My latest opinion piece is long winded, arguably depressing, and no doubt some people will object and miss the point, but it is the reality of the cost of business.
Many people may now be wrapped up in the Christmas bubble and getting excited about annual leave and time with loved ones, it’s the festive period after all!
However, many people don’t have that luxury. Especially owners of businesses, and I’m sure many employees who are working their backsides off over Christmas and the New Year.
Whilst owning a business is a choice, if people didn’t make the choices to run a business, we’d all be fairly scuppered.
Think Business
Look at whats on your plate, the drinks you’ve drank, the parties you’ve attended, the pretty Christmas lights and even your decorations – all of those have been made by a business.
This Christmas, I’d love everyone to spare a minute and think of those trying to run a business over the festive period, and how for many, clocking off for a few days just is not an option.
I want to encourage people to shop locally where they can, and hopefully to carry on after the festive period.
Whilst I understand and appreciate that shopping locally is not always affordable, I want to do a breakdown to explain to you the real cost of business.
Below-Cost Selling
Truthfully, I’m bored of seeing “the business owner is greedy”, it’s utter nonsense in many cases, especially in the case of many of our local businesses.
Equally, a business is there to make money. Like you want money from working your 9 to 5, they want money for the running of their business.
It really isn’t all that hard to understand, would you go to your 9 to 5 job and expect your days work to cost you more than the hours you’ve worked?
You wouldn’t, but that is a reality many businesses are facing.
This is not about being left, right, centre, upside down, or wherever you fit on this odd political scale. It’s very simple. Money is needed everywhere.
Several years ago, I worked in Ireland as an agricultural journalist and spoke to farmers that were struggling to stay in business because they were not “getting a proper price for the product”.
As a result of this they expected to see a “huge shortage of food in the next five to ten years”.
I could enter into another discussion here relating to food security and our government voting down the Manx National Farmers Union petition in Tynwald last week, but I won’t entertain that one today.
Bad Guys
The vegetable farmers in Ireland explained the price that retailers were selling produce at does not in any way match the cost of production.
A broccoli grower from Rush, Co. Dublin told me that “selling a head of broccoli for 49c is gone, a grower today needs €1.09 to produce a head of broccoli.”
Yet we still see food that is far too cheap in the shops. Food is not a luxury item, but it does now require a luxury price.
Selling below the cost of production is not viable, anyone who can add 2+2 can surely figure that one out, but this is now what we are seeing leak into every industry.
With cost of living spiraling out of control, none of us know where or when it will stop. But, the bad guy is often not the business as can be portrayed.
It isn’t the restauranteur trying to keep a roof over their head, it isn’t the builder trying to feed their family and it isn’t the coffee shop owner who is paying their staff more than themselves.
The Cost of Business
When you next go to your local business that has a premises, whatever that may be, they will generally have to fund the following:
Rent
Yes, loads of us have it bad with paying residential rent or a mortgage, if lucky enough. We don’t in addition to that have to pay rent for the premises of our business.
For example, the retail unit is £1,000pcm – this means the business needs to make a minimum of £1000 a month to cover its rent alone.
Rates
For a business renting a building at £1,000pcm on the Isle of Man, you could reasonably expect rates and related charges of £2,000–£4,000 per year.
This obviously depends on where the building is, but again, as an example.
This would mean an extra £200pcm on top of rent, the business now has to make £1,200 a month to cover these costs before profit.
Staff
As of April next year, businesses will find themselves paying staff an additional 10%, as well as the National Insurance the business has to pay on behalf of their staff.
If the business has two full time employees both over the age of 18, they will be paying £4,934 in staff bills, breakdown as follows:
- Gross wages – £4,374.50;
- Employer NI – £559.50;
- Total employer cost – £4,934;
The business now has to make £6,134 a month to cover these costs before profit.
Stock
What use is a shop or a cafe without stock? Whether that be clothes, food, coffee beans, candles, you name it – they need stock.
Whilst I obviously can’t sit here and give you an exact monetary value of the stock, I can give you an average estimate for the following businesses:
- Small café: £1,000–£2,000 in average stock;
- Small restaurant: £4,000–£6,000;
- Medium restaurant with bar: £7,000–£15,000.
These are approximate and should be adjusted based on sales, menu type, and delivery frequency, but hopefully you get my jist.
Let’s base this on a small café, the business now has to make £8,134 a month to cover these costs before profit.
Doesn’t End There
It doesn’t end there though, businesses still have to pay electricity bills, insurance bills, VAT bills, tax bill, payment and booking systems (sum up isn’t free!), and often have to finance the equipment within the store, or the stock itself.
Then let’s add in some marketing and maintenance costs, and the staggering cost of getting stock to the island. You think it’s expensive traveling with your car and two kids, try being a business paying freight rates.
With all of that taken into account, a small business is often paying a kick in the backside off £10,000 a month in costs.
They have to make nearly £10,000 a month before they see a penny of it in profit.
Terrifying Costs
Next time you hear someone saying “businesses are being greedy!”, “they can easily afford that”, “why is my coffee £4!”, I ask you to challenge them to go and set up a business and employ staff in this climate.
The maths is quite frankly terrifying. Yet we have a Treasury Minister telling businesses to shut for a few days a week to keep costs down.
Make that make sense, because many of these costs are there whether the shop is open or not.
If you find yourself bored or have a few minutes spare after reading my latest monologue, give this a watch too.
These problems are happening here. Whether we like it to not, that is the reality:
