Micro businesses are important.
It was interesting reading the thoughts of many politicians recently when they were talking about trickle-down economics, and it got me wondering if they really understood the importance of micro businesses in the UK economy.
These businesses, employing ten people or less, account for 96% of the businesses in the UK economy and are the real drivers of our economy.
Government claim to consult with them, but this is very often done through business organisations who cannot afford to rock the boat for fear of losing their seat at the government table. This results in the real needs and issues of micro businesses not being discussed and, if they are, they are rarely listened to. Their needs and issues are even more rarely acted upon by government.
This is in stark contrast to the lobbying power of big business which has great access to and impact on the decision-making processes of government.
A powerful & positive example
I saw an interesting example of the power of micro business when visiting my local gym recently. One of the fitness coaches had purchased a piece of kit which measured body composition. It was something he would not have been able to afford without the help of a good source of finance.
A small finance company, focussed on small business, had helped him with the purchase and he had his eye on another bit of kit as well.
He was already selling this service to clients, recruiting nine on the night I was there. He’s planning to grow his business and take on more coaches, with this new technology helping him create a clear point of difference with other coaches.
I looked into it a little further and the kit is produced by a small digital engineering company based in the UK. As more coaches buy their products they will also grow and as a result, they would need to buy in more components and labour from within the UK.
On top of this, these small businesses all reported receiving payments quickly and efficiently – something that many big businesses are not doing. Big businesses are making their own payment practices longer and more complex, a culture which makes “trickle-down economics” as a successful concept look doubtful to say the least!
My fitness coach experience is a great story and I bet that even in these gloomy times there are many other stories like this that show the real power of micro businesses and how effective “trickle-UP economics”, can be.
It’s interesting that the starting point was the finance and access to finance that individual sole trader got, from what many call the alternative finance sector. I bet he wouldn’t have got that support from a high street bank.
So, in my opinion if we can get government to listen to and act upon the needs and issues of the UK’s micro businesses and get them to help the finance sector to deliver targeted and effective finance to these businesses (which in many cases will mean getting out of the way) then we really can start to drive the UK economy forward!
Forum of Private Business
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In recent weeks it’s been difficult to escape the discussions around small businesses dealing with increasing costs, led by the large increases in the price of fuel and energy for both heating and production. This has led to many businesses having to increase their own prices and these, in turn, get passed on to customers and suppliers. This is having a huge impact on some small businesses, and they are suffering as a result, if you look at just the pub sector which was already under a lot of pressure following the various lockdowns during the Covid-19 pandemic. They have seen the cost of cooking meals and heating the pub go up, beer prices rise, and cellar gas prices increase, this is on top of staff shortages, changing consumer behaviour, high rents, and the fact that many are carrying more debt than prior to the pandemic. That’s just one small business sector out of many that are struggling at the moment.
On the positive side, small business owners are usually a robust bunch, who adapt and change to make their business work but in my opinion, one key thing has changed since I set up the first of my small business venture in 1997 and that’s the margin that many small business owners actually make from doing business. One of the reasons for that I believe is successive government’s lack of understanding of how small business actually works, its importance to the economy and its tendency to treat a small business as a “Big business only smaller” rather than a completely different animal altogether!
When the financial crash happened in 2008 my business and many others had a decent cash reserve or shock absorber if you like and we were able to ride out the storm of reduced business and late payments, but since then I feel small businesses have been squeezed, not only by bigger business customers but by government tinkering, particularly by the treasury, in both the way they tax small businesses and the increased costs they themselves have imposed on businesses. Where small business is impacted more than their larger counterparts. The living wage, auto-enrollment, changes to dividends, VAT, National insurance, IR35 and those small business owners who were excluded from help during the pandemic, as a small business owner juggling multiple roles and trying to keep your business afloat these all had a huge impact in terms of both money and possibly more importantly time.
So I have a sincere hope that the last couple of years will act as a wake-up call to political parties on all sides to really start to talk to small businesses. But more than that, to actually listen and act on what they hear, because most small businesses ask for two things, Make it easier for me to do business and give me a level playing field to operate on and at the moment government seems to want to do neither!
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Having just been part of the Knutsford Town Awards, presenting prizes and focusing on the role of small businesses in our local community, I’ve seen just how important they were to these communities not just in Knutsford but all over the UK during the pandemic. Small Businesses went the extra mile to help and support local people and the local community responded in turn by supporting them.
The Covid-19 pandemic moved small businesses to the centre of their local communities, local customers supported them and in many cases, they, in turn, helped and supported their local economy. They took innovative approaches and were very creative in what they did to overcome problems, they responded to local needs quickly and in many cases continued to employ people locally and grow the number of people they employed.
They used the period of lockdown to review and improve their business from a fresh lick of paint to complete revamps and overhauls.
Many embraced the digital world, with over 40% of the Forums membership having no website for their products and services this number is now well below 30%. They built social media platforms to support the website and have put digital payment systems in place. So, the Pandemic in the Forum’s opinion became a tipping point for the move into the digital world for many small businesses and there is now a need to train and support these businesses in using digital better.
Some interesting Data –
- £3.80 of every £10 spent locally stays in the local economy, supporting local merchants and their communities.
- 54% of people in the UK say it’s important to shop locally.
- 18% of people in the UK own or work in a local business.
- 68% of consumers say Covid has changed the way they use cash and pay for things into digital and cashless payments.
- 44% of people say they would no longer shop in a place where payment requires physical contact with a device or person.
- 67% of all businesses say their in-store experience has been improved by being able to accept contactless or digital payments.
Managing Director Forum of Private Business
Sources Visa/Cebr survey Nov 2020 & Visa back to business global study Sept 2021
One of the issues facing the government at the moment is the lack of trust in it, which has developed over many years. People just do not trust the government anymore and by association the experts that the government brings forward to advise on specific issues.
This is a massive issue which has been developing for a number of years, the reasons are complex and I am not equipped to cover them all myself. But you only have to look at the Covid-19 pandemic to see what I mean. Some people do not trust the government and its advisors to a level where they are scared to take a vaccine, potentially putting themselves and others at risk, but the fear of the vaccine outweighs the fear of the disease itself. The variety of views and opinions around where the virus came from, if it exists, how it spreads, how to stop it and what is true and what are lies are huge.
So where am I going with this, well from the point of view of small businesses it is a very unhealthy and unhelpful situation and bearing in mind that these small businesses make up most of the UK economy it’s a problem for the country.
Small business owners by their very nature are generalists, they know their product and service, a bit of HR, a bit of marketing, some finance, some sales, and a bit of health and safety. They are individuals or small teams trying to juggle an entire range of skills and build a successful business. They rely on experts to help them, HMRC on tax issues, the health and safety executive, their accountant, a financial advisor, experts on digital marketing and website design, legal services and hopefully a good membership organisation such as ours, the Forum of Private Business, as well as local and national government and their agencies.
Now, if you cannot trust the government and its agencies that causes a problem, it causes doubt in the mind of businesses and their owners, it means they spend a lot more time and expense on making sure they double-check things and make sure they are right and that the business is compliant. Because of the fear of getting things wrong and being penalised by HMRC, the Health and Safety executive, the Pensions Regulator or the ICO and the resulting fines and penalties play heavy on people’s minds.
What can government do to help, well, in my opinion, there are two main factors. First, they need to start to rebuild trust and that will not happen overnight by the magic flick of a switch, trust is built over time and results from a range of behaviours. So, every MP needs to make sure their mindset is that of a public servant, they are there to serve every member of the public regardless of whether they voted for them or not and behave in a manner that is congruent to that mindset and rebuilds trust. Secondly, it would help if government departments worked more closely with respected and trusted experts from the business world, Tony Blair tried this when he brought Lord Digby Jones into his government, and we think as an idea it has possibilities to be built upon now.
If the country and its economy are to thrive and grow, then the government needs to build a platform that small businesses can trust and have faith in, they need to make it easier to do business and give businesses a level playing field to operate on.
Managing Director, Forum of Private Business.
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On Wednesday 26th January, I had the opportunity to sit down with the Small Business Minister, Paul Scully MP and we went through the following agenda.
Introduction to the Forum of Private Business and Forum of British Pubs
The Forum of Private Business was set up in 1977. The Forum exists to help small businesses with 5-50 employees who have a responsibility to be compliant but do not have their own legal and HR resources. So, we offer practical, proactive support at a reasonable price as a not-for-profit membership organisation. We do not lobby as such but have consulted with government and regulatory bodies since our creation, giving our members a voice and hopefully helping create good governance frameworks, effective regulation, and a thriving small business economy.
We set up the Forum of British Pubs in the middle of the pandemic in 2020, as we saw many pub owners struggling to deal with their pub company owners. We deal with each member on a case-by-case basis, helping them with dilapidation charges, rent negotiations, contracts, MRO submissions. We offer practical help and advice if they are in trouble as well as trying to keep them out of trouble in the first place. We have also more recently been working with local regional planning officers to help them deal with Change of Use applications, where viable pubs are claimed to be unviable!
General State of Play SME’s
Finance – Dept, Late Payment
- Many of our members report being in debt or further in debt because of the impact of the pandemic. Some have taken the view that if they are taking on debt, having been previously risk-averse, they are now making sure the debt covers their needs and possible growth. For example, Digital opportunities – The cost is often more than the hardware, training, and development, so many small businesses are not only investing in the hardware and software but in the training and recruitment of staff to use these tools effectively and boost productivity.
- The Banks were poor in terms of issuing CBILs, mainly because they don’t know their small business customers, so had to go through extensive tests and information gathering before issuing them, this included customers of over 30 years in some cases. Bounce Back Loans then came in with little risk to themselves and they handed them out like smarties. The lesson I think is for the treasury to realise that the big banks are no longer the default choice for many SME’s and this in part has been driven by the Banks own behaviour towards SME customers.
- Use of alternative funders, rather than the big banks, see the comments above, there is a need for the treasury to better understand how SME’s access and use funding, including the start-up banks, Metro Bank were very successful in recruiting SMEs alongside Starling and tide. Many also look at holding on to capital and leasing rather than buying, vehicles and office equipment being a good example.
- Late payment seems to be on the increase, it’s a cultural issue and needs to be treated as such, use of the Small Business Commissioner if she has the resources to do the job.
- Restore the High Street, smaller units are needed, places to learn the trade and develop your products and services, the demand Is there, artisan markets, it’s the leap from there to the high street that’s a big issue.
- Landlords, the good and the bad! Some Local landlords are adapting and responding to local needs, price and size. Larger more distant landlords are not adapting and are trying to maintain high rents, supported by RICS acting as agents, it could be argued RICS are conflicted.
- Good Capital reserves, quoted by the treasury, in the Grant announcement, if this came from listed businesses it could be argued it supports what we were saying about grants going into pubs then straight into the accounts of some of the pub companies. some big hospitality groups may have done well out of the pandemic.
- Forum of British Pubs Latest Survey, this was shared with you and the final document will be emailed once it is finalised, summarised, and fit for release.
- RICS Variances, it is difficult to understand how two surveyors from the same professional body can come up with wildly differing claims if they are looking at the same business and operating to the same set of professional standards, but variances of up to 100% are happening and RICS seem to accept this. Surely a variance figure could be given as a guideline, say 15% and anything over that needs investigating.
- The latest Consultation on the Pubs Code addressed the low hanging fruit, not the core issues.
- The PCA
- The BII expert panel, we strongly object to the PCA, in its latest update and the Government response to pubs code consultation highlighting the BII and its expert panel. The BII is a charity that relies on regulated pub company’s to fund its training courses and you have to join the BII to access its panel. So the PCA and Government advertising this BII service gives them an unfair commercial advantage. There are also questions, do the BII make money from their panel members in terms of commissions? And how do you become appointed to the panel?
- The Latest PCA Survey, where does the data that IPSOS Mori uses come from and why doesn’t the PCA publicise where it comes from? Because at the moment the trade feels the data comes from the pub co.’s who can manipulate those lists.
Final Questions, can you (Small Business Minister) help?
- Better engagement with us, particularly on the next Pubs Code review. We agreed to meet on a 6 monthly basis which is much appreciated and any help the Small Business Minister can give in promoting better relations between ourselves and the PCA would be appreciated.
- Pub companies provide an investment statement, annually, quantify the SCORFA. At the moment the publican can see the additional costs associated with being in a tied agreement, so rent, beer, wine and spirits. They are told they get benefits via the SCORFA, but this is currently not quantified. So why can’t the regulated pub company provide a simple annual statement which lists the investment made in the pub, structural, marketing etc with a value set against each? This statement could also list any outstanding works to be carried out by the tenant, so there are no surprises in dilapidation charges which may be applied. The PCA asked the BBPA to look at a solution to the dilapidations issue, something which we haven’t seen the result of, but this could be part of the solution to that!
- RICS as part of the wider rent issue, if the government is able to help prevent the wild variances and inflated rents that currently impact many UK towns and small businesses it would be most appreciated.