The Government has confirmed this week, that Business Link is to be scrapped! While personally this will have no effect on me, as I tried using the services of business link when I was first getting into business, and I didn’t find them to be a great deal of use - what I want to know is, the money the Government was wasting on this (which they’ve agreed was the case) how are they going to find a better way to use this money to support small businesses?
Of course, I’m sure the answer is that they’re not, they’re seeing this as a money saving exercise, but I think they’re making a mistake.
Mark Prisk basically stated that they realised that business links were just signposting, telling businesses where to go for advice rather than actually giving advice - and for that reason it was a waste of money, so they’re going.
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I think the majority of small business people will agree with this, apart from certain parts of the country (in particular, in Scotland) where the local business links appear to have had more money to play with & had more support to offer.
Doug Richard, former Dragon’s Den panelist, has some quite strong opinions about this : Doug Richard to Business Link: I shall not mourn your passing
What I think - is that the government instead of trying to see this as a way to save money, should instead find better ways to use this money to support small businesses. Yes, we have ridiculous amounts of public debt & cuts are required, but it appears to me that some of the decisions they’re making are going to have a negative effect in the long-run.
The Government appear to be looking at businesses as the source to help right the economy, using businesses to collect more VAT (and yes, it’s the consumer that pays the price ultimately for the extra VAT - but who pays the price to change all the systems once again to reflect the new Vat amount?) but businesses are struggling, small retailers & businesses of all kinds are dropping like flies, if support isn’t given to small businesses - then I think we can expect much worse times to come.
So what I’m saying - just on the very very unlikely event that Mark Prisk reads this - is that the government should consider finding better ways to use the money they’re saving on closing business link, to support small businesses.
I’ll give a few examples…
My wife had a shop in the village, on the main shopping street. It was in a good position, but it was a very small shop - it was perfect for her though, as she sold personalised gifts, so people would come in with a picture, and they’d come back the next day & take away canvas prints, photo mugs, tea towels, photo cushions & so on made with this image. So she only needed a small amount of shop space.
She worked 6 days a week, the shop was open all day & sometimes she opened late for later collections, and the shop was getting a lot of word of mouth advertising, people were coming in every day & telling her how great it was that there was something other than hair dressers, florists, cafe’s & charity shops in the Village…
She did a lot to promote the business, and footfall was actually really quite good - but what really killed the business, was business rates….
Even with the small business rates reduction, the amount that the government wanted (and this isn’t local government, they just collect it - it goes straight to central government) was about equal to the rent she was paying on the shop!
This surprise came because when working out how much the business rates would be, there are different costs per square metre for shop floorspace, and for office / manufacture - and the amounts differ by quite a lot. As the shop was only using a very small amount of shop floor space, and the rest of the building was being used as office space & to do the printing & pressing of the products - it was thought that the rates would be worked out as 2 entities, shop space & office / manufacturing space. But - because the separation between the two area’s of the premises wasn’t a solid wall (it may as well have been, it would have taken a lot of effort to shift it, and the separation only left room for a door space) she had to pay the same amount as if the whole premises was shop floor space.
This means that she was paying the same amount as the hair salon which now occupies the premises (woohoo, another hair salon!), yet her business only had a very small shop front & had nowhere near the earning potential that a 10 seat hair salon has.
My wife wrote to the local council, no response. I could name names here as to which useless local councillor she wrote to, who completely ignored her, but I wont….
I tried to help my wife to get support from local business organisations, and I may as well have been talking to myself, well actually I was - no one gave a toss, we didn’t receive a single reply.
So - she had no alternative but to shut up shop, she just couldn’t make enough money to cover the rent & rates & pay the bills, let alone make any profit. We figured that since she had a busy Christmas, if she pushed through it & made a loss every month but Christmas, after about 5 years of this she may eventually break even & start making a small profit - but it wasn’t worth it for all the hard work she was putting in.
The local newspapers have been full of stories of local business dropping like flies for quite some time, and often some local councillor gets in on the act by talking about the initiatives they’re putting in place to try to support local businesses, but I know from first hand experience, and from discussing with many other small business people, that the truth of the matter is that there is very little support for small businesses either from local or central government.
Another example is the DTI backed small business loan scheme.
A few years ago, I successfully applied for a DTI backed loan, which means that I didn’t have to put up anything to secure the loan - this was a great help, BUT I ultimately found out that it was a bit of a Trojan horse!
So happy about the fact that I’d been offered the funds, I didn’t study the small print enough, so I was a bit surprised when I found that I had two sets of payments each month, one to pay the capital & interest back to the bank , and a separate one to pay interest to the government. I can understand the need to do this to cover the losses the government would ultimately face from such an offering, but at the same time, the maximum term offered meant that the re-payments were pretty crippling to cash flow, so in hind-sight I would have actually been better spending more time & effort trying to get a standard loan.
So, here are some ways I think the government should consider re-investing the money they save from scrapping business link:
Re-thinking the way business rates & rateable values work.
First of all - what are business rates for? I had a conversation with a member of the business rates customer service team a while ago, and his reply to my question “What do we get in return for business rates?” was…. “Absolutely nothing! It’s just a way central government uses local government to raise funds, local government sees none of the money, we just pass it straight to central government!”
We know that when we pay council tax on our homes, we’re paying for waste collection, police & so on - many small business people assume the same is true with business rates, but it’s not!
My first choice if I was running the country, would be to scrap business rates all together for small businesses. Sure, collect rates from larger businesses who can afford it, and especially the banks, Oil / fuel companies - and basically any of the organisations who are partly responsible for the current state of the economy - but leave small businesses alone, and although this may be costly in the short term, in the long-term this would pay dividends, with more small businesses flourishing - and if the economy is to be corrected, we need small - medium businesses to be succeeding. Especially given that so many government employed people are about to lose their jobs, that we need more jobs available.
If scrapping business rates for small businesses isn’t possible, then it should be made more fair, by working as a percentage of gross profit rather than a flat cost regardless of the business type or profitability. This way, while businesses are in the fledgling stage, or are struggling, they have a bit of support in terms of not having to try to scrape the money together to pay the business rates.
Invest in fledgling businesses
As well as helping out new small businesses or businesses which are struggling to make a profit, when it comes to business rates - how about actually giving some financial support to small businesses, in the form of grants or low interest loans?
How much money did business link cost over the years? What if instead of spending this money just to tell business people where they can go for advice (and, Google does that free!), this money had been invested into small businesses instead to help to encourage growth?
For instance, small business grants could be offered to small business people who show that they have a business plan with merit, to encourage growth, in return for the business making a commitment to re-invest a minimum percentage of it’s turn over back into the growth of the business.
Personally, I think if this was done, we would see a big increase in the growth of small businesses - which would have a very positive effect on the growth of the economy.
Change in VAT
For a start, I’d recommend that they stop messing with the rate of VAT, as it creates so much work & cost every time they do this, which puts a financial strain on businesses.
Secondly, if I was having anything to do with running the country (which I’m glad I’m not!!) I would look at changing the VAT system.
I’m not going to pretend that I have the experience & intelligence to suggest how the VAT system should be changed, but I think the government would benefit from getting some of the countries best business accountants & business people in a room together to discuss a better way to work the VAT system which puts less strain on small businesses.
For instance, the current annual turn over rate at which businesses are required to be VAT registered is very small when applied to certain higher turn over - smaller profit margin businesses, and for these kinds of businesses, the hassle & cost involved in having to collect VAT, is a strain that small businesses could do without!
Advice & Support for small businesses
When a small business person approaches the local council for help, there should be a system by which this is passed to someone who can actually offer help - rather than the letter just being binned or ignored!
Again, how a system like this is put in place would require some thinking by people who have a lot more experience & business brains than I have! But here’s a bit of an idea..
I’m assuming that business link was put together by thinking along these lines, but obviously that didn’t work.
How about a local government scheme in which local successful business people are selected to answer such shouts for help with real help & advice from people who’ve been there themselves?
Exactly how this would work & what the incentive would be to business people who have the skills & experience to help, I don’t know, but again - I think something like this would be worth talking about.
For example, when my wife wrote to the council to protest at the way the business rates being requested was choking any chance of the business being able to turn a profit, what if the person who received this, instead of ignoring it (which they did! The letter wasn’t even acknowledged!) passed this to one of the experienced business people appointed, who could then reply by letter or phone, to offer some real help & advice - if this happened, who knows, perhaps my wife’s small business & many other small businesses who’ve shut their doors recently, would have been able to turn things around.