The Federation of Small Businesses’ (FSB) latest small business index results reveal a rocky road ahead for UK small and medium-sized enterprises (SMEs) this year. Tasked with implementing several new policies, such as Auto-enrolment, the National Living Wage and the proposed moved to mandatory quarterly tax reporting, small businesses must also keep a close eye on the running and growing of their organisations. With these policies sure to add to both the financial and administrative burden on small businesses in the year ahead, how should they best be managed?
Auto-enrolment
This year, thousands of small businesses will reach their staging date and begin the process of Auto-enrolment. Although it is a topic that should be on most SME owners’ radar by now, our research shows that 40% of micro-businesses are not aware that Auto-enrolment will cost anything to set up. When told it could cost up to £8,900 to implement, 34% admitted they would consider offsetting the financial implications and the increased contribution into staff pension pots by capping staff salaries and/or bonuses; with 19% claiming they would have to reduce employee benefits and entertainment as a result.
But bonuses need not be scrapped and salaries don’t have to be frozen. You can retain and keep your staff happy by ensuring compliance at the earliest possible stage. Assessing your workforce should be a part of this plan, so make sure you have all your employees’ vital information at the ready. This includes their full name and contact details, their National Insurance number, PAYE details, date of birth and salary. Employees who fall outside of the ages of 22 to State Pension Age and earn less than £10,000 per annum will not be auto-enrolled into a workplace pension scheme. Instead, they will have the option to ‘opt-in’.
Some pension providers may also require additional information such as the addresses and emails of your employees. Getting all of this information together now, ahead of your staging date, is one way that you can make your Auto-enrolment process run easily.
From October 2017 onwards, the minimum total contribution to a pension will rise. As a result, it is more important than ever to get on top of your finances to make sure you have a complete overview of what’s coming in versus what’s going out. This will enable you to plan ahead for the additional expenses you may incur as a result of Auto-enrolment.
National Living Wage
From April 2016, the National Living Wage will come into force which requires employers to pay any one over 25 a minimum hourly rate of £7.20, with a view to an increase of this figure to £9 an hour by 2020. This places another potential financial burden on small businesses who may find this wage increase challenging to cope with.
Implementing this increased cost effectively will require solid financial management. Introduce online accounting tools into the day-to-day running of your business so you can see how your business is doing at a glance at any given time and consider bringing in an accountant to help you understand where you can afford to make cuts (if needed).
The spectre of quarterly reporting
Small businesses are also currently facing the prospect of having to report on their finances on a quarterly basis, instead of annually. While the Government has yet to confirm if this will go ahead, the prospect has caused concern for SMEs who fear they will not be able to cope with the additional administrative burden.
Investing in cloud-based accounting software that is designed to help SMEs manage finances on an ongoing basis will not only help avoid the annual last minute panic to file your tax return, it will also mean that should quarterly reporting eventually be enforced, you will have all of your financial information in order and ready to report on at the touch of a button.
While 2016 certainly brings with it some challenges for small businesses to navigate, there is no need to panic. Ensure you have the right tools in place to assist you with efficient bookkeeping and solid financial management. Your accountant can also advise you on critical decisions to get your finances in order and ensure you are able to meet these challenges with minimal impact to the actual running of your business.
By Rich Preece, VP and Managing Director Europe, Intuit UK
