National Living Wage – Pass it on or reduce profits?

Tax

The recent rise in the National Living Wage (NLW) has caused a conundrum for small businesses, with the hospitality sector feeling the effects more than most. The decision that many business owners are having to make is: do we pass it on by increasing prices or do we suffer the increase costs and reduce our profits.

A recent study by the Federation of Small Businesses (FSB) suggests that 64% of those surveyed were willing to suffer the increase and therefore reduce their profits. As a result of the actions taken, a number have had to either cancel or scale down their investment plans and one fifth of those who chose to suffer the cost have either reduced staff hours or hired fewer workers, therefore passing on the workload to others. What would be interesting to know is whether those who took the decision to suffer the increases spent sufficient time looking at the options available to them before doing so?

The benefits of having an accounting system that offers real time information and has a forecasting option would allow businesses to make a fully reasoned decision before deciding that they are not able to pass on the increase due to the fear that increased pricing will lead to a reduction in sales. A basic forecasting tool would allow the proprietors to build the increased costs into their model and enable them to see what sort of price increases would be required to cover the extra potential overhead that may arises. They would also be able to look at the effects of, say, changing the hours of their staff or having less staff to their bottom line. The ability to make reasoned decisions is invaluable to small businesses and the facility within cloud accounting software that is now available allows them to be able to do just that.

Should you require further information regarding the options available contact our hospitality specialist, adam@raffingers.co.uk
You can also follow us on Twitter for more tips and news surrounding hospitality.

Source: https://www.fsb.org.uk/