This is the first part in a series of blogs discussing the various trials and tribulations that you may come across whilst running a small business (SME – Small to Medium-sized Enterprise). I started Cornerstone Projects in 2004 as a one-man band operating out of a spare room in my house; we have now expanded to a staff of 12 and turnover approx. £1.5m / year. Not exactly a meteoric rise but at least we’re still in business unlike 60% of start-ups that fail within 3 years!
I’ve made a list of several areas that can provide challenges. This list is by no means exhaustive and is only intended to provide a brief overview – I’ll expand further on each part in future blogs (and probably add some more as they occur to me / drive me insane!).
There can’t be many SME’s that haven’t had problems with employees. Good employees can make life seem much simpler and make a business successful; bad employees quite the opposite.
The first issue is finding staff. Our first employees were all friends or friends of friends so I knew roughly what I was getting – this proved to be a very good thing! Then as we grew we had to change tack and recruit from the wider world which involved advertising, reading lots of CV’s and interviewing.
One thing that we have noticed is that many of the CV’s we get are from people who seem to have not read / understood the job requirements and therefore actually have either no real interest in the job or aren’t really qualified (or are vastly overqualified) to do it – screening these is a pain we could do without. I think there may be a connection to the government’s requirement that people need to be seen to be actively seeking work to claim job seeker’s allowance.
We’ve had (and still have) many superb recruits/employees; we’ve also had our share of disappointments so we definitely haven’t got this fully nailed yet.
Keeping staff – this doesn’t seem to be as much of a problem. We try to provide a pleasant enjoyable working environment with decent salaries and to ensure that everyone feels part of the team. Some previous employees that didn’t buy into this tended to be less productive in any case so, although we try to learn as much as we can regarding why they didn’t feel fulfilled, it’s not too much of a wrench if they leave.
Motivating staff is another area where we have tried a variety of bonus schemes, extra days off etc. To be fair our staff are generally motivated anyway so we’ve not had to come up with anything groundbreaking. I’m not sure the schemes we have tried have been that effective; then again, the output and the results from the team show we must be doing something right!
Holidays are another bugbear (how dare anyone request a holiday – usually when it’s sunny too!) A team of twelve, each with an annual leave of 20 days plus (plus bank hols), has 240 days leave per year minimum; this means that we are effectively nearly always operating with 11 staff. This size company seems to be at the point where you really have to employ somebody just to provide cover for holidays (and any sick leave) which we are looking at doing currently.
Health & safety regulation
There is obviously no doubt that H&S regulation is necessary – many businesses would operate like something resembling the Wild West if it didn’t exist. Determining which regulations apply, and when, can be difficult though. The HSE website does a reasonable job of explaining what is required if you know where to look but some of the requirements can seem onerous, particularly for an office based workforce such as ours. The various regulations are also spread over different business areas such as workforce, buildings, cars and more.
Coming from a civil engineering site-based career I have experience in writing H&S policies, risk assessments, method statements etc. and know where to look to determine what welfare facilities should be provided. However, I initially had little knowledge of other aspects such as office asbestos surveys, PAT testing and fire risk assessments. With sufficient time and copious use of the internet these regulations and the resulting requirements that have to be met can be tracked down but time is usually not something there seems to be much of! A network of other business owners can be very helpful with this.
Of course, there are a variety of external H&S companies that will scare the pants off you and then offer to make you fully compliant with all H&S legislation for a fee; determining which are reliable and offer value for money is another problem altogether. For a low risk business is this just a box ticking exercise to attempt to remove any potential blame from directors? It is hard to see how these companies can have sufficient knowledge of any particular business to actually provide effective H&S management especially when many start with a ‘one size fits all’ template.
There obviously will come a point, should a business continue to expand, when either internal or external dedicated H&S resources will be required but when you get to that point is not easy to judge.
The knowledge that directors can now be held liable and can be jailed for breaches of H&S regulations adds a certain frisson to ensuring that you are compliant.
Increasing financial costs
Over the last few years financial pressures on SME’s and their directors seem to have continually increased despite government protestations and promises that they are there to encourage SME growth.
Off the top of my head the following have affected SME’s in recent years:
- Workplace pensions
- Increased minimum wage
- Introduction of MTD VAT changes
- Increased business premises rates
- Increase in taxes on dividends
Workplace pensions are undoubtedly great for employees and surely a good idea overall but it is effectively employers paying for a state pension replacement / supplement on top of corporation tax and employee’s NI that they already pay. This surely has the effect of slowing wage growth and /or business investment and expansion as the money has to come from somewhere.
Increases to minimum wage are also perhaps no bad thing although recent news seems to indicate that a large increase to £10.50/hr is coming by 2025. As we already pay above the minimum level this hasn’t affected us yet, but again this could lead to higher prices or reduced investment. If it leads to higher prices what is the net gain for the general public who will end up with the same amount overall? The more cynical amongst you might think it’s just a way for the government to increase tax / NI income.
As an aside, I’m not sure that the way the government calculates the National Living Wage is rational – if Mark Zuckerberg, Larry Ellison and Bill Gates all moved to the UK and started paying tax, thousands more people would suddenly be plunged below the 60% median wage line and thus into poverty…
Making Tax Digital (MTD) VAT will undoubtedly make it easier for HMRC to monitor and collect tax but it has led to cost increases for many small businesses that do not already have software / bookkeeping systems to enable them to file returns online. We already had the relevant software so it’s not too much of an issue for us. At least the proposed ‘reverse charge VAT’ system that was to have taken effect in the construction industry has now been postponed – this looks like a potential nightmare to comply with.
Increases in property business rates are difficult to understand. Our town centre retail units are already being crushed by online shopping – charging them more (and making parking ever more difficult) is surely short-sighted by local government as it will lead to a reduction in income with less units paying, and increased social problems with run down town / village centres. It’s not even as if you get many services for it anyway.
Not a business expense as such but the changes in the way dividends are taxed could also be seen as discouraging to small business owners, leading to a further reluctance to invest in the business. Most small businesses employ staff who pay tax / NI and it can only be a good thing for the economy if owners were encouraged to grow / employ more staff.
Change in leadership roles
The type of individual who starts a company and gets it on its feet is not necessarily the person to grow and manage the same company when it gets more mature. The role moves from a start-up where inspiration, drive and an intimate knowledge of all aspects of the business is important to having to learn to delegate and trust others and not micro manage.
I found the last part difficult – fortunately we’d brought in good managers who were able to point out at my annual upward reviews that I was still too hands-on and needed to stop micro-managing and concentrate more on a leadership role. It’s still not easy as I may have to make decisions or solve problems involving details that I once knew but now have to be brought up to speed on.
I have to be careful here; some of you may well be existing or potential customers!
Probably reflecting society as a whole, there seems to be an ever increasing expectation that everything is done instantly. We often get an email and then a phone call 15 mins later wondering why we haven’t replied. As we pride ourselves on customer service we do try and respond to everything as quickly as possible, but sometimes we actually have to do some work to get an accurate answer! Surely we will get to the point where a considered and accurate answer is better than an immediate one?
It’s also notable that this expectation for immediate action doesn’t seem to have filtered down to the customer’s account / payment teams. Late payment is a well-documented problem in the construction sector. Another bugbear related to the construction sector (particularly larger clients) is the requirement to complete supplier questionnaires, many pages long, asking everything from the supplier name to your inside leg measurement.
Many seem to be aimed at on-site construction companies rather than an office-based administrative company such as ourselves and have the appearance of a box ticking exercise. When external supplier accreditation companies are involved it usually gets even worse (and more expensive).
Although it’s difficult to provide any hard substantiation it does feel as if external pressures on us as a SME have increased in the last 15 years. Much, but not all, of this can be attributed to our growth over this period. Given that over 99% of businesses in the UK are SME’s who employ 60% of the UK workforce little seems to done by local / national government in the way of encouragement and support.
That’s all for now – I hope the above was of some interest to you. If you got this far thanks for sticking with it; there’ll be more to follow in due course!
Click here to read Part 2.