Dubbed ‘Black Wednesday’ by some of the more colourful press, the Comprehensive Spending Review had the nation primed for bad news. But once again, in a repeat of the Emergency Budget in June, private businesses fared better than predicted.
35 of the UK’s largest companies came out in support of the chancellor’s plans, and broadly speaking, people seem to have accepted the outcomes of the CSR. But what will it actually mean for SMEs in the short and long term?
We’ve devoted this month’s newsletter to addressing the key areas highlighted in the CSR, including:
- What new business opportunities have been created?
- Sectors that will benefit from protected investment.
- The implications for bank and investor funding.
- What you need to know about the tax system.
- How your business needs to adapt to succeed.
And if you prefer to receive information face to face, visit our online TV archive to see Business Advisory Partner Gary White discuss the main outcomes of the CSR on video.
New opportunities to offer outsourced services:
Sir Philip Green’s call for centralised procurement has been acted upon, changing the way the public sector buys goods and services. Considering that at local government level, SMEs get about 59% of the procurement spend, this will have a knock on effect for Essex businesses.
However, George Osborne has said that as far as possible, local suppliers will be employed, plus the ring-fencing of local budgets has been stopped. Entrepreneurial companies will offer outsourcing services to take up some of the public sector slack. SMEs can be more flexible and cost effective, filling the resource gap created by staff cuts.
Green shoots:
While details are still sketchy, it seems that the Green Deal will secure jobs and growth in sectors that support the energy efficiency agenda. Manufacturers, distributors and installers of sustainable technologies will benefit from a combination of subsidies and user incentives.
Entrepreneurial firms that can ‘green up’ their proposition will also benefit. For example, we’ve seen considerable growth for clients that have an environmental aspect to their business. Types of
businesses that you wouldn’t typically associate with environmental savings are getting involved, such as printing firms using biodegradable materials for corporate banners.
The creation of a £1bn Green Bank funded by private business may increase the scope for eco-friendly trading, although how this will work is yet unclear. Add to this the protection of the Renewable Heat Incentive and Feed-in Tariffs, and the future’s bright for low carbon companies.
Infrastructure improvements:
Investment in transport, education and the NHS will safeguard jobs and may mean that suppliers to these sectors are protected from the worst of public sector cuts. For local businesses, the advantage is mainly long term and will derive from the general skills, wellbeing and efficiency these sectors should deliver.
Funding for SMEs
Just last week the British Bankers Association (BBA) admitted that some viable businesses were ‘overlooked’ by banks during the recession. Last week they pledged to make up for past mistakes with the creation of a £1.5bn small business fund. They will also create a network of business mentors offering free advice to small businesses and a “transparent” appeals process for companies denied loans.
The entry threshold is a turnover of £10m so genuinely small businesses will be excluded, but the good news is that it indicates a greater willingness to support SMEs.
The bank levy announced as part of the CSR have caused some to wonder if banks will retreat after all, however it is our belief that funding applications from SMES that can demonstrate long term growth potential through well managed cash flow forecasts and a sound business plan will continue to be accepted.
Furthermore the banks have been given lending targets, and initiatives such as the Enterprise Finance Guarantee are still available from companies with a lack of tangible security.
Looking outside the banks, there are also other independent bodies that will consider funding applications from companies that can demonstrate growth.
The corporate finance market is picking up again and we are seeing increased activity in this market, with companies looking to grow their business through acquisition or by selling their business on the open market, or through management buy-outs.
If funding or an exit strategy form part of your business objectives, it’s essential that your business plan and cash flow forecast are in order and regularly maintained – these are the basic documents that any investor will expect to see. We can help create these tools to give you the best chance of success.
Has the tax situation changed?
In cutting the HMRC’s budget by 15%, the CSR has ensured that the lack of organisation and administrative mistakes we see on a daily basis are amplified. We are already working hard to scrutinise every tax code and letter that our clients receive, and advise all SMEs to pay close attention to any correspondence issued from the HMRC. Mistakes can be rectified eventually, but the negative impact on time and cash flow should be avoided if possible.
Capital Gains Tax is increasing to 28% for higher rate tax payers as was announced in June, however Entrepreneur’s Relief was increased to £5m on business gains, which are taxed at 10%.
The £900m investment in reducing tax evasion and fraud won’t make much difference to businesses, although clearly the need to file correct assessments is important. Cynics suggest that the number of tax investigations might increase to increase revenue, and we advise that all our clients protect themselves through our low cost insurance policy.
Overall there are still opportunities for careful tax planning, but the rule is to focus on this early so that your affairs can be structured accordingly.
Adapting to the new environment:
There seems to be a general sense of relief that we finally have some clarity about the future for business. And the basic rules still apply – companies that have a solid growth strategy which takes stock of financial and market variables are far more likely to succeed. The economic landscape has changed once again and your business plan and forecasts need to be adapted to maintain relevance.
Because we offer an integrated service, including all aspects of financial planning and wealth management, we can help you strengthen your position and meet your objectives. For more information about how we can help, or to discuss the CSR and how it relates to your business in more depth, please feel free to get in touch.
