There has been plenty of discussion about the rising cost of living, but I think we also need to pay closer attention to the rising cost of doing business. Companies are dealing with many of the same inflationary pressures as households, while also absorbing increasing employment, taxation and regulatory costs ...
The cost of doing business is forcing companies to rethink their strategies and adapt to new market conditions
For many business owners, the question is no longer simply how much profit they can make, but how much additional cost they can reasonably absorb. Recent analysis from the British Chambers of Commerce suggests that government-driven costs for a typical mid-sized business have increased substantially over the past decade.
For a company employing around 50 people, the annual burden can now run into hundreds of thousands of pounds!
Of course, the cost of doing business has never stood still. Wages change, taxes change, and regulations evolve. What concerns me now is what happens when individual increases begin stacking on top of one another.
Employer National Insurance has risen, the threshold at which employers start paying it has fallen, minimum wages have increased, and workplace pension contributions have become an established employment cost.
Each measure may have its own rationale, but businesses ultimately have to fund the combined bill. I believe that cumulative effect matters.
When the cost of doing business increases significantly, companies inevitably become more cautious. Recruitment can be delayed, investment postponed, and expansion plans reconsidered. That additional employee or piece of equipment suddenly requires a much stronger business case.
This risks creating a vicious circle!
We want businesses to grow because growing businesses create jobs, generate tax revenue and investment within their communities. Yet when the financial risk associated with growth becomes too great, simply maintaining the status quo can start looking remarkably sensible.
And I think that brings us to the bigger issue: confidence. An entrepreneur does not invest simply because a spreadsheet says they can afford it today. They invest because they believe there is a reasonable prospect of earning a return tomorrow.
The government needs revenue, and employees deserve fair wages, pensions and protections. This is not an argument against those things. However, policymakers also need to recognise that increasing the cost of doing business can change behaviour.
Perhaps every future business policy should therefore face a simple test: will this encourage businesses to invest, employ and grow, or give them another reason to hold back? Because a successful economy needs businesses prepared to take calculated risks.
I believe government policy should give them the confidence to do exactly that.
If anything I've written in my blog post resonates with you and you'd like to discover more of my thoughts about the cost of doing business and how it's holding many back, then do call me on 01908 774320 and let's see how I can help you.
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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