or professional consultants; neither group inspires confidence from the private sector. Businesses know more about business than any educational establishment.
- It tends to deliver training based on a perceived need rather than an actual. For example, currently, various business support organisations are pushing ‘Preparing for BREXIT’ despite the fact a) most SMEs won’t be impacted b) No one really knows what will happen. It also heavily influenced by what vested interests say the need is: large accountants make out tax issues are a widespread problem, solicitors claim legal problems cause SMEs lots of headaches. Neither case is true.
- It relies heavily on buzzword opinion: The professional public sector view is that if businesses just had a better website or had a Twitter account all would be ok. Numerous business support organisations lecture businesses on ‘going digital’ with seemingly little understanding of what it means.
- Engagement is woeful. The vast majority of companies who engage are either the usual crew or professional services organisations (marketing, banks, solicitors). Manufacturing and retail very often don’t get a look in.
- It’s hard to do justice to how appalling the red tape is. Typically applications for support and grant require numerous hoops and forms to be filled out, seemingly in duplicate. The usual ‘process led’ public sector approach has sought to make funding applications clear, transparent and avoid fraud – in doing so they have made them utterly unwieldy and ineffective.
Looking at how we can support Lincolnshire SME’s I believe we should approach any new scheme with the following principles in mind:
- New Approach: Avoid more of the above.
- Avoid “pay us to help our business” schemes provided by the educational or public sector. What would be more beneficial would be to give grants for services but let the businesses place them with other companies.
- Advertising credits: give credits for businesses to place online and traditional print or radio advertising.
- Not tied to business premises, a huge percentage of SME are now operating from home, many always have done.
- Capital grants with more streamlined application and ratio, e.g. 75% grant to 25% self-funded.
- Revenue grants to keep doors open. Yes, some businesses will still go bust, but it will help many.
Finally I’d ask that you share your opinions and ideas either in the comments or directly with me, [email protected].