While we all look forward to the start of spring, it also means that it’s almost time for yet another Budget from Chancellor Reeves. It won’t be called that, of course: in recent years it has been called the Spring Statement, and apparently this year is to be known as the Spring Forecast. And it will happen on March 26. But no matter how often it’s re-branded, it remains as another opportunity for the Chancellor to try to balance the government’s books – which is usually at the cost of business and consumers.
I know, it barely seems like yesterday since Ms Reeves stood up in the Commons and sent a shudder through most business operators by announcing expensive changes to Employer’s National Insurance arrangements. Those included: Raising employer’s contribution rates from 13.8% to 15.0% of applicable earnings, and lowering the threshold from which those earnings start from £9,100 to £5,000. Remember the shock that the announcement caused last October? Like most news items, that has mostly passed into history – but those changes haven’t actually yet come into effect: they actually start from the April 6 this year – so the pain is still to be felt.
On top of those, there is of course the annual increase to statutory Minimum Wage rates: the National Living Wage (for workers aged 21 and over) is due to rise from £11.44 to £12.21 per hour from April 1. Again, old news, but the point is that the actual cost of this hasn’t yet been felt, either.
Trying to predict what will be included in March is difficult – so far, most economists and business commentators are speculating that the Chancellor won’t dare to make any announcements as controversial as the ones she made last October. There may be some tweaking of retail taxes (tobacco, anyone?) but the expectation currently is that rather than more overt tax rises she will make spending cuts somewhere. Just don’t expect any good news.
Many small and medium-sized businesses have historically worked to a financial accounting year ending on March 31. If your business does, then no doubt you are already doing some budgeting of your own for the forthcoming year – profit and loss projections, cash-flow forecasts, etc – and I’m not referring to something scrawled on the back of an envelope. If you haven’t started doing these projections yet, you should do so now – your accountant will probably be delighted to offer help if needed. These things are never going to be 100% accurate, even if they only cover a 12-month period; there are too many variables, any of which can change over the period. The guiding principle is always prudence: take what you already know as fact and then use your best possible, realistic, guess as to which way that value is likely to go during your forecast period.
When you’ve plugged-in all of the figures, you will be able to see for example just how much the Minimum Wage and Employer’s NIC increases will cost you in the next 12 months. When you’ve recovered from the shock, you have a choice to make: either swallow the lost profit and carry-on as usual, or work out by how much you need to increase your revenues in order just to cover the increased costs. As we’ve said many times before, these revenues come from your gross profits – on fuel, shop sales, and any other profit centres on site. Unless you’re realistically expecting a big upward curve in sales volumes, which might generate enough additional gross profit, the only alternative is to squeeze more gross profit from existing volumes – which means raising sales prices.
It is always difficult to try recovering the necessary increase in gross margin from fuel sales. The big fear is that local competitors won’t do the same – everyone worries that the immediate effect will be a loss of fuel volume, not to mention the usual cries of ‘profiteering’ by various self-appointed ‘consumer champions, which negates any increase in unit margin. Hence, it’s easier to spread the burden across the shop sales categories, and hope that nobody really notices. The point is that unless you’ve done your forecasts you won’t know how much you’re going to lose in the coming year until you’ve lost it.
- Jan Mikula represents nationwide franchise accounting company EKW Group – ekwgroup.co.uk
