SERVICE businesses across Northern Ireland are navigating a uniquely challenging economic climate. With inflation at a 40-year high, increasing taxation, the recent cessation of the reduced rate of VAT for hospitality and a shortage of talent, our base of owner-managed service businesses is facing an uphill battle when it comes to expansion and wealth enhancement.
High inflation impacts significantly upon owner managed businesses, with an inevitable decrease in consumer demand, increased costs and supply pressures. Currently, this is compounded by increasing taxation and an unclear future tax landscape, which makes it difficult for businesses to plan their investment strategy.
Service businesses have been hit particularly hard, not only by the rising cost of living, but also by increasing taxation for employers. The cessation of the reduction of VAT for hospitality, which ended on April 1 has also been a real challenge. The subsequent return of the 20 per cent rate of VAT for hospitality businesses has seen the price of services increase and costs passed onto the customer.
Local businesses are also facing a labour shortage as they compete with global brands for staff. Although they may offer excellent opportunities, small businesses with lesser brand recognition have to work harder to attract the best talent.
It is my opinion that service businesses can survive and thrive in this difficult climate by differentiating themselves. Contrary to popular belief, price point isn’t the most important factor here. Rather, businesses should specialise in a niche area and ensure that they are geared to offer quality bespoke, modern and informal services to the market.
The most important differentiator is actually innovation. Businesses would benefit from exploring research and development, which includes the creation of new processes and products, and making improvements to, or even reimagining existing ones. R&D tax credit is available to business owners across Northern Ireland and can result in a corporation tax saving.
In order to maintain growth momentum and increase their wealth, businesses should also explore restructuring. This can be effective way to respond to changes in the market, and to sustain economically sound business operations in the face of decreasing consumer demand.
To do this, organisations should begin by setting clear business objectives and evaluating sales against forecasts. They should then create a new business strategy and look at restructuring management and designing a new organisational structure. Businesses should also consider growth through acquisition, along with remote working, which can drastically reduce overheads.
With the fourth industrial revolution upon us, I believe that businesses must also anticipate future trends and embrace new technologies.
An agile approach is a vital ingredient for success in today’s market and initiatives like the recently introduced Making Tax Digital (MTD) for VAT regulation can really help businesses to streamline important processes, monitor the health of their business on an ongoing basis, and gather intelligence on competitor pricing. All of this will help to ensure that their business structure is efficient and that profits are maximised.
Ross Boyd (hello@rossboyd.co.uk) is director at RB+ Chartered Accountants
