The furlough scheme is bad for business

When the furlough scheme was introduced it was a sensible short-term measure to protect individuals whose employers had a sudden loss of earnings.

But it is deeply discriminatory and worse, it’s bad for business. Those still with an employer receive enhanced benefits. Those without an employer do not. And some just fall through the gaps. The state benefits system should treat all it supports equally and the provision of benefits on such a random basis is unacceptable. Furlough quite specifically fails that test.

And notwithstanding the fact that the scheme encourages fraud and has funded businesses that quite obviously don’t need it to survive, the extension of the scheme until the end on March 2021 is bad for UK businesses.

It is now clear that the impact of coronavirus won’t be short-lived and have little lasting effect. The opposite is now true.

But what is clear, is that the pandemic has changed the way we work and consume; many of these changes were happening anyway – such as the trend towards remote working and buying online – and have just accelerated because of the lock-in.

The UK economy needs to adapt to these changes by shedding businesses and jobs that are no longer viable and creating new ones in areas where demand is growing. The slow lingering death of a business – which the furlough scheme encourages – benefits no-one.

Keeping people in unproductive jobs and propping up unviable business is a waste of time and money and will only delay the process that is required to transform the economy.

But in the current predicament, businesses cannot survive, innovate or adapt without government support. We should embrace that as a fact. But winners and losers must be chosen which will require difficult decision-making by ministers. So far furlough has let them off that hook: blanket provision has been the easy part of this, but the result has been unfair and quite inappropriate for the economy that has to be built in the coming years.

But this does not mean that businesses can let government take the blame for their eventual demise or that they are powerless to take matters into their own hands. If your business model – or parts of it – is no longer viable there are only two alternatives: close that business (or part of it) or change the model.

Fortunately, just as the pandemic has consigned some businesses to history it has created huge opportunities for others. Consumer habits and behaviours may have changed but their new and emerging needs will have created whole new markets and demand for products and services that didn’t previously exist.

I have worked with numerous businesses this year that have successfully pivoted their business models to meet their new reality. We start by asking three questions:

  1. Is there still (or increasing) demand for my product/service?
  2. If so, what new innovative delivery mechanisms are available (or can I design)?
  3. What additional resources do I need (and which can I let go)?

Two of my clients have taken advantage of the increased number of people who have decided that freelance remote working suits them better than being employed (or furloughed). Another has surrendered the lease on his city-centre office and become a virtual business (with no loss of customers or sales but increased profit). Others have completely re-designed their supply chain and delivery mechanisms.

If you would like help reviewing your business model you can contact me at noel@guilfordaccounting.co.uk

Noel Guilford, Principal at Guilford Accounting
Noel Guilford is the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at noel@guilfordaccounting.co.uk or by phone at 01244 660866. He is the author of the 'Figure it out - an entrepreneurs guide to understanding your business numbers' which you can obtain by visiting guilfordaccounting.co.uk.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ His latest book, How to Build a Successful Business' will be published in 2018.

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