The biggest challenge we’ve found at Studio Output when doubling from a compact team of around 12 has been the organisational restructure it requires. We’ve had to invest in non fee-earning staff and encourage people to develop new skills, without losing what they do best. This type of growth inevitably squeezes profits, but is essential if the business is going to make the jump and reap longer-term rewards.
Knowing that one of the results of this hard work will be reaching a much higher tax threshold was a bit of a kick in the teeth. So, while the biggest encouragement to small agencies would be a lower rate across the board, anything that brings the two closer together should encourage those who are adding entrepreneurial spirit to their business.
George Osborne’s recent budget was supposed to help small businesses flourish. First was the announcement of a 1 per cent interest rate cut on bank loans for SMEs, supported by £20bn of government loan guarantees . Then, in the budget itself, came an immediate 2 per cent reduction in the highest rate of corporation tax from 26 to 24 per cent, with a further reduction over the next two years to a rate of 22 per cent. This means the gap will effectively be lowered by two thirds over the next two years, and there is the suggestion it could be lowered even further in the future, perhaps to a flat rate across the board.
Will this give boutique consultancies a chance to prosper, or does it just help the larger agencies? Certainly in financial terms, most start-up design agencies would be regarded as micro-businesses – and happily so – and cutting this higher rate of corporation tax is unlikely to help them in the short term.
But if we’re really going to benefit from the predicted expansion of the creative economy, we need this mindset to change and for agency owners to think bigger. For companies with ambition to grow, the smaller disparity between the lower and higher rates of corporation tax should be seen as an opportunity.
Rob Coke is a partner at Studio Output http://www.studio-output.com/