Welcome to the July 2019 edition of our Small Business Tips.
How To Use This Update
Our Small Business Tips Updates are a mix of the practical – a summary of technical updates from the previous month – and articles which we provide as food for thought.
For this second section, find a quiet corner, grab a coffee, and use it to generate some quality contemplation about your business. Our aim is to provide enough varied content to give you the opportunity to think differently about your business, to think about the future and to generate some of your best ideas.
Technical Updates
GDP SET TO SLIDE?
The ONS left the original Q1 GDP estimate unchanged – it is therefore confirmed as a growth of 0.5% compared to the previous quarter. The relative strength of this quarter was driven by growth in manufacturing output – largely understood to be as a result of stockpiling happening ahead of the original Brexit date. Consequently, there is an expectation that the acceleration of production will result in a particularly weak result for Q2 – with estimates recently revised down to 0% (from a previous estimate of 0.2%).
TOURISM DIPS
Visits to the UK in the first quarter of 2019 declined when compared to the same quarter last year in both volume (1% fewer visits to the UK in 2019) and value (5% less spend by overseas visitors in 2019). As illustrated in the tables below, the number of visits revealed a couple of interesting trends – the decline is driven by visitors from outside of North America and Europe, and it’s business travel and visits to friends/family that is declining. Something to think about if your business is reliant on business travellers or those from far afield.
THE TAX GAP
HMRC published the latest estimate of the size of the UK tax gap – which is effectively the difference between how much the government would expect to collect in taxes vs how much it actually received. For 2018, this gap stood at £35bn – or 5.6% of the total. The gap exists due to errors, unpaid tax, and criminal behaviour, and is monitored so that HMRC can continually implement measures to close it. As our analysis below shows, the vast majority of the gap (£26bn) is driven by businesses – and within this number it is Small Businesses that make up the largest portion – at £14bn. HMRC hope that the Making Tax Digital VAT initiative will help to close this gap, but expect further focus on Small Businesses in the future if this figure remains relatively high.
MAKING TAX DIGITAL
On the subject of MTD, we are now at the point where the first reporting periods under the new process are complete (April 1 – June 30) – and these returns are due by 7 August. You should have been keeping digital records since 1 April if you fall within scope – which is to say all businesses over the VAT Threshold. If you haven’t, you need to seek help on this as a matter of urgency.
Food For Thought
INNOVATION PART 1 – TESTING THE WATER
Waitrose announced a trial at one store (Oxford) in which customers would be able buy a range of products without any packaging – simply by bringing their own refillable containers from home. The limited range includes dry foods such as some pasta and rice, some frozen fruit, detergents, and even wine and beer.
This is a great example of using a small scale trial to test a concept quickly whilst reducing the risk to the overall business if it is not a success. It is vital for any business to be able to constantly innovate, and there is no better way to prove a concept than to try it out on customers for real. When done right it can speed the path to market of the innovation and give some welcome publicity and positive PR along the way.
INNOVATION PART 2 – SMALL IS BEAUTIFUL
IKEA has collaborated with an American startup (Ori) to create an all-in-one robotic furniture unit called the ROGNAN which is designed to be multifunctional within very small spaces. Through clever design and the use of robotics, the furniture can transform from bedroom to closet to workspace to living room – all at the touch of a button.
Staying one step ahead by constantly monitoring your environment for risks is crucial to the longevity of your business. In this case, IKEA have turned the challenge of lower furniture demand from people living in smaller homes in to an opportunity by creating an innovative solution.
INNOVATION PART 3 – COAL SACKED
The UK set a very welcome new record of 18 consecutive days without burning any coal to generate electricity.
In addition to being an incredible piece of data visualisation, the chart below shows just how dramatically things have changed over the last few years – from being completely dependent on burning coal to this latest coal-free period. The trend is clear.
If you think your product or service sits in a protected bubble and will always be an engine for your sales, then the one thing you can be sure of is that you are wrong. Everything has a critical mass or a tipping point – after which alternatives swallow it up. Failing to anticipate and move ahead of the times can be fatal.
INNOVATION PART 4 – NOT-SO-SMART PHONES
Dixons Carphone issued a second profit warning and cut its full year dividend – sending its share price down by 30% at one point.
The main reason cited by Dixons was that people are not upgrading their handsets as regularly as they have in the past – and are increasingly happy to hold on to their phones for three or four years. This has been a fundamental change to the industry that has caught Dixons by surprise – meaning they are now on the back foot trying to react to new customer behaviour.
What is striking here is how quickly the pattern can change when the rate of technical innovation inevitably declines. An increase in processing power and speed is much more noticeable in more primitive devices than those that are already quite powerful – and as such it is reasonable to assume that people will fell less need to upgrade. When money is finite and choices need to be made, a phone that is good enough means more money is available to spend elsewhere.
It is worth considering whether this is part of a wider trend of actively trying to reduce environmental waste through unnecessary consumerism – and how this could affect demand for your products. Being reliant on repeat custom through marginal product enhancements is a risky business model. Far better to free up resources – through productivity gains – to invest in continued genuine innovation.
IT’S SIMPLE…..ISN’T IT?
A fascinating theory in the New Statesman about what is really behind the rise of populism in modern politics. Essentially, there is a long-standing notion that people think they understand something as simple – such as a zip or a flushing toilet – but when asked to explain it in detail they struggle. Known as the ‘knowledge illusion’, it can explain a lot about human behaviour and what is going on in the world today.
The implications in business are two-fold. Firstly, a lot of the workings of a business are deceptively complicated – with layer upon layer of data and causes/effects which impact the outcomes. In a business that you have been part of since the beginning, it can be easy to feel like you understand it completely – but do you? Could you honestly say that you could explain every last part of it down to the minutest detail if you were asked? Thinking you understand and making decisions without actually making sure that you do is a risky path to go down.
Secondly, when it comes to your customers you need to make sure that your product or service at least has the air of simplicity about it. People like to feel like they understand something and will naturally shy away from anything too complicated. It is vital, therefore, to spend time and effort in making your offering as simple and intuitive as you possibly can – even if what you create is only the illusion of understanding.
TURN YOUR COSTS IN TO INVESTMENTS
Every penny you spend in your business matters – whether for managing your immediate cashflow or to guarantee your longer-term success. The mistake made by many business is to assume that all spending is bad and look to minimise it in any way possible, but this is damaging.
Find out how you can think differently about these decisions here.
If you’d like to benefit from a sounding board for these – or any other – ideas for your business, why not contact Corner Finance at info@cornerfinance.co.uk or visit us at www.cornerfinance.co.uk
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