Does Your Business Rely on Volunteer Labour?

I see a lot of accounts in the course of my work. They come in all shapes and sizes, highly profitable to loss making, well resourced and good financials to insolvent or as good as. I suppose there are trends in any business sector. Still, there are also variations reflecting the available capital, prowess of the people running that business and all the other myriad factors.

Many small businesses currently rely on either volunteer or poorly paid workers, without whom the company would not survive. I mean, of course, the business owners and their families.

It is not uncommon to find a business that just about breaks even but is not generating cash. It may well be that the business owner is continually putting their own cash into the company just to help it out and sometimes this might be to finance the wages of family who work in the business.

Don’t get me wrong! We see a lot of very good businesses, making good profits, and generally bemoaning the amount of tax they have to pay as a result. It takes all sorts.

I suppose it is just human nature for struggling business owners to firefight. They have put and are still putting in so much of themselves into the business that they cannot take that important step backwards and look at the bigger picture. Cash is short, wages have to be paid, and need cash! But then they relax and it is only a matter of time until the next crisis arrives, possibly worse than before.

Have you ever had to negotiate with HMRC about late VAT payments? Over the years I have spoken to HMRC about quite a few clients who are having cash flow issues. The Revenue officers on the other end of the phone always came out with the same line i.e. your client has received the VAT from their customer, it does not belong to your client, so why do they not have it to pay to HMRC? I think they must learn this on courses. How to make someone feel that they are stealing money from financing essential services? Everyone else knows that any money arriving in the bank account loses its character and there are generally so many demands on that cash, and HMRC have not been very good over the years at facilitating early settlement.

Nevertheless, since Covid, it has been pretty easy to get a Time to Pay deal from HMRC. It will be interesting to see how long that continues.

The way to test the true health of your business is to deduct a true commercial wage from the profits to reflect the cost of getting someone else to do the work and hours that you do. It’s an interesting exercise.

Rumour has it that many, if not all, small accountants would be making a loss if they did this exercise. Could they even tell until they do their year-end accounts? Many probably never think about it.

We prepare management accounts monthly so we know where we stand and can make decisions quickly, knowing that we will see the results of our strategic decisions in the months ahead. Well, we are running a business after all and accountants can go bust, and have, just like anyone else.

So, if your business relies on volunteer or low paid labour, what should you do about it? The answer to that question is simple. Make more profit. The next question is then how you make more profit and the answer to that question is not so straightforward. Some strategies are quick and simple to implement and you see the results almost immediately. Others are not. It all depends on your particular circumstances.

Best come in for a coffee and we can discuss it.

 

Alan E Long

The Long Partnership

07770 738770

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