Posted Thu 4 Jun 2020
Hindsight is a wonderful thing. And things that might previously have seemed difficult or insurmountable hurdles at the time can be put into perspective when looking back, especially if that is from an even more difficult time.
There are many reasons for starting and growing a new business but it is fair to say that looking for an easy life is not one of them. And having the skills of David Hemery or Sally Gunnell (select based on age) always helps. Although the Government regularly states that “the success of small businesses is central to their long-term economic plan”, a philosophical discussion on whether that message has reached all sections of the Government is probably for another time.
In the ‘good old days’ most SMEs had two relatively simplistic challenges – how to win business and then how to get paid promptly, so life would be:
a) Create an annual business plan based on the current year’s performance plus an organic growth target, all within a known and relatively stable market, and then manage any unexpected changes or hurdles as they come along. Yes there have been cross sector issues such as Brexit which created widespread uncertainty and made winning business that bit harder. And yes there have been sector specific issues such as the off-payroll working rules (IR35) which disrupted an established and efficient private sector contract market with business gradually disappearing as end-clients re-modelled their supply chain. However, you just dealt with those hurdles as they presented themselves.
b) Try to get paid promptly which should be straightforward but not if you have had to sign up for 60 or 90 day payment terms in order to get the work. SMEs are often working in an environment where some (but to be fair not all) end-clients and prime contractors have clearly designed their processes and payment terms around protecting their own cash flow and with no concern whatsoever for their supply chain despite what their Corporate Social Policy might say.
As a member of the Small Business Panel reporting into the Cabinet Office, TORI have used that forum to highlight the issue of late payments to SMEs. Although the Panel’s primary brief is to increase the amount of Government spend through SMEs, whether direct or indirect, it also looks at other aspects of SME engagement with Government such as the flowdown of unreasonable or disproportionate terms and unfair payment terms. The Government has had a number of well-intended initiatives in this area such as the ‘Prompt Payment Code’, the ‘Late Payment of Commercial Debts Regulations’, the ‘Duty to Report on Payment Practices and Performance’ and it is now giving them more focus by pulling a number of initiatives together under the remit of the Small Business Commissioner. However, as in life generally, ‘good’ companies will treat their supply chain fairly regardless of the rules and ‘bad’ companies will ignore or seek to get around the rules unless there is a penalty for non-compliance. This has led to more emphasis on compliance such as the exclusion of suppliers from Government procurements over £5m if they do not meet the standards of paying 75% of all supplier invoices within 60 days (and submit an action plan to achieve 95%).
Those issues seemed very important at the time, and they still are of course, but none of us could have envisaged that the whole business landscape would change almost overnight. The reality is that most SMEs have had to move into tactical survival mode that effectively equates to across the board cost reductions (as they have no control over revenue which in many cases has simply fallen off a cliff) and rigorous cash flow management.
As a CBI Regional Councillor and member of the CBI SME Council, I have been one of many people and organisations that have been trying to present the SME agenda through their direct channels into Government. This has covered areas such as:
So some 10 weeks into the new world, what is currently on the TORI SME radar:
As the only real objective for many SMEs is still to just survive through to the other side, whenever that might be and whatever the ‘new normal’ might look like, it can be hard to look far beyond the short-term day-to-day issues. And even when looking forward, many SMEs cannot really plan as they can only follow the lead of others. Our future actions are very much driven by our own client’s behaviour so:
a) Firstly we need to understand the Government’s plans for the release of its lockdown restrictions (together with the plans for public transport) which are still pretty unclear; and
b) Then we will need to assess both our client’s re-occupation plans and their timetable for re-engaging on discretionary projects rather than Business Continuity; and
c) Then we will need to assess and plan our own staffing levels and office re-occupation which will be linked to our ability (or not) and the need (or not) to physically engage with those clients in their own offices as opposed to remotely.
At a macro level, a major concern is that many SMEs are building up debt (CBILS, loans, deferred VAT/PAYE, rent arrears etc.) and it just may not be possible for them to repay those debts down the line out of future profits as SMEs do not typically make ‘super-profits’ at the best of times. This could therefore just be pushing inevitable business failure into the future for many SMEs.
At a more specific sector level, issues such as IR35 haven’t gone away as the Government has indicated that it still intends to implement the new rules in Apr-21. Perhaps one consequence of COVID-19 might be that the Government performs a root and branch review of the income tax and NI system as it is arguably unfair and inconsistent to treat someone working through a personal service company as an employee for IR35 purposes when the Job Retention Scheme has excluded them from any financial support on drawings from their company.
And one overarching success must be that the Government has been working very closely with organisations such as the CBI, FSB and TUC and it has clearly been both listening to, and acting on, their business and employment concerns. Hopefully this collaborative approach will continue into the future, but only time will tell.