A new survey of 500 small business owners for money.co.uk found that 65% fear a tax rise in the 28 October Budget could force them to close within a year. It’s the most alarming number of the week, and I think it points the wrong way. If one Budget could finish you within twelve months, the Budget isn’t really the problem. Your margin is.
Budgets tend to move costs a few per cent at a time. A business with some room in its prices absorbs that, adjusts and carries on. A business already running at break-even can’t, and the next shock would have done the same damage anyway: a jump in the energy bill, a big customer walking, a late payer. The same survey found energy is the biggest cost pressure for 54% of owners, well ahead of wages and employer National Insurance at 36%. None of that waits for the Chancellor.
So the useful job for the next three weeks isn’t guessing what’s in the red box. It’s knowing one number: how far could your costs rise before you stop making money? If you’re a sole trader, your profit is your income, so that question is really about how much of a hit your household can take. If you run a limited company, look at two things separately: the company’s own margin, and how you pay yourself, because the salary and dividend mix is where most tax changes land on directors.
Some sectors genuinely are taxed before they make a penny, as we covered in Where the Tax Bites, and that’s a fair fight to pick. But it’s still an argument for knowing your margin, not against it. And as we said last month, don’t run your business around a Budget that hasn’t happened yet.
If you worked out your margin tonight, how much room would you actually find?
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