What, SME?

Did you know that 99.9 per cent of businesses are classified as SMEs (Small and Medium Size Enterprises)?

That is according to the Department for Business, Innovation and Skills (BIS), who’s director of Enterprise came along to the Trade Association Forum this week to talk about their importance to the UK economy.

According to Mr Jackson (the man from the ministry) of those 99.9 per cent, 74 per cent would like to grow their business in the next twelve months but only 30 per cent will – if recent trends continue.

Why so few?

SME Barriers to Growth

According to BIS  the main reasons are the state of the economy, fierce competition and the complexity/cost of the tax regime. Although Regulation, access to finance and the practical matter of ensuring that a company has the appropriate management skills to drive growth also feature highly.

Although we rarely talk in terms of landlords as SMEs, the more they were described in this presentation, the more the parallels became obvious. The NLA speaks with landlords (members and otherwise) every day on myriad issues, many of which are very much industry specific. Even so the majority fall quite neatly into one of the categories in the chart above.

I suspect that the order would be slightly different if the question were repeated solely with landlords. Almost certainly obtaining finance would feature more prominent, as would coping with the tax burden – but the challenge to landlords, like all other small and medium size enterprises is to grow and to do so in a sustainable way.

So why not learn from the approach taken by other SMEs, or more accurately from their mistakes.

The BIS research tells us that only 30 per cent of small businesses have a business plan and only 40 per cent are able to show clear management accounts – both of which make accessing finance more difficult.

Accessing all types of finance, not least Buy-to-Let has become more difficult so it may be time to take a long look at our approach to business and what our long term plans are.

However, the most striking aspect of BIS’ presentation was the revelation that a small to medium size business is TWICE AS LIKELY TO GROW if it seeks advice. Yet shockingly only 50 per cent bother.

NLA members benefit from exclusive FREE access to professional telephone advisers. In fact, the NLA Telephone Advice Line takes more than 35,000 calls every year meaning that it supports about 130 small business every working day – which might go some way to explain how the PRS has managed to defy its detractors and grow to encompass 16.5 per cent of all households in England and Wales.

In fact, the PRS  is expected to overtake socially rented housing in the next few years, but with this growth comes responsibility to one another to make sure that the sector is well respected and perceived.

Networking and peer mentoring can be just as valuable as professional experience. The benefits of sharing experience are well recognised, which is why the NLA puts so much emphasis on our local branch meetings and online NLA member forum. If you’ve a query, or something useful to share why not give them a go today.

To join or to find out about NLA membership benefits visit landlords.org.uk

Letting Property; License to print money?

To make up for the general dearth of empirical data available on the PRS, we at the NLA conduct quite a lot of primary research.

This enables us to back up our policy positions, strengthens our position with Government and stakeholders and generally makes the Association a more ‘useful’ partner to those who make policy.

It also means that we sometimes uncover interesting, if occasionally surprising, things about the UK’s landlord population. For instance, since the Association established a quarterly survey panel, two simple truths have been evident:

(1) Not all landlords make a profit, many just break even, some even make a loss. Not that everyone believes this - particularly against the backdrop of headlines implying that every rental property is accompanied by a license to print money.

(2) The more properties you have, the more likely you are to make a profit. Not rocket science, but generally true.

Of course these aren’t the surprising results. The element of surprise comes from the fact that over recent months even some large portfolio landlords have started to declare a loss.

For the first time since the survey began the percentage of portfolio landlords (>20 properties) making a loss is on the rise – reaching eight per cent for the last quarter of 2011.

So, how come I keep reading in the newspapers that landlords are ‘raking it in’?

A lot of this seems to stem from a simple misunderstanding about the costs of providing housing.

A former Secretary of State recently asked the NLA to explain how we could argue against the accusation that landlords are guilty of profiteering. He based this on a simple rental yield calculation which illustrated that gross return can indeed be quite attractive considering the Base Rate remains welded to 0.5 per cent.

Give it a try with this calculator:

However, what good is knowing your gross yield if you then ignore all of your costs. It is akin to running your household budget purely on your salary before tax.

I suggest that anyone interested in the true income most providers of housing can expect take a look at the next calculator instead.

Bearing in mind this ignores countless other costs from management fees and service charges to local licensing fees. (Without even beginning to consider tax liability).

Next time I’m asked why landlords can’t simply lower their rents I’ll certainly point out the difference between these two results.

Note: These calculators are intended as a very basic illustration to add a bit of fun to an otherwise dry subject, they are not a business planning tool.

Breaking: LHA rates to be frozen from April 2012

We have just learned from the Department for Work and Pensions that LHA rates are to be frozen from April this year.

Officials are saying that this is an “immediate change” to prepare for the pegging of LHA rates to the Consumer Price Index (CPI) measure of inflation in 2013. However, it is not something landlords knew they had to prepare for.

The Chancellor had announced this linking of LHA rates to CPI in his June 2010 budget.The subsequent detail has been that from April 2013, LHA rates will change only once a year and will be set at either: the previous annual rate uprated by the September Consumer Price Index, or the 30^th percentile of local rents (whichever is the lowest).

The NLA will be updating members as soon as more information is available. We are working to understand the impact this change is likely to have on landlords and tenants.

You can contact the NLA’s policy team at policy@landlords.org.uk