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October 2021

Autumn Budget De-Cyphered

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Autumn Budget De-Cyphered

‘Jobs up, growth up, debt down’, Chancellor Rishi Sunak delivered his long-awaited autumn budget speech today.

While there were few surprises, – the Chancellor got himself into hot water by trailing most of his announcements in the press last week- his mantra for economic and jobs growth reflects the experiences of the majority of our clients.

I would say 90% of our clients are growing, if not quicker than they were pre COVID, then certainly at that level, many have also either recently recruited or are in the process of recruiting. In terms of debt, however, a number of small business are still sat on bounce back loans, some have spent a little, some a lot, some have repaid them in full but the picture is slightly different to the overall headline.

While there was little in the budget for an accountant to get our teeth into tax-wise but there were a few things that caught my eye.

Annual Investment Allowance
This was set at £1m and due to be reduced in April 2022, but it has now been extended until March 2023 meaning that the first £1m you spend on things such as commercial vehicles, tooling and computers you still receive 100% tax relief on, or actually slightly more based on the Super Deductions announced in the March budget. This £1m applies to all businesses whether they are a corner shop or Sainsbury’s who can burn through this quite quickly but for farmers who invest annually in big plant material this is big news.

£22bn R&D investment targeted
We work with an excellent business that has sourced and secured great sums of money for clients in terms of R&D tax credits. In his speech today Chancellor Rishi Sunak set out a target of increasing spending on research and development (R&D) in the UK to more than £20bn by end of the current parliament and £22bn by 2026/27.This was said to represent a cash increase of 50% in addition to R&D tax reliefs.

He also pledged to ‘modernise’ the R&D tax credit system to ensure more money is spent in the UK, which might mean, if you’re a UK subsidiary of an overseas business, potentially you will see restrictions from 2023 on how you get R&D tax relief but hopefully this represents the first step in applying the necessary rigor to the sector to ensure spurious claims are wedeled out the R&D claims made are funding the appropriate programmes.

Business rates
Typically, business rates isn’t something we speak to clients about because we can’t affect them in any way.  You can’t, for example, reduce the cost of them by adding money to a pension scheme. The good news though is that the multiplier is not increasing next year like it was expected to and interestingly, in a move to help regenerate run down high streets, businesses that improve dilapidated old premises will not incur increased rates based on the value added by the improvements.

In addition – as a number of our clients are in the retail, leisure and hospitality sectors- they will welcome the 50% discount applied to rates next year.

Cut in beer and sparkling wine duty
Landlords and pub goers might feel like raising a glass this evening after the Chancellor announced a major cut in taxes on prosecco, rose, draught beer and cider. He also said that the 28% premium on sparkling wine will be shelved, while duty on sparkling products will be levelled at the same rate as still wine, knocking as much as 83p off each bottle of bubbly.

A planned increase in duty on spirits, whisky, wine, cider and beer will be scrapped from midnight tonight, basically making it cheaper to have a drink in a pub.

The Chancellor said he will also slash the so-called “keg tax” on barrels of beer delivered to pubs and clubs so less costs are passed on to the consumers.

In other good news for accountants of licenced premises, the chancellor announced a simplification of alcohol duties. Sadly this came a day too late for me as I spent a day filling out an alcohol duty registration form for a new microbrewery. It was the most complex tax form I have ever filled out.

National Minimum Wage
In good news for those earning the minimum wage, the chancellor has announced an increase to £9.50, but of course if you are a business owner that pays this level then you might see an impact on profits.

In good news for the building industry, the chancellor outlined plans to build 160,000 greener homes on derelict or unused land in England with almost £2bn set to be invested, with a further £9m also pledged towards 100 urban pocket parks across the UK.

National Insurance and dividend tax hikes from April
In terms of how the Government will pay for its new spending plans, the greatest tax increases were announced last month as the Prime Minister announced a rise in both National Insurance contributions and dividend tax rates across the UK from April 2022.

Following a rise of 1.25 percentage points basic-rate payers will pay 8.75% tax on dividends, up from 7.5%, higher-rate payers will pay 33.75%, up from 32.5%, while top-rate payers will pay 39.35% up from 38.1% on dividend earnings of above £2,000 per year.

There is still time before these changes come into effect, so if you have excess reserves in your company it may be worthwhile voting additional dividends in this current year to ‘bank’ the lower tax rates.

Find out more

Get in touch if you you have any questions or Read our blog on how to take money out of your business.

The Power of Brands

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The Power of Brands

The whole concept of brand and reputation is massively powerful and something that is easily translatable between the biggest and the smallest organisations.

While an accountant will take an inventory of all your company’s assets, creditors and debtors to ascertain the ‘paper’ value of your business, the true worth of a company includes its brand value in the market place. You have a logo, a web site, a presence, tangible things people can touch but a good brand also has an intangible element; you can’t pick it up and touch it, but it does have weight and it does have value.

What’s in a brand?
As an example of the power or value of a brand, at this summer’s UEFA European Championships, Christiano Ronaldo –heard of him lately- managed to knock around $4bn off Coke’s share price by moving some bottles of their product out of shot during a post-match press conference in favour of a bottle of unbranded water.

In the same week, France midfielder Paul Pogba, a practising Muslim, removed a bottle of non-alcoholic Heineken beer after he was named ‘Star of the Match’ in France’s 1-0 Group win over Germany.

As one of the official sponsors of Euro 2020, in their response, Coca-Cola said that “everyone is entitled to their drink preferences”. What’s interesting is that since the incident, Coca-Cola’s stock value has since risen, so the cynic in me wonders whether it was all just a ploy to create some headlines.

As a company, Coca-Cola has a value of around $284 billion, more than many small countries, but if all it takes is one person moving two bottles of their product to wipe off 2% of that value it goes to show the added value of a brand. Yes Coca-Cola, along with Amazon and Apple make a substantial amount of money from sales of product but there’s a big chunk of their share price, which is made up purely of this intangible goodwill towards the brand.

Remember how Gerald Ratner undid all of his life’s work – and destroyed a very well patronised high street jewellery brand by stating the products were all ‘crap’. The company’s shares dropped £500 million in a matter of days.

Ronaldo and Pogba are recent examples but, but athletes refusing to endorse a team or competition sponsor isn’t new. Back in 1992 at the height of their battle with Nike, Reebok paid millions to sponsor the warm up gear of the USA’s basketball Dream Team at the Barcelona Olympics. Predictably, which Reebok was counting on, the Dream Team won gold, but atop the medal podium, Michael Jordan and Charles Barkley – both Nike sponsored athletes- draped US flags over their shoulders to hide the Reebok badges of their warm up apparel. Both knew the value of their association with Nike and weren’t prepared to jeopardise it – especially at one of the most watched events in history.

Brands and football
When you look at the brands that sponsor an average football game, in my opinion, it is 100% sport washing. McDonald’s, Coca Cola, various alcohol and sports-betting brands, Tik- Tok, Gazprom; they are they’re there because everyone loves football and it has such an unrivalled, world-wide audience. It’s why we’ve got world cups in Qatar and boxing matches in Dubai. They try and push their human rights record, the obesity epidemic and the gambling and alcohol addictions to one side and get cosy with brand football.

FIFA or UEFA seem to sell to the highest bidder, which ethically is probably a conversation in its own right, but to make it relatable for small business owners, the message is to be careful who you partner up with.

The power of a brand for small businesses
The power of a brand is greater than your balance sheet, and has far more value than I think a lot of people realise. I like to think that we have managed to build a brand at Cypher. If you’d have asked me three years ago, do I think small businesses can build brand, I would say no, at the time, I thought it was all about the business owner’s personality or the credibility of a product, but it’s not, and I think now small businesses definitely have an opportunity to brand themselves and if they do it well, then it’s a massive tool in their arsenal to differentiate themselves from the competition.

Brand v branding
It’s important to remember that branding isn’t just about your logo, or the colours you use on your web site. It is much bigger than that; it’s about how you act, how you are perceived, what clients think of you, your touchpoints and how you ‘show up’. You know when you’ve got your branding right when your customers are proud to share your logo, your work, content and comments too.

Going back to football and its dealings with sponsors, Norwich City, recently promoted back into the Premier League had to do a complete U-turn on a shirt sponsorship deal with Asian betting company BK8 worth millions when fans complained about the adult content being shared on the sponsor’s social media pages.

The club’s fans are very protective of its brand and its legacy but while, hopefully this is an opportunity for Norwich to take a step back and consider all of its future commercial decisions, I am not sure whether smaller businesses have the luxury of making such wrong choices. You don’t generally ditch your football club and go and support someone else over a sponsor, but you would ditch your local restaurant if that restaurant got called out for unhygienic or inhumane working conditions.

Customers vote with their feet and so small businesses need to be more conscious than ever, of not just the quality of their logo and visual branding, but also the values behind them and the perception this can give prospects and customers. Understand that your reputation as a business owner is what people say about you when you’re not there. How you do anything in businesses, is how you’re perceived to do everything.

Perception is Brand
When we take on any client that has a history of trading, we ask them what has brought them to us, essentially why they want to change accountants. A number cite receiving unexpected or big bills. As an example, one recent client was hit with a bill for £16,000, payable in 14 days. The outstanding amount was for work done on their behalf, which only came to light when their accountants were audited. After the shock of the size of the bill, their immediate thoughts were how can we trust anything these guys do for us if it takes six years and a third party auditor to spot that they haven’t billed us properly? Basically, if they don’t look after their numbers, how do we know they look after ours?

This type of scenario absolutely undermines any statements on a web site about being proactive, helping clients with cash flow and supporting business owners because there’s no authenticity to it.

Instagram life
How many of us only share the good bits of our life on social media. LinkedIn is full of stories and posts from business owners winning. The thing is we want to be associated with winners. We queue overnight for the latest Apple product, not because we understand the P and L’s and the balance sheets and the cashflow of the business, but we understand the brand and its association to winning.

The rise of influencer marketing
The power of a brand is massive but these stories demonstrate how tenuous it can be. What would happen if every Premier League or international footballer followed Ronaldo and Pogba and boycotted Coca-Cola, how much would that knock off the share price? And imagine if the water bottle what Ronaldo picked up was an Evian bottle?

Find out more

New editions of the Mind Your Business Podcast appear every Friday. Subscribe on Apple Podcasts, Spotify, Google Podcasts or your choice of Pod provider to have it delivered straight to your device.

How to Avoid Toxic Work cultures

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How to Avoid Toxic Work cultures

In the war on talent, one of the overriding messages was that strong company cultures would always attract better talent.

The topic of this blog and podcast came about following the publication of an open letter to the co-founder of BrewDog James Watt from ex-employees, accusing him of creating a culture of fear in the workplace.

In the letter, circulated on Twitter, former workers alleged that the Scottish brewer’s rapid growth had involved cutting corners on health and safety, espousing values it did not live by, and creating a “toxic” culture that left staff suffering from mental illness.

The language used is particularly emotive and claims that further 45 ex-employees supported the message but refused to share their names for fear of repercussions.

There’s a particular section worth highlighting that for me sums the whole letter up in one go. It starts “So many of us started our jobs at BrewDog  eagerly, already bought into the BrewDog ethos only to very quickly discover that ‘fast-paced’ meant unmanageable and ‘challenging’ meant damaging’.

Fast-paced dynamic workplace or somewhere you’re lucky to survive?
This is an example of management failing at every turn. Now I was always a fan of James Watt. He is famous for putting himself out there and being a bit edgy. His book even has a chapter on how to make people hate you.  He believes that there is no such thing as a job for life, if you do that you might as well be a zombie. His views are that you go in, do your work and if you move on, you move on. This story however, completely changes my perspective on BrewDog from being a fast-paced dynamic, modern workplace to somewhere that you’re lucky to survive two or three years before you’re being binned off.

Sadly, toxic workplaces, aren’t the preserve of the large corporations, you can have really dysfunctional, toxic work environments in small businesses too. I learnt it the hard way. I was part of a leadership team in a business that had lost a number of really good people in a short space of time. But I didn’t realise how toxic the culture was until I sat in a meeting for over an hour and a half to hear the senior partners conclude that the problem was the staff and not them!

Theory X and Theory Y
In the 1960s, an academic called Douglas McGregor suggested two contrasting management theories, Theory X and Theory Y. Theory X was a traditional view of direction and control that suggested workers required close, firm supervision with clearly specified tasks and that the threat of punishment or the promise of greater pay were the driving motivating factors. The classic stick and carrot technique if you like.

Theory Y, however, suggested that human beings are motivated by engagement, empowerment and will exercise self-direction and self-control in the service of objectives to which they are committed. In short, work can be inherently motivating and people will seek responsibility and see it as reward in itself.  McGregor created Theory Y, not as a panacea for all the ills created by Theory X, but he hoped that by highlighting Theory Y, as an alternative it would persuade managers to abandon the limiting assumptions of Theory X and consider using some more of the techniques suggested by Theory Y. I think we still need to be somewhere on the spectrum between these two extremes.

A fish rots from the head down.
A business coach once told me, that a fish rots from the head down. You will not find a dysfunctional workplace culture where there is a high-level functioning leader. If the people at the top understand their vision and have clarity on what they’re trying to achieve, then they can build a culture in service of that mission and bring the team along with them. Whereas, bad decisions and poor people management completely takes the legs out from any culture below them.

As a leader, displaying the behaviour that gets the best out of the people is surely the best possible start for creating a culture conducive to human and business growth. If you have a structure that is big enough to contain a tier of middle managers, then it is their job to filter the message from the leadership down through their direct reports. Make sure that those guys are a hundred percent on board and are aligned to your values too, because that’s where the message can get muddled. And how can you expect a manager to build a team if the directors above them can’t stay on message.

Focus on people and the results will follow
It’s easy to imagine that in many bottom-line driven organisations, a focus on profit will outweigh a focus on culture. Going back to BrewDog this was allegedly a case of a hierarchy so focused on growth that it would sweep some people issues under the carpet, as long as the numbers stacked up. But surely, if you help your people be the best they can possible be, the performance will follow.

Both Alan and I recounted stories on the Podcast of our first experiences of management. I was working as a bike mechanic at a national chain, Alan was working at a national DIY store. His store manager demonstrated a thuggery and use of language that many would be appalled at, while I encountered a regional manager that spent his time belittling the store manage, whom everyone liked. In both cases management meant bullying, swearing and keeping people down. Not a great advert for leadership.

It also demonstrated that in any workplace, you don’t necessarily need four or five people of sufficient seniority to create a bad culture, one is all it takes. It may be more detrimental the higher up they are but the power of one individual to undermine an entire business culture is phenomenal.

Listening to staff feedback
Going back to BrewDog employees, it feels that a toxic work environment is just so unnecessary. Very few people leave without giving you a reason, so like your inner critic sift through the gripes and identify some real nuggets. If 30% of your workforce is leaving in a 12 to 18 month period, there’s an issue whether you like it or not, whether it’s too much for your ego or not, there’s an issue. And you need to find out what the problem is and you need to fix it.

One of the best examples of creating a strong company culture was led by Nicole Reid, chief people officer at Xero. Xero refer to their staff as ‘zeros’ which could literally mean nothing, but they have got to the point where people are happy to be classed as a zero because they focus so much on employee engagement. Every day, before they leave their employees do a ten second survey. Have you had a good day, thumbs up or thumbs down? Have any of your colleagues been a star today, write their name and say why? It gives the company a daily pulse check that can measure the health of an organisation. Is there an overriding positive or a negative? Three thumbs down in a week from a colleague is a clear indication that you need to put your arms around them.

Treat people well, and they reward you with better performance
For me there is a clear correlation between culture and performance. If you want growth, improvement, more revenue, then you need a culture that breeds performance. A toxic culture might lead to a short term bump, but overall usually the wheels come off sooner or later. There is no good business reason to allow a toxic culture to invade your organisation. You may not know that you have a toxic culture, but your staff do. So the underlying key message is to talk to your staff.

Find out more

New editions of the Mind Your Business Podcast appear every Friday. Subscribe on Apple Podcasts, Spotify, Google Podcasts or your choice of Pod provider to have it delivered straight to your device.