What we’d like to see after the general election that affects your franchise but we likely won’t!

What is it about politicians not understanding small or private businesses and organisations? Let’s start with private schools shall we, some of these are relatively small businesses. Granted plenty aren’t too but stick with me and you’ll get my point. The government announces with almost no warning at all that VAT is going to charged from now on. It’s things like this that make all private business owners sigh and look to the skies. Why you might ask?

Level playing field after the general election and long term

Stability that’s why. If as business owners we have stability looking into the future then we can plan. Furthermore we can invest with confidence and we can do what governments should be doing all along – planning for the long term.

By announcing that vat will be imminently charged private schools do not have time to react. It’s just the same with small business owners. We want a stable and predictable playing field so that we can concentrate on getting the right foundations in place for the next few years.

Talking about VAT there is a problem with the vat threshold that affects a very substantial number of SME’s. You trade away up to about £85,000 and then Vat is charged on everything thereafter. So if you were doing turnover of £84,000 you pay no vat. If you turnover £94,000 you pay the chancellor 20% of your sales. You can also claim vat back on your purchases but since most sales are higher than costs it’s going to be painful for you. The obvious solution is to sail right past and go for growth. That’s no easy though. If you now have to charge Vat on all your sales then what will your clients think? It doesn’t matter when you are B2B, but if you are B2C then that’s a real problem.

Avoidance. There I’ve said it. Many hair and beauty salons for example have two businesses under the same roof. One does hair, and trades under the Vat threshold. In a back room they do beauty as a separate business and that also trades under the Vat threshold. They’ve now got a business that can do £170,000 without paying vat. It happens.

Vat Threshold

Wouldn’t a better solution be tiers? Like your income tax. Like some royalties in fact. Where your first £85k s vat free, the next £25k is ring fenced as vatable only on sales at a reduced rate. The next £25k after that a higher rate and reduced on purchases eventually at say £200k it’s full rate on both. This would stop many businesses hiding vat and actually make it easier for small business owners who don’t closely monitor their turnover. The chancellor would likely collect all hidden vat and probably be better off.

If governments bias policy towards small business then everyone benefits. Local economies thrive with more small business owners. Small businesses become larger businesses and more of them franchise in order to achieve scale. But you can only franchise a business if you’re already doing alright with it.

So when buying a franchise bear this in mind. A B2C business can’t easily just whack 20% on there sales. A B2B business isn’t likely to be an issue. How will you handle the threshold if you’re a B2C? Ask your franchisor and see what they advise.