New Enterprise Allowance scheme - My story

tomterm8

dktreesea wrote: »

NEA, WTC and all the associated benefits like housing benefit, council tax benefit and a NHS exemption card are nice to haves, no doubt about it. But Universal Credit is coming. Even though the minumum income floor still just means you will be assessed as if you had the NMW for the hours you are expected to work, a max of 35 for anyone expected to work full time, so benefits will still kick in thereafter, I think everyone who is self employed, including the newly self employed, needs to be getting their business built up pronto, so that once they are subject to UC, they will already have profits at least equivalent to the FT NMW coming in.

It's not that easy to make the FT NMW, at anything. A factory job may only pay NMW for 37.5 hours a week, but that doesn't make it a 37.5 hour week for the person doing the job, not unless they live right next door to the factory and it only takes them 5 minutes to get ready for work and be out the door.

In my neck of the woods I see factory workers getting up at 5am or so, out the door before 6am, to get to factories that are an hour away door to door by public transport. They're not home until somewhere around 5pm. To me that's a 60 hour week, not a 37.5 hour week.

And yet millions of businesses, even now, with UC barking at the door, make nowhere near the FT NMW in profit. (source: HMRC, latest income tax figures available, for the FY ended 5.4.12)

People make a lot of fuss about UC but it's important to remember that there is no guarantee it will ever come into force widely, or that it will come into force with the same terms as present, and even if it does come into force under the same terms as present you will have a year exempted from the minimum wage threshold to build up your business.

If you can't make minimum wage after two to three years of working on it you probably ought to think about finding a job anyway...

Andy2013

If you can't make minimum wage after two to three years of working on it you probably ought to think about finding a job anyway...

This is a good point , NEA give you 6 months to get it up and running and by then you should have a good idea whether the business is likely to work long term , to be honest you should be able to turn a profit reasonably quickly if its a goer, if after 6 months you only still have the 1 job a week and are making tuppence halfpenny profit its probably a good indication that either the business model is flawed or just unworkable.

After 2 or 3 years you should be turning a healthy profit and even considering growing the business if that's something you wish to do.

Anyone can run an un-profitable business, its the easiest thing in world !!

A business is like a girlfriend ,no matter how much you love it and want it to work sometimes you have to call it a day and move on ............ wow that's a metaphor if ever I heard one :rotfl:

dktreesea

Andy2013 wrote: »

This is a good point , NEA give you 6 months to get it up and running and by then you should have a good idea whether the business is likely to work long term , to be honest you should be able to turn a profit reasonably quickly if its a goer, if after 6 months you only still have the 1 job a week and are making tuppence halfpenny profit its probably a good indication that either the business model is flawed or just unworkable.

After 2 or 3 years you should be turning a healthy profit and even considering growing the business if that's something you wish to do.

Anyone can run an un-profitable business, its the easiest thing in world !!

A business is like a girlfriend ,no matter how much you love it and want it to work sometimes you have to call it a day and move on ............ wow that's a metaphor if ever I heard one :rotfl:

I see loads of businesses that "should" be making a healthy profit, but don't for various reasons. Some are perverse, i.e. self employed people not wanting to earn too much because they want to protect their benefits. Hopefully UC will at least limit those activities, if not put an outright stop to them.

I've seen painter and decorators, relying on a residential builder for half their gross income, just cut loose. The builder tenders out their next development, the painter and decorator goes in at his usual price and gets undercut by 30% by some other group coming into the industry.

The private hire car business used to make people a living. Nowadays so many people have come into that industry that people previously self reliant are going cap in hand to the council for housing benefit.

When people work for other people, all they have to invest in and sell is themselves. They sell their labour and are profitable from the first hour they work. That's not what happens when you are self employed, particularly if you are trading in goods rather than services. Your labour isn't enough. You often have to make a significant capital investment. Stock, or rent of your premises, might not be the problem. What's the worst cost in any take away business, beyond rent and stock? Gas and electricity. If you don't keep enough back to cover them and one gets disconnnected, you could go from making a living to being on the edge of bankruptcy, just like that.

tomterm8

dktreesea wrote: »

I see loads of businesses that "should" be making a healthy profit, ..

When people work for other people, all they have to invest in and sell is themselves.... If you don't keep enough back to cover them and one gets disconnnected, you could go from making a living to being on the edge of bankruptcy, just like that.

It's perfectly true that you're not guaranteed to make an reasonable income from any business.

But, on the other hand, it's also true that if you won't invest money in the business yourself, can't get other people to invest, aren't making a profit after a couple of years that's as good as the one you'd make working for someone else... well, you shouldn't expect the tax payer to subsidize that business.

If you can't make enough of a profit to pay yourself minimum wage after a substantial try then you've got to reassess.

Andy2013

Speaking personally my business is now 18 months old and is internet based working from home , buying and selling a niche product on a couple of well known sites and when I started out I had saved £300 to buy stock and have to reinvest my profits to buy more stock on a weekly or monthly basis , the remaining profits i choose to keep are used to pay my rent and living expenses.

At the end of the day, no matter if your on HB ,CTB ,WTC or UC they should be a short term benefit whilst your business is getting going .

If after 6 months your not turning a profit then im sorry but something's wrong and that goes for a sole trader or a contract plasterer.

Any business can run a loss and keep having to be bailed out by the government , family or endless loans but is the business really viable if it needs hand-outs , big firms would be put into administration just like comet , Woolworths and hundreds of others that have gone down the pan recently.

Some people are made to work for themselves, self motivated and full of enthusiasm and ideas , but others although they like the idea don't have a clue and fall short of being able to do everything that is needed to be self employed.

What's the worst cost in any take away business, beyond rent and stock? Gas and electricity. If you don't keep enough back to cover them and one gets disconnnected, you could go from making a living to being on the edge of bankruptcy, just like that.

This is very true for all businesses but its an overhead we all pay in some way, if your getting the custom and the money is coming in then this should not be an issue, I think a tax bill or NI that is not calculated properly is an issue also but its down to the individual business owner to pay there bills and cover all the out goings each month.

If the overheads out way the income then as I say above, the business is not viable and unless the issues are ironed out then its destined to be doomed.

It sounds harsh but no one can go on forever making a loss or just breaking even ,something has to give one day.

dktreesea

Even if you do manage to earn the equivalent of the FT NMW in profit, the subsidy from benefits, particularly if you have children , can still be substantial. The government should be setting the NMW at a level where people would be earning enough to not be entitled to benefits.

Turning a profit isn't enough to keep a business alive. You could be in profit but have a huge debtor like Tesco which should pay in 30 days but instead likes to pay at 120 days. What can you do? Ideally you wouldn't have to deal with rogue customers like that, but when they are as big as the big 4 supermarkets, it's hard to turn down the business. Yes, it feels like "money in the bank" because you don't expect them to go bust, but at the same time they are never in any hurry to pay their suppliers.

Paypal can be just as bad. You go to pay down your revenue and it doesn't go through. Paypal then say they are holding onto it for security reasons, i.e. to make sure your customers get beyond however many days is the limit EBay say they have to make a claim that the item hasn't arrived. What happens then if you can't get any credit from the bank to pay your rent in the meantime?

The DWP is desperate to push people into self employment and off its books. But even what seem to be such simple concepts, like the difference between profit and cash flow and how you need both to survive, can be really hard to manage in practice.

Our stair cleaner, who is self employed with a few employees, really keen and wants to do a good job, has had to borrow money from his parents to pay his staff because our council are only just paying January bills - January, mind you - now. Just a wee business, with his back up against the wall. He has no shortage of would be customers but can't take them on just now because he can't afford to employ any more staff. How can he have 3 months of rainy day money put aside when he has to wait 4 months for his main contract to be paid?

dktreesea

tomterm8 wrote: »

People make a lot of fuss about UC but it's important to remember that there is no guarantee it will ever come into force widely, or that it will come into force with the same terms as present, and even if it does come into force under the same terms as present you will have a year exempted from the minimum wage threshold to build up your business.

If you can't make minimum wage after two to three years of working on it you probably ought to think about finding a job anyway...

The start-up period (exemption from assumed Minimum Income Floor and job-search requirements) relates to the first year of a new business, which must have begun trading in the 12 months preceding the claim for Universal Credit.(source http://www.legislation.gov.uk/uksi/2013/386/contents/made)

So, at the rate UC is coming into force, all the businesses already set up are likely to be well past their first 12 months of operation.

Andy2013

Turning a profit isn't enough to keep a business alive

I disagree entirely , its the basis of any good business model, yes there are hurdles but these should be recognized during the early research stages of the business.

Paypal can be just as bad

Not if you run it properly, my entire business depends on PayPal and I have good experiences and the measures they have in place are to make buying and selling secure.

We can spend all day naming issues that may cause problems but the basis of a good business is a sound viable business idea that can turn a profit ,run by a motivated ,enthusiastic and determined person.

And as problems arise then deal with them in the best manner possible.

tomterm8

dktreesea wrote: »

The start-up period (exemption from assumed Minimum Income Floor and job-search requirements) relates to the first year of a new business, which must have begun trading in the 12 months preceding the claim for Universal Credit.(source http://www.legislation.gov.uk/uksi/2013/386/contents/made)

So, at the rate UC is coming into force, all the businesses already set up are likely to be well past their first 12 months of operation.

Last I saw anyone who had self-employed earnings wasn't eligible yet to be transferred to UC (it's prohibited on the pathfinder implementation), the software just doesn't come close to being able to deal with it.

Two years is a conservative estimate of how long the software will take to sort out.

Andy2013 wrote: »

I disagree entirely ,.

Bad cash flow kills many profitable businesses. I agree with dktreesea on that.

On the other hand, I still think that a business that can't turn a profit in a reasonable time doesn't deserve to be subsidized by the tax payer.

TrueBlue1965

Are some of the major banks not being subsidized by the tax payer?

There are many businesses that are viable on paper. It does not mean that they will make money/profit in the short term. They often need that bit of lucky in finding the right type of customer or are in need of further investment to take them to the next stage and profitability. Its very difficult for many in these economic times to servive and make good profits.

Cashflow is a massive issue for many new businesses. Without the money to take more than small steps. Its often very difficult to move from just serviving to becoming profitable and not needing to claim benefits such as Housing benefit and Tax credits. For some businesses, it takes a long time to build up a good reputation and trust to gain enough paying customers and clients or break down many of the barriers to the main market places! Banks dont loan to those who dont have the means to pay back. Customers dont always pay on time. Some customers dont ever pay because they go under themselves. There are so many reasons why businesses cannot move past stage one of setting up a new and potentially viable business!

To my way of thinking. If your working at your business but not making much profit. It does not mean that its not a viable business in the future. If your able to survive with the assistance of other benefits other than JSA. Then, your saving the Tax payer the cost of JSA. If the business starts making massive profits. The Government and Tax payers will gain the benefits of the Taxes paid by that business. There is also the possibility of employing others in the business in the future which means more tax to the Government from that business. Part of the reason for this Governments push for new businesses with the likes of NEA and the Start-Up schemes.