Many unemployed people in the UK are desperate to avoid the constant battle with their Jobcentres and also applying to jobs and being rejected.
So the opportunity of the New Enterprise Allowance (NEA) scheme to start your own business entices many people — the GOV.UK web site says 2,000 unemployed people each month are accepted onto the NEA scheme and, so far by March 2014, 46,000 had completed acceptance onto the scheme.
Getting started with NEA
To get onto the NEA scheme initially you have to ask your Jobcentre Plus coach about their eligibility conditions to attend an NEA induction session — for example you may have to be unemployed for a lengthy period of time and you have an idea for a business that you’d like to set up but that you did not run before.
Typically a first NEA induction session will involve a group of perhaps 12 unemployed attendees and a mentor. The induction session is held via one of the many NEA scheme providers. Usually the mentor is contracted via one of these providers to run NEA induction sessions. Mentors themselves may be a small business set up after unemployment.
The NEA induction sessions are well structured and walk you through the stages of acceptance onto the scheme. They say if they feel your idea will fail — for example you want to be a professional footballer at 65 — they will reject you straight away (although I’m not sure that anyone has ever been rejected this way).
To get acceptance onto the NEA scheme — firstly you have to complete the NEA induction session. Secondly you have to complete a business plan with the NEA mentor’s assistance. Usually the mentor will provide their own templates — which if you follow their verbatim instructions during the induction session you are guaranteed to be accepted quickly (so take notes).
Once your business plan has been accepted by the mentor — you have been accepted onto the NEA scheme. This means you can receive £65 for 13 weeks, then £33 for 13 weeks while you run your new business. But you will lose your JSA benefit and ‘potentially’ other associated benefits — such as free dental treatment. You can also apply for a start-up loan of up to £2,500 at a 6% interest rate with a specialist loan provider — so called soft loans. The NEA mentor usually provides a contact point to apply for this.
So when you return to your Jobcentre Plus coach they will detail to you the various progress meetings that will take place with them — typically 3 meetings about 5 to 8 weeks apart. Your contact with your mentor may end at this point as they appear only to be paid to approve business plans and not continue the relationship with you as a mentor. But this may vary with different mentors/providers.
So why is it a good idea done badly?
It all sounds reasonable enough: Firstly you have to imagine that the new business person has been on Job Seekers Allowance (JSA) for perhaps 6 months. So they will have no reserves of cash — in fact they will likely owe money with arrears on many day-to-day living expenses such as mortgage, council tax, credit cards or loans. So imagine starting a business with a benefit that has already decreased to £65 each week and the loss of other associated benefits. It takes a massive leap of faith.
Now let’s imagine you want to set up a shop as your business. You’ll need to pay rent on a premise. But with your debts and arrears you’ll probably have bad credit references. So you’ll likely have to pay cash up front for rent — in fact for every business purchase you make.
If you have a loan of £2,500 that will pay maybe a few months’ rent, a few flyers to be printed and perhaps some poor quality trade equipment you’ll need. If you need stock, it is unlikely you’ll be able to get the credit you need. So that could mean spending your entire £2,500 loan up-front on your first stock purchases. You’ll have just one chance to get it right!
Then there’s the 6% soft loan company itself. The forms are quite detailed and lengthy and they may take up to 4 weeks to process your request up to payment into your bank account. This delay is highly stressful when you cannot progress your idea to buy even the basic equipment you need.
Then there’s your bank. After 6 months on JSA your bank will not be your best friend. They will probably be chasing you about your overdraft. Chances are you will have been moved onto a debit-only card so you will have no viable credit card options. Imagine asking them to open a new business account before you get your loan with no money to put in. I think ‘laugh in your face’ would be an appropriate phrase.
Then there’s the Jobcentre. You’d imagine they’d be pleased you’re off JSA. But at your first meeting you’ll be expected to show trading. Imagine six weeks in and your business has to be a success — or they’ll stop your £65 per week.
If you were trying to rent a shop it may take you a month to find a suitable premise and a few weeks just to get it sorted/painted and buy stock ready to use — let alone start trading. But they imagine you have customers already lined up — perhaps assuming that all along you were trading illegally on JSA — cleaning windows, cutting hair, ironing clothes perhaps? They also don’t tell you that as you now intend to work self-employed for 37.5 hours each week you may be entitled to Working Tax Credits for which you should apply straight away.
So NEA as a scheme offers the UK Government the concept of helping people off JSA into starting a new business. But the scheme seems to be about dropping JSA numbers and benefit payments and not really about helping new start-ups succeed.
The NEA mentor drops out as soon as your business plan is approved; the Jobcentre behave like you’re still a dole scrounger — even though you’ve accepted a reduced benefit; your bank will not be of any assistance and lastly what about financial help such as an accountant?
Few self-employed people will bother to start with an accountant or even an accounting package. Imagine with a landscape gardening business you could have 12 invoices per year. You will not think paying an accountant £50 per month is worthwhile to sort those out. Companies like Sage offer reduced low-cost and easy-to-use packages like Sage One — but few NEA scheme participants will have had the thought to include getting such a package in their business plan. Most will think to use Excel or a cardboard box with bits of paper. So at the end of 12 months imagine you now have to sort out with HMRC and the tax office — forms to fill, concepts to understand — without any training.
So what is the answer?
The government needs to support these very-low-start start-ups.
It’s in the government’s interest:
* to get these new businesses sorted with HMRC from day 1. It should be part of the NEA induction to set up with HMRC
* to get these businesses a free or 99p accounting solution like the one offered by Sage at www.sageone.com/startnow/)
* to ensure any soft loan request is processed rapidly
* to ensure a business bank account is set up
* to ensure the NEA scheme providers continue to support the new business. They should appoint a post-induction mentor that specialises in your business area to offer leads and advice to get your business up-and-running within a few months
But also disconnect the NEA scheme from Jobcentres — once accepted. A main factor for people starting on NEA was to escape trips to the Jobcentre. So being trapped for 26 more weeks going to the Jobcentre ‘with evidence’ while trying to run a business is their worst nightmare.
What do you think? Have you been on the NEA scheme and how would you improve it / make it easier for self-employed people to start their own business? Please leave your comments below.