By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Small businesses were yesterday urged to delay lay-offs until October, a sector consultant revealing over one-third of his clients are eyeing immediate cutbacks amid VAT-related "panic".

Mark A Turnquest told Tribune Business that while start-ups needed to make "some serious adjustments to their business model" in response to the imminent VAT rate hike, they should avoid "jumping to conclusions" that downsizing was inevitable.

He revealed that 40 percent of his small business clients were faced with having to absorb the 60 percent rate increase themselves, as they fall below the $100,000 annual turnover threshold that mandates they become VAT registrants.

As non-registrants they are unable to charge VAT to consumers, but are still faced with paying the same levy on their inputs. This means the VAT rate increase to 12 percent will raise their own costs, and Mr Turnquest said 90 percent of his non-VAT registrant clients were already contemplating lay-offs in response.

He disclosed that he had advised against such a knee-jerk response, and instead was urging small businesses to hold off until October to allow time for the VAT rate increase's impact on consumer spending and the wider economy to work its way through.

"My clients are unhappy with the VAT increase because they said it was too short notice, and for the small business under $100,000 it is an additional business expense for them," Mr Turnquest told Tribune Business.

"Forty percent of my clients are under $100,000. It is a major impact. They have to absorb all that 4.5 percentage point extra cost, and the expense associated with that. Of those, 90 percent of them indicated their staff complement will be reduced. If they can't see where to make ends meet, they will have to lay-off staff.

"I told them: Try not to lay-off people even if you have to put them on half weeks," Mr Turnquest continued. "I also told them not to do anything until October; don't jump to that conclusion.

"They're panicking about next week [VAT increases from July 1]. I told them to wait. I have all my clients looking to October as a potential turn to determine how we move forward, and looking at the cost structure of their organisations."

Mr Turnquest said he had advised entrepreneurs and small business start-ups to mitigate the budget's VAT increase in other ways, principally through focusing on their best-selling products and services; tight inventory management and a focus on buying in bulk to lower costs.

"I have spoken to a lot of my clients, and told them they have to make some serious adjustments to their business model by doing their best to reduce costs," he revealed. "They have to buy in bulk and, to manage costs, focus on high-flying products and services they can sell - the frequent sellers.

"I told them to minimise any slow-selling stock, and they have to manage their inventory very, very proactively because of the costs per unit associated with storage. They need to make an adjustment to all their business models. I'm meeting with them, and looking at all their models to determine how to streamline costs."

Mr Turnquest added that the VAT rate increase was a potential deterrent to new Bahamian entrepreneurs and start-ups because it threatens to increase their operating costs while also depressing consumer demand and spending.

"The 12 per cent VAT is a barrier for them to start," he told Tribune Business. "It tells them it's more costly to start a business now, and because they are new they are uncertain.

"You can't be making money at more expense. It doesn't make good business sense. But a 12 per cent VAT is a reality, and we have to face reality. The 12 per cent is going to affect everybody. Even with my business I have to do a lot of work to make myself relevant, and make my cost structure efficient and effective, in order to to put my house in order and stay open."

Mr Turnquest said small businesses needed to continue investing in marketing and advertising, but "do more with less" by focusing on their best and most loyal customers.

And he renewed his call for the Government to pass the long-awaited Small and Medium-Sized Business Development Bill, an initiative now into its fourth administration, arguing that it would give Bahamian entrepreneurs hope amid further increases in the taxation burden.

"They're still awaiting the Act," he said of small businesses. "They really need to see the net benefits of all the incentives focused on small businesses, and want these initiatives to come together in an aligned and cohesive strategy.

"I told the Government that if they have the Small Business Act it would bring all the initiatives under one roof.... They can't run away from the Small Business Act. It was in the FNM's manifesto. It's still relevant and everyone's asking for it. There's no cohesive type of plan, and there's a lot of uncertainty in reference to strategy."

The Government has committed to making $25 million in funding available to small businesses over the next five years, and views the proposed Small Business Development Centre - an initiative where it is partnering with the University of the Bahamas and Bahamas Chamber of Commerce - as key to fostering an improved entrepreneurial climate.

Mr Turnquest, though, has consistently argued that the proposed legislation will give the Government's efforts "more teeth" and bring together initiatives such as the Over-the-Hill revitalisation with what the Government is doing to aid small businesses in the Family Islands.