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We’re all settling down after an interesting election and waiting to see how things will affect us. One of the changes which has been put forward is an increase in VAT, perhaps to 20%. The FT reports what is being proposed for VAT. This is a really bad idea for anyone who sells B2C (business to consumer). I’m going to rant a little bit now about exactly why this is such a dumb idea.
B2C businesses are unpaid tax collectors for the government. Anyone who sells more than 70k of stuff has to charge VAT on top of their prices. Of course, they take the VAT that they’ve paid for the goods off their VAT bill but this leaves a big cheque to Her Majesty, with no benefit to the business whatsoever.
VAT is a hassle
In terms of the transaction costs (or hassle, if you’re not an economist), collecting VAT at all is a major cost to businesses. How many hours are spent calculating VAT payments, filling in returns and making payments? Couldn’t we spend this time doing something which is of use to our customers or doing some marketing? Maybe we could do something real, instead of managing a complex tax system.
When the government decreased VAT temporarily for a year, the small retailers I work with had a huge job to change all the prices. Changing signs, checking all the copy on the website to make sure all the prices were accurate, amending prices to ensure that you weren’t charging silly sounding prices like £18.57 which don’t fit with pricing psychology principles. It took days, again, completely useless time. An increase in VAT will mean going through all of this again.
VAT makes things more expensive
An increase in VAT increases prices. This means that whatever you sell appears to be more expensive to the people you want to sell it to. You don’t have to be a genius to understand that increasing prices is going to put off some of the people you want to persuade to buy your lovely things. So by giving the government a bigger share of everything you sell, your business is at risk, because you’ll have to work harder for every pound you put in the till.
Less money in people’s pockets
Increasing prices means that everyone suddenly has less money in their pockets, so they’re less likely to spend it with you. Where consumers have less money, they’re less likely to spend – and this effect can be amplified, so that as soon as people think that they have a bit less money, they lose confidence and are put off spending altogether. Which affects all purchases, including B2B and non VAT rated items. Less money in the economy means a poorly functioning economy for all of us.
So we have higher transaction costs, more paperwork and hassle, a decrease in sales and a drop in consumer confidence. Could this lead us to the second part of the double dip recession some commentators have been predicting? Running a business is difficult enough at these times, without massive increases in VAT.
 The current campaign to keep Radio 6 reminds me of the campaign a few years ago to keep Heinz salad cream. Heinz threatened to stop making salad cream, because it had fallen in popularity, and this made headlines for a few days. People who had not bought salad cream for years suddenly became all nostalgic about the taste of their childhoods, and a campaign was launched to save salad cream. Of course, when we look behind the scenes here, we can see that this must have been a great big PR stunt – companies stop making products all the time if they stop producing enough profit for them, and it doesn’t make headline news. In the normal course of events, salad cream would have just disappeared from the shelves, and the 5 people who were still buying it would have just not been able to find it anymore, and they too would have switched to eating mayonnaise.
In order to make headline news, someone had to have engineered the PR. Someone had to write a press release about Heinz stopping making salad cream, and get journalists interested in the story. And of course, this had to happen before the end of production, so that people could then rush to the shops and buy the noxious yellow stuff.
With all the fuss about Radio 6, we see a number of the same elements. We have a product which has disappointing levels of sales, or in this case listeners. I regularly listen to Radio 6, and had been very surprised to find out a few weeks before that the listener figures were so low. The brilliant Adam and Joe show on Saturday mornings was the most popular show, but only had 160,000 listeners, and some of the other shows only had around 5000. So, the BBC has a problem child, their little radio station is a bit of a runt. And they’re doing a strategic review and have to think about whether this is the best use of their money.
I’m not sure whether the campaign was started as part of an official marketing strategy by the BBC, it seems more likely that as rumoured, it was started by a BBC employee – I’m guessing someone who works at Radio 6. Radio 6 has been promoted to millions of people who have probably never heard of it or thought of listening before. And I bet that their listener numbers have jumped this week just as dramatically as the sales figures for salad cream did when Heinz threatened to stop making it. In marketing terms, there are few techniques as effective as making people feel that they might have something taken away from them.
So I can admire this as a marketing technique, and you can argue that the ends justify the means, if Radio 6 is saved and lots of new people get to listen to a wider mix of music. But I’m not convinced that this is an ethical way to do things, so I won’t be wearing any Radio 6 ribbons just yet.
I advise people who are serious about what they want to achieve and I can tell when someone is ambivalent about their business. If you’re not serious about it, why would someone bother to buy from you, or do business with you?
1. When your voicemail message is BT callminder, so people calling you don’t know if they’ve got the right number or not
2. When you never answer your phone or get back to people
3. When you use a hotmail or yahoo email address rather than your own domain name
4. When your website is obviously out of date, and hasn’t been changed for ages – this means that google won’t take you seriously either
5. When you have are consistently late for meetings. Being late shows a disrespect for the other person, and makes you look disorganised and sloppy – which is not someone that people want to do business with
Does any of this sound like you? Any of it sound like people you do business with? Time to get it sorted – your business can never grow until you take it seriously.
I’ve been working with a couple of clients recently on how to give equity to other people coming into the business, and it’s definitely a recurring theme which causes a lot of debate and difficulty.
Sometimes people have to decide who gets what at the start of a business, but more frequently the issue comes up when there’s an existing enterprise and the owners want to bring someone else in.
You might want to bring someone else in because you’ve found someone who can help you with the business. Sometimes, that someone is me, so I might provide advice and support in return for a share in the business rather than my usual cash fee. More often, I’m advising someone who has a business which is doing okay, but the existing business owners just don’t have enough time or the skills to do the thing which are needed to push the business to the next step. Sometimes the business has outgrown the original owner, or you just need an extra pair of hands on board, and you can’t afford to pay the high salary that someone really good would need.
Or you might want someone with a lot of talent and experience, and want them to stay around for a while and be really motivated to work on the business. This was why I went to work for a web hosting company as Operations Director 10 years ago – they needed someone who would work really hard to grow the business, and I wanted a share of the business because I was fed up of working for a salary and making money for other people.
Whatever your reasons, if you’re going to bring someone in to work for the company in return for equity, here are some areas to think about Continue reading Giving shares and equity away
I’ve recently been asked for help by someone who is running a (sort of) social enterprise. He’s been running a business, and on the side of this he’s been doing all sorts of community projects. All brilliant stuff, getting young people involved, providing services to the community – I’m not going to be specific in case you recognise him, but there were lots of great ideas for wonderful things.
This guy had not planned things out, and unfortunately had started a business which was failing. So none of the lovely things could happen, because there was no profit to recycle into the community benefits.
In order to run a social enterprise you need to put the enterprise bit first. You have to run a business, sell things, make money and deal with all of the things that every other entrepreneur has to deal with.
I tell people all the time that making money is a good thing, because money gives you options. For some (non social) entrepreneurs, these are options to make the business bigger, have lovely holidays, do more aggressive marketing or feel secure for once. Social enterprises have a different set of goals – they need to make money to make a contribution to the community.
So making money, and lots of it, is even more important for social enterprises than your regular businesses. If you’re not making a profit you’re just a loss making business, just like all the other failing businesses, but you’re going to feel worse because you’ve set yourself these community goals as well as business goals.
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Julia Chanteray at The Joy of Business helps small businesses to develop and grow. She uses her years of experience of running successful businesses to advise, support and mentor businesses in Brighton, Sussex and London.
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3 Reasons Why A VAT Increase Will Hurt B2C Businesses
We’re all settling down after an interesting election and waiting to see how things will affect us. One of the changes which has been put forward is an increase in VAT, perhaps to 20%. The FT reports what is being proposed for VAT. This is a really bad idea for anyone who sells B2C (business to consumer). I’m going to rant a little bit now about exactly why this is such a dumb idea.
B2C businesses are unpaid tax collectors for the government. Anyone who sells more than 70k of stuff has to charge VAT on top of their prices. Of course, they take the VAT that they’ve paid for the goods off their VAT bill but this leaves a big cheque to Her Majesty, with no benefit to the business whatsoever.
VAT is a hassle
In terms of the transaction costs (or hassle, if you’re not an economist), collecting VAT at all is a major cost to businesses. How many hours are spent calculating VAT payments, filling in returns and making payments? Couldn’t we spend this time doing something which is of use to our customers or doing some marketing? Maybe we could do something real, instead of managing a complex tax system.
When the government decreased VAT temporarily for a year, the small retailers I work with had a huge job to change all the prices. Changing signs, checking all the copy on the website to make sure all the prices were accurate, amending prices to ensure that you weren’t charging silly sounding prices like £18.57 which don’t fit with pricing psychology principles. It took days, again, completely useless time. An increase in VAT will mean going through all of this again.
VAT makes things more expensive
An increase in VAT increases prices. This means that whatever you sell appears to be more expensive to the people you want to sell it to. You don’t have to be a genius to understand that increasing prices is going to put off some of the people you want to persuade to buy your lovely things. So by giving the government a bigger share of everything you sell, your business is at risk, because you’ll have to work harder for every pound you put in the till.
Less money in people’s pockets
Increasing prices means that everyone suddenly has less money in their pockets, so they’re less likely to spend it with you. Where consumers have less money, they’re less likely to spend – and this effect can be amplified, so that as soon as people think that they have a bit less money, they lose confidence and are put off spending altogether. Which affects all purchases, including B2B and non VAT rated items. Less money in the economy means a poorly functioning economy for all of us.
So we have higher transaction costs, more paperwork and hassle, a decrease in sales and a drop in consumer confidence. Could this lead us to the second part of the double dip recession some commentators have been predicting? Running a business is difficult enough at these times, without massive increases in VAT.
What Do You Think?