MANY owner-managed businesses in Northern Ireland have entered January determined to reduce their business costs to prepare for the turbulence 2023 may bring. And with good planning, they can be better positioned to navigate any challenges.
If we've learned anything from last year, it's that business owners must remain agile in challenging trading conditions. Plotting the right journey is business critical. Getting the right advice means they may be able to absorb the bumps in the road that lie ahead.
Let's just say 2022 was unprecedented. The chaos that ensued after the mini-budget at Westminster belied a fragility that shocked not just the markets but the entire business community. With inflation rates spiking at 11.1 per cent late last year, and the Bank of England reacting by raising interest rates to 3.5 per cent, we all got an insight into just how precarious a position the short-lived Truss Government left the economy.
This will be rectified – but it will take time. They say patience is a virtue, but for many businesses in Northern Ireland it may also prove to be a luxury that they simply cannot afford.
It's important that businesses plan strategically for the next 12 months, so that they can accommodate the impact that 30-year high inflation figures bring. Whilst inflation may plateau and then slowly drop in late 2023, the impact of this must be absorbed now.
Many businesses will tighten spend to cope with an expanding cost base and shore up capital as a buffer against economic uncertainty. This will result in expansion plans being put on ice and puts pressure on planned investment opportunities. The business sector in Northern Ireland is renowned for being resilient – and a huge part of this of this is about being pragmatic and many owner-managed businesses may decide to play it safe and reforecast business growth.
Businesses that are already under pressure may seek insolvency before 2023 draws to a close and for some, it will be the right decision for them. It’s a tough decision that no-one ever expects to have to undertake. But it is also true that the sooner the decision is made the better the outcome is for everyone involved.
For profitable businesses, one of the biggest costs to factor into their financial planning is the increase to corporation tax. The new rate will be effective from April 1, increasing from 19 per cent to the top rate of 25 per cent for companies with profits of £250,000 and over.
And while many owner-managed businesses with profits up to £50,000 will continue to pay corporation tax at 19 per cent, those with profits between these two figures will be subject to a tapered rate.
Simply put, this will encourage businesses to reduce their exposure to corporation tax. Many will consider gaming the tax bands – for example by advancing the purchase of equipment or making enhanced pension contributions. Getting the right advice at the right time can make a big difference and for many there may be multiple strategies at play, all of which need to be forensically considered.
However, it isn’t all doom and gloom. Challenging times are always followed by a return to more prosperous economic conditions. Those businesses that navigate 2023 will be creating a fantastic opportunity for themselves when favourable economic conditions return.
Their agility and ability to plot their own course will literally pay dividends. Because business, like life, is a journey. And sometimes you just have to do the hard yards.
:: Ross Boyd is director at RB+ Chartered Accountants