Partner Article

Strong firms can continue to ride the storm

Combined with the effects of the weather conditions at the end of last year, the 2.5% VAT rise in January will have no doubt left many SME owners feeling that the world is against them. Unlike the snow, we had plenty of warning: a 2009 survey by the Federation of Small Businesses showed that more than 70% were expecting the rise to have a ‘negative impact’ on their business, while just over half said they expected to have to increase prices. It’s unfortunate that both consumers and businesses are destined to absorb the cost of the rise. As customers tighten their belts in its wake, businesses of all shapes and sizes should be prepared for a drop in turnover.

Of course, very small businesses which are not yet big enough to be VAT-registered can be seen as having a perverse advantage (now effectively 20% cheaper than some close competitors), but this will be countered by an overall drop in spending, which will effect everyone. Many VAT registered businesses will feel that, through no fault of their own, they need to increase their levels of service to justify the increase on prices.

Companies will also be facing administration and cashflow issues that would not have presented themselves without the VAT rise, as they and their suppliers adjust invoicing to accommodate the hike (as many will have already done twice in recent years).

Whilst some businesses may be in a financial position to absorb the rise creatively, perhaps by keeping prices at current standing whilst adding new lines of products and services which cover the costs, most of the entrepreneurs I have spoken to onsite at the North East BIC agree that this is a ‘deal with it and press on’ moment. As everyone running successful SMEs finds themselves in the same (yet more expensive) boat, we should focus on the value of our offerings and work together to ride the storm.

This was posted in Bdaily's Members' News section by Ruth Mitchell .