Navigating the Latest Budget: A Survival Guide for Small to Medium Businesses

Posted on December 20, 2024 | amy.pettler

The Budget announced on October 30th will bring substantial changes for many organisations, resulting in increased costs. So, how can we navigate these changes and still maintain profitable businesses?

Your Payroll Numbers

In the Budget, changes were announced to the Minimum National Wage and also employers’ National Insurance. You need to understand how these changes will directly impact your business before proceeding with anything else.

Review your payroll figures for the current financial year and use that to predict the numbers from April 2025:

If you already have an up-to-date forecast of your business’s numbers, this information should be included in it, but may need updating. If not, you’ll need to create a forecast for the period from April 2025 onwards. Use your payroll software to generate a list of employees:

Name
Age
Basic pay
Hours worked
Deductions including employers’ National Insurance contributions
Pension contributions etc

Identify Employees affected by Minimum Wage changes:

From your employees list, determine who will be impacted by the new Minimum Wage legislation.

Consider if any employees currently earning slightly above the Minimum Wage (e.g. 20p/hour more) will expect to maintain this differential. You may need to rework your numbers to include these potential increases too.

Re-calculate your payroll numbers using the new basic rates (due to the increased National Minimum Wage) and the employers National Insurance impact on these numbers. Ensure you include:

The increased rate from 13.8% to 15%
The lower threshold above which employers’ national insurance is charged from £9,100 p.a. to £5,000 p.a.

Apply the Employment Allowance:

Deduct the Employment Allowance from your newly calculated payroll numbers.

Note: In some cases, the increase in Employment Allowance may exceed the entire employers’ National Insurance liability for the year.

Calculate the Net Impact:

Subtract the Employment Allowance from the newly calculated payroll costs to assess the overall impact of the Budget changes on your payroll costs for the next year.

If you are unsure how to perform these calculations, I have provided explanations on how National Insurance is calculated manually, along with examples, in Appendix 1.

Your Non-Payroll Numbers

The impacts of the Budget are likely to be seen across most of the things you buy for your business. The payroll changes we calculated earlier will also impact nearly every other business, so we need to consider how our other costs might increase in the coming year.

What does our Margin look like?

Now that we have recalculated all our costs for the next financial year, we should update these figures into our Budget or Forecast for the year. This will give us an initial view of how the Budget affects our margin.

So, now that we know our numbers, what are our choices?

We can increase our Prices.

Raising prices to maintain your margin is definitely an option to consider.

Using the impact of the Budget on your cost base as a justification is something many businesses will be doing, and you could too. Calculate the increase in your total cost base as a percentage, then simply add that percentage to your prices. Inform your clients about the change and see how they respond.

Alternatively, you could take this opportunity to conduct a pricing review.

How to undertake a pricing review:

Routine price increases: When was the last time I raised my prices? It’s my recommendation that you implement at least an annual increase to keep in line with any cost-of-living increases you are incurring. Include a note that you will do this in any proposals you raise.
Analyse your products and services: Review each product or service (or groups of similar offerings) separately. This ensures that high-margin sales are not masking low or negative-margin products and services.
Break down direct costs: Calculate the direct costs associated with your products and services to determine the gross margin for each.
Allocate non-direct costs (if feasible): If you can allocate non-direct costs that’s great. However, this can often be arbitrary, and the effort to calculate it may outweigh the value derived from it.
Conduct market research: Investigate what your competitors are charging for similar products or services? It’s important to understand how your offerings differ from others in the market and how to articulate these differences effectively.
Attend the Pricing Workshop: Learn valuable strategies around pricing and how to use them to maximise your profit.

We can review our costs

Ensure we can maintain the quality of our supply so that our customers do not notice any changes we make:

Lesser quality ingredients could lose us customers. We also need to consider potential supply issues.
i. Do we need to buy in larger volumes less frequently to drive the cost down?
ii. Is the new supplier reliable?

Lower cost suppliers, may not provide the full scope of services we need or may not deliver the level of service we are used to:
i. Additional work may fall back on you, creating hidden added costs.

Can we reduce the size of our offerings to meet the price point without compromising the perceived value? Those wagon wheel biscuits were definitely bigger when I was a kid!