How Businesses Work: For Dummies

It's amazing, everyday I see left-wing commentators, and MPs telling people how they should run businesses.

Well, as I work in a small company, and have various roles within this company here is a short, easy dummy guide as to what businesses go through everyday:

So, John owns his own Engineering company. He has 20 employees, all of whom are on the books, none of them are sub-contractors.

You have been given 5 different jobs to quote for, what do you need to work out?

1. Labour costs (how long the job will take, and how much per man/ woman)
2. Material costs (so you ask for quotes for your suppliers, then add on whatever your percentage is)
3. Project management time (in other words how long it's taking you to do the quote, and survey)
4. Also Risk Assessment and Method Statement as this all takes up someone else's valuable time therefore they need paying for it

So far we've figured out a good price to pay our employees, and our suppliers, and hopefully we can still make a little profit. However there are a few costs you have forgotten about:

• PAYE
• Quarterly VAT
• Pensions (if you have a scheme going)
• Employers and Employees NI (all of which the owner pays)
• Corporation Tax
• General Rates (light, heating, electricity)
• Fuel Costs
• Council Tax

So let's work out all the costs.

Firstly you've been paid for the job, which you costed at £20,000 including VAT, so that would be £4,000 VAT.

So you've made a nice £16,000 net profit. Oh no you haven't.

You then have to pay your staff, 2 engineers, and 1 Health and Safety manager. You're engineers are both on the same amount which their daily rate is £80.77 (annually £21,000), and it took them 3 days to complete that is £242.31 each, totaling up to £484.62.

You then have to pay your H&S manager, and it took him 4 days to get everything in ready, and make sure they were working in safe environment. Obviously your H&S man will be on a bit more than your engineers, his daily rate is £153.85 (£40,000 annually which is average), £615.40.

Total labour costs for this job totaling up to £1,100.02, making your new net profit £14,899.98.

Now it's time to pay your suppliers for the materials, in total the materials cost you £9,000, which you have to pay in one full swoop now leaving your net total at £5,899.98

Because you have paid your employees you now have to pay PAYE, and NI for paying them. For your H&S manager it's roughly £850 PAYE and NI.

For your engineers it's roughly £650.66 for the PAYE and NI, so you are now taking off another £1500 from your net profit, leaving you with £4,399.98

You now have to pay your council tax, heating bills, fill up your van again, gas bill, electricity bill.

Once all these other bills have been paid you're probably look at a £1,000 net profit. Which you will probably have to put away to pay your corporation tax at the end of the year.

I do hope this clears up any myths about how easy it is to run a small business in the UK.