Yep. Hi, everyone. It’s Nishi here from N-Accounting, and this is my first live video. So I wanted to take the opportunity to just react a bit to the budget and talk about what small businesses need to do to prepare themselves for the drastic changes that are coming up in our economy. So if anyone’s paying attention to the budget on Wednesday, there’s quite a lot going on, but not all of it is relevant to small businesses. So what wanted to do was just summarize, concisely, some of the key things that are going to be the major changes to the way small businesses work. So one of the things that the… Probably the biggest change for small business at the moment is the increase in the national minimum wage. So it’s well over £9 pounds now.
What that means for a lot of businesses, especially if you’re paying minimum wage to your staff members, is you’re going to have to pay them more. Because you’re going to have to pay them more, you’re going to also have to pay more employer’s national insurance on it. You’re probably going to have to pay more pension contributions on their behalf on that increase in salary, and what that means is your costs are going up. To that, if you also look at the increase in the employer’s national insurance rate as well, then your employer’s national insurance costs are going to go up even more, and on top of that, from April 23, depending on how much profit you make, corporation taxes are actually going up to 25%.
So if your profit, I believe, is between 50 to £250,000 a year, you’ll start seeing an incremental increase in the rate of your corporation tax. If your profit is below 50,000, there’s not going to be any changes, but hopefully, you’ll be moving to a position where you are aiming to make more than 50K a year profit. Your employees are also going to end up with bit of a national insurance increase themselves. So it’s worth factoring that in. So that will impact their take home pay. Although the increase in the national minimum wage will offset that impact. So in general, my opinion on it is we are moving towards having a high value high inflation economy, and what that means is businesses need to start preparing for that.
So ultimately, what I’d say to the small business owners we work with is, “When was the last time you actually reviewed your prices? And do you have a clear understanding of what you’re going to have to charge in the future to make the same or more money?” Because if you don’t have a strategy around it, then you are going to fall behind. Essentially, price increases for your customers aren’t an easy thing to actually put through. We did a price increase recently, and it actually took us about six months to actually work it all out and get it prepared and communicated effectively. So what I’m saying is, ultimately… Firstly, you need to know how much you’re going to have to increase your prices by because these changes to national minimum wage and the taxes, they’re not just going to impact your business. They’re going to impact all of your suppliers.
So what’s going to happen is your suppliers are going to come to you and say, “Actually, we need to charge you more now.” So if you’re not careful, you’re going to end up with rising costs on your supplier side. You’re going to end up with rising taxes, and you’re going to end up with rising employment costs, and all of that is going to massively erode your margin. I’ve got a really good document here, and it’s something ActionCOACH gave me a little while ago, but it’s saying if you sell something and you make a 20% margin on it, then if you increase your prices by just 10%, you can afford to lose 30% of your customers and still make the same money.
So what that means is the impact of a price increase, you putting that through, is actually so much more disproportionately valuable for your business than the actual price increase. So a 10% price increase actually generates a lot more than 10% of value for your business just because of the way margins and everything work. So ultimately, with a good pricing strategy, firstly, you need to know how much you charge. Then secondly, you need to know how you’re going to communicate that to your customers, and then most importantly, don’t just do it as a one-off. Make sure it becomes one of the processes in your business.
One of the things we do is we actually have a review every year with our pricing. So we look at what’s happened to inflation. We look at what’s happened to our costs and, also, we look at the value we’re adding compared to what we were doing before. So we factor all those things to actually review what our pricing should be, but ultimately, a business should be doing that every single year just to make sure that they’re up to date, because if they’re not, they will end up losing a lot of their margins. The business will go backwards. There’ll be less money to invest. There’ll be less money to actually give the staff the pay they deserve, and that’s going to lead to them losing staff, losing customers, and falling behind, and eventually falling by the wayside and closing down as a business.
So one of the things I wanted to also mention about inflation is one of the knee jerk reactions to dealing with inflation can just be to look at your cost base and say, “Okay, what can we save money on?” What you got to do about that though is be really careful, because a lot of the time, you can save some cost, but the actual performance impact of that saving is substantially more. For example, we’ve got a client who wanted to save a hundred pounds a month on his telephone bill, but they went to an inferior provider that was cheaper, but then their phone system was out and out for about three months, and what that meant was their business mainly relied on telephone bookings and they couldn’t get telephone bookings for three months. So it cost them tens of thousands of pounds and lost revenue. So that was an…
Sometimes you can go find a cheaper provide, but they don’t know what they’re doing and they can actually do even more damage to your business than the money you’re saving. So you got to be really careful about that, and actually, one of the other things to think about with the national minimum wage changes is, well firstly, should your business be paying minimum wage, anyway? If you obviously pay at least minimum wage, but if you pay national minimum wage, then it’s only fair to expect minimum performance, really. So ultimately, you got to think about the message paying minimum wage sends to your employees, and one of the things we noticed, and it’s one of the biggest issues with the national minimum wage increase, is employers tend to follow the national minimum wage increases, but then they don’t pay the rest of their team accordingly.
So for the most recent increase, it’s quite a few percent, but the reality is if you’re going to give your lowest paid employees that increase, then have you thought about what you’re going to do with higher paid employee employees? For example, if you’ve got supervisors, you’ve got managers in your business, is it fair to give the employees at the bottom the pay increase without giving them a similar pay increase as well? After all, if you think about it, their costs are going up. So those are my key points from the budget. There’s a few other little tweaks. There’s a few changes to business rates relief. So I think, hospitality, they’ve got a bit a stay of execution in terms of business rates coming back in. So, I believe, they’re getting another 50% of their rates funded by the government for the next year or so.
Also, you’ve got R&D tax credits and there’s a few changes to that. So if any of those things impact you as well, it’s definitely worth getting in touch and finding out what those changes are. So thank you very much for watching this live. All I wanted to do was give you that overview, but as with any kind of overview, it’s really important to have actions to take out of it. My summary of this is really start preparing for a high inflation, high cost economy, which means you need to then be ready to charge more, and if you’re not, then your business is going to seriously suffer, and also, one more thing. To charge more, you’ve got to demonstrate value.
So if you’re a me-too business where you’re doing the same thing as your competitors, you’re going to have to start thinking about how you’re different from your competitors, how you’re adding more value, and how you’re going to communicate that to the people that matter as in your customers and your potential customers. So just think about that. It’s all about charging the right amount and communicating it in the right way. Okay, great. All right. Have a great weekend. I’m going to be doing a few more of these live videos. So keep an eye out for them, and I will see you soon.