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Planning the future of your business strategically

03-Jul-09

At Holden Associates we place a great deal of emphasis on planning the growth and development of your businesses. That is because we understand and know that it can be tempting to steam ahead in business without any real idea of what your next steps will be. ‘Playing it by ear’ is not a good business strategy if you are trying to run a successful business. In such circumstances it is not unusual to apply quick fix remedies at the expense of a long term growth and stability.

There are always challenges to face in business. Just when you think you have found the right remedy one part of your business equation will change. Having a strategic plan will help to keep your business on track. Naturally as an accountancy practice that incorporates business advisors we would advocate the inclusion of strategic planning into your business. There is no substitute for long term strategic planning. Attempting to run a business without strategic plans is similar to driving in a car that has blacked out windows and trusting in faith that you will end up at the right destination.

Given that the economy is currently in a transitional and unpredictable phase it would be wise not to rely on a singular plan. Instead it may be more expedient to have several scenarios to one situation. It is more than likely that you will have some good ideas about how to achieve your strategic goals. Having an alternative options can save time and could possibly prevent a crisis. Thinking of several scenarios will definitely add strength to your preferred plan as it gives you to an opportunity to think in terms of contingency planning.

Things to keep in mind when formulating a strategic plan are:

  • What key business relationships are vital to the success of your business?

  • Are the assumptions and plans that you made about your business last month still sound and applicable to your business?

  • Can you anticipate new opportunities arising in your business sector in the future?

  • Are you able to exploit newly emerging business opportunities?

  • Is your business reliant on a few major clients; are you aware how their business is doing?

  • Do you take the time to obtain regular credit reports on your clients or references from other traders?

  • Do you take the time to consider opportunities that may arise out of a global market?

  • Does your long term planning quip you to trade in European markets?

  • What would you need to compete in European or global market?

There may be financial assistance available from the government especially if you are exploring the possibility of trading in overseas markets. Knowing how best to access this funding is an area where you may need professional assistance. Seeking professional assistance from a professional firm such as Holden Associates to support your business can help your business to achieve growth and profitability. Spending too much time focussing on where you are now and how turbulent the current market is can be detrimental for your business. Strategic planning is an essential ingredient for every business. There is a wealth of support available to you, and as such there is no need to go it alone.

 

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Its’ £FREE

01-Jul-09

It would appear that we are not the only ones offering something for £FREE. TAS Software are also offering the basic version of their software for £FREE.

Well that’s great news isn’t it? Well maybe not.

When we provide all our clients with the £FREE use of WinWeb OnlineOffice5 we also take the time to set everything up for them, we then take the time to train them in the use of OnlineOffice5 and if that isn’t enough we are also there at the end of the phone to support them during office hours, and out of office hours the winweb 24/7 team are on hand via live chat.

£FREE software still attractive? Well I guess if you are not a client of Holden Associates then it may be very appealing, if you are one of our clients then you will already know the benefits of OnlineOffice5.

For those who don’t know why OnlineOffice5 is superior to traditional accounting software here is what you get:

Messages

Contacts

Calendar

Networking

Planning

Sales

Accounting

Data Storage

Website

Assistant

Academy

 

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P11D deadline

30-Jun-09

Don’t forget the deadline for filing Form P11D and P11Db with HMRC is 6 July 2009, employees also need to receive a copy of their P11D.

Ensure you pay your Class1A NIC over to HMRC by 19 July 2009.

 

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Should you use the services of an accountant?

27-Jun-09

Business owners and managers who are prone to procrastination often feel right at home if managing finance is not one of their strengths. Finance is often one of the items that is placed on the back burner of many businesses. It does not really matter whether finance is one of your strengths or weaknesses - there is no moving away from the idea that “finance matters”. Managing the financial aspects of your business goes far beyond selling products and services and the collection of money.

Engaging the services of an accountant is one way of ensuring that both your books and accounts are kept accurate and up to date. Reducing tax liabilities is a common desire for many businesses. However paying too little tax can lead to Her Majesty’s Revenue and Customs demanding large sums of money from your business. The later scenario can often have devastating consequences on a business. Consequently there is a very real need to ensure that the correct amount of tax is paid.

Acquiring the services of an accountant will inevitably cost money. However, you should be able to recoup the cost of their professional fees. Your account will always do their very best to save you money! The cost of hiring an accountant should never be used as a reason for your business not having an accountant.

Getting it Right

The Inland Revenue are very clear about the legal requirement for self-employed people and companies to keep accurate financial records. They also stipulate clearly that ignorance is not an excuse of poor record keeping or the absence of receipts. If you are not sure about the process of bookkeeping or how accounting works, then an accountant will be able to guide you through the process. Establishing a system which works does not need to be difficult. Doing a little bit of work on business finances on a daily basis will ensure that your systems are kept up to date.

An accountant will also act as a guiding hand through the vagaries of business. Many will have more than one client that is in the same business sector or position. As a result they will be able to bring considerable expertise and experience to the table. Thus ensuring that their clients have access to as much information as is possible to help them make the right business decisions. Once the services of an accountant have been secured, it is hard to imagine life without an accountant. A good accountant really is worth their weight in gold.

What Does an Accountant do?

The role of an accountant is not solely confined to bookkeeping or tax returns. All your financial decisions should be sounded out with your accountant. An objective opinion can often save you from making costly mistakes. Using your accountant effectively can also relieve you of some of the pressures you will face whilst trying to ensure your business is kept on track. Working with an accountant will also enable you to understand and interpret your financial data in a way that adds value to your business.

When deciding whether or not you require an accountant you should always think about the possible ramifications of not having an accountant. Not having an accountant may do your business more harm than good.

 

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Redundancy and PILONs

26-Jun-09

Making staff redundant is never easy. But where the employer can afford to make a payment to the employee over and above the statutory redundancy, which is capped at £350 per week, both sides may feel better about the process. These additional redundancy payments are often referred to as payments in lieu of notice (PILON).

HMRC used to argue that where the employer regularly made a PILON to departing employees this would create an implicit right for other employees to receive such a payment. The PILON thus became part of the custom and practice of the employer, and as such it was taxable. However, after HMRC lost successive arguments on this point they changed their guidance on PILONs, which is now found in their Employment Income Manual.

The new guidance emphasises that where PILONs are paid automatically they will be considered to be taxable under the custom and practice rule. However, where the PILON is considered individually for each departing employee, and the amount is critically assessed as to exactly how much should be paid, the PILON should not be considered as being paid automatically. A PILON in this case is more akin to damages for breach of contract, and thus can fall within the £30,000 tax free limit for redundancy payments.

Remember this tax free payment on the termination of an employment can only apply to payments which are not:

Contractual; or
a restrictive covenant; or
a pension.

If the payment falls outside these areas it can be tax free up to £30,000, but the whole of the termination payment will be free of national insurance.

Some of the legal hurdles to making employees and directors redundant are covered below. It is worth reviewing these points if you are thinking about making staff redundant.

Letting staff go

There are a number of legal hoops to jump through when making staff redundant, and unless you happen to be a qualified employment lawyer we recommend you take appropriate professional advice. Even if the business has made staff redundant before, it is a good idea to check the latest guidance as the law has been changed recently in this area. The key points to note are:

Redundancy consultation

If the business is to make 20 or more employees redundant over a 90 day period it must consult with the workers’ representatives at least 30 days in advance, or 90 days in advance, where there are 100 or more proposed redundancies. The business must also notify the Department for Business, Enterprise and Regulatory Reform (BERR) in writing by letter or by using form HR1.

Redundancy pay

The business can pay redundancy pay at any level it wishes, but the employee has a right to receive at least a minimum level of statutory redundancy pay. The statutory pay is based on a formula that includes the employee’s age and length of service. The BERR website includes a calculator to work out the amount of statutory redundancy pay. If the business is in liquidation and has no funds to pay the statutory redundancy, the ex-employee can apply to the BERR Redundancy Payments office for payment using the form RP1.

Re-employing people

The employee has a right to be offered alternative employment wherever possible. The employee can be trialled in an alternative job without losing their right to statutory redundancy pay. However, there must be a genuine redundancy of the original job (not the person) for any redundancy pay to be tax free.

Business link advice on making an employee redundant

Statutory redundancy calculator

BERR leaflet on employees’ rights in redundancy

Redundancy payments offices

Directors and redundancy payments

Every accountant has heard of the £30,000 tax free redundancy payment, and many directors think they can pay themselves this amount when they shut down their own company. However, HMRC will rarely agree to the tax free treatment for controlling shareholders. Instead HMRC will invariably put up the following challenges:

No employment contract

The director needs to have employment contract with the company to be an employee and receive tax free statutory redundancy payments. However non-statutory redundancy payments may be possible even without an employment contract.

Payment for shares

Where the company is also being sold, or is repurchasing its shares from the director, it is important to separate the payment for the director’s shares from any redundancy payment. The profits from share disposals will generally be subject to capital gains tax. If these payments have been reduced to compensate for the ‘redundancy’ payment the tax treatment will be susceptible to challenge.

Writing off loans

Where the director’s account is overdrawn a write-off of that balance is treated as earnings and cannot be part of a tax free redundancy package. It will also be subject to NICs even if treated as a distribution for income tax purposes.

Unapproved retirement payment

HMRC feel that any employee aged over 55 who receives a large sum on ceasing employment must be retiring, so the payment is a pension and hence taxable. It is up to the company to prove the redundancy is genuine.

There are many other arguments HMRC can throw up to catch the payment to the departing director in the tax net.

The other side of the coin is the corporation tax position. Can a deduction (whether more than, less than or exactly £30,000) be legitimately claimed for a redundancy payment made to a controlling Director? Only if it satisfy the test as being incurred for the purposes of the trade or to ensure the orderly winding down of the business. These are tough tests to satisfy when the company is failing or is being sold.

If you as a Director want to pay yourself more than the statutory minimum redundancy, which is capped at £9,900, take appropriate professional advice or alternatively ask one of our (the tax advice network) tax experts for advice first so as to maximise the prospect of securing tax deductibility and avoiding a tax liability on the receipt. But beware – it’s not easy!

HMRC guidance on termination payments

Article by guest blogger: Mark Lee from The Tax Advice Network.

 

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Cars and Vans

25-Jun-09

The scrappage scheme launched on 18 May 2009 could be an ideal opportunity to trade in an old car or van and get a substantial discount on a new model. The scheme will run until March 2010, or until the funding set aside for the Government discount of £1,000 per vehicle runs out. The participating manufacturers are also giving a discount of £1,000 per vehicle, so the customer benefits from a total a reduction in the list price of £2,000.

Businesses as well as private individuals can take part in the scheme, as long as the vehicle they offer for scrap has a valid MOT and was first registered in the UK before 1 September 1999. Vans qualify for this scheme if they weigh less than 3,500kg. The old vehicle must also be registered in the name of the person who trades it in, for at least 12 months before the registration of the new vehicle.

A new van will qualify for the 100% first year allowance under the Annual Investment Allowance, assuming the £50,000 cap has not been exceeded for the year. An electric car or car with emissions of 110gr/km or less will also qualify for a 100% first year allowance. Other new cars are allocated to the 10% or 20% capital allowances depending on whether the vehicle’s CO2 emissions are over 160g/km (see our newsletter 8 May 2008). Only the net price actually paid after the full £2,000 discount in taken into the capital allowance pool. The scrapped vehicle is treated as being disposed of for nil proceeds, not for the £2,000 discount.

The VAT position is complicated as only the manufacturer’s contribution of £1,000 is treated as a cash-back for VAT purposes (see VAT brief 08/07). The purchaser must reduce the VAT they reclaim in respect of the van by £130.43, which is 15/115ths of the gross £1,000 discount. The £1,000 Government subsidy does not change the VAT position. Businesses cannot normally reclaim VAT on new cars, unless the car is to be used as a taxi, driving instruction car, or for self-drive hire.

Companies considering buying a car which will have private use, should factor in the proposed increases in the car benefit charges proposed for the next two tax years. The percentage of list price used as the chargeable benefit will increase by one percentage point in 2010/11 and again in 2011/12. Also the £80,000 cap on the list price will be removed for all cars from 6 April 2011, which will produce some very high benefit charges for expensive cars.

Article by guest blogger: Mark Lee from The Tax Advice Network.

 

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Increase in statutory minimum paid holiday entitlement

24-Jun-09

Did you know that as an employer from 1 April 2009 all staff are entitled to at least 5.6 weeks (28 days) holiday entitlement (including bank holidays) and for those who are part time it is pro-rata.

Business Link have provided an easy to use tool to calculate your employees annual leave entitlement.

 

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Did you know that Starbucks used to be a small business?

23-Jun-09

The Idea

Take three friends and a passion for coffee and the result is the beginning of an international business. The story of Starbucks is well documented and is often taught in business schools as an example of a good business model. It is absolutely amazing to think that a simple idea of selling coffee beans and roasting accessories could result in the creation of an international coffee business. In 1971 Starbucks was an unknown shop in Seattle Washington. Now Starbucks has over 9,000 retail outlets in 44 countries serving over 20 million customers a week.

Lessons to be learnt

There is no doubt that the story of Starbucks is inspirational. Nevertheless some thought needs to be given to how the Starbucks story relates to your business. There are some good points that have been demonstrated by in this particular entrepreneurial success story.

Firstly your business idea does not need to be complicated or difficult to understand. There have been other successful businesses that have grown out of simple ideas. The simpler the idea the easier it will be for other people to make suggestions or to add value to the idea. If your business idea is difficult to understand it may deter both buyers and investors from engaging with your business.

Secondly an international business cannot usually created by combining ad-hoc processes that do not relate to each other. Being able to replicate a process is often the first step in ensuring that more than a small number of customers will be able to access your services or products. There is no escaping it but all businesses do need systems and processes that contribute towards a completed product.

Thirdly sound financial procedures, planning and forecasts are required. Understanding the financial side of your business is essential. Knowing how much it costs to produce your products and services, what your profit margins are and having accounts all go a long way towards guiding your business in the direction of success.

Fourthly your business will require an ongoing development plan. Can you imagine being a passenger in a car driven by a blind person? How safe or secure would you feel? Likewise how confident would employees feel about working for a company that was not too sure of where it was headed or what the next step would be? Having a development plan enables your business to employ the most talented people that will contribute towards it success.

What can you take forward from the Starbucks model?

The Starbucks message is simple:-

  • Do not be afraid to work towards market dominance.
  • Plan to succeed today whilst planning far enough ahead in order to dominate tomorrow
  • Paying attention finance is a vital side of your business

Every time you drink a cup of coffee think about the how you can turn your business into a multi million pound company. There is more to your business than you think – why not wok with us here at Accountants, Business & Tax Advisors - Holden Associates as your business advisors to helps you.

 

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Financial do’s and don’ts in a recession

22-Jun-09

Some financial do’s and don’ts for the recession:

  1. At very meeting discuss, review, update and act on information concerning cash flow, have a set of projections incorporating a cash flow statement that you can refer to, update them if needed.
  2. If there is a conflict between cash flow and profitability then make sure cash flow wins every time, sometimes selling stock at a reduced price does not achieve the desired GP %’age but it does achieve cash flow, money in the bank.
  3. If you have bank lending then make sure you stick to the terms closely, constantly review your position, do not breech the terms or you may find the bank turns hostile.
  4. If your bank lending is due for review, make sure you are prepared for this meeting, have up to date financial projections in place, take details of confirmed forward orders etc.
  5. Have you got any assets that are not being fully utilised, maybe it is time to consider selling them off to realise the capital tied up in them, you may be able to sell them and lease them back again if they are needed.
  6. Don’t wait until you are in financial difficulties before you talk to someone, keep everyone in the loop, from financiers to suppliers.
  7. Consider every source of finance, not only the banks but also family and friends, if you have a good business they may want to invest.
  8. If you are one of the few who are cash rich, then you should be looking to make this money work for the business with a longer term view, now maybe the time to buy that competitor, at a reduced price.

Operating in a recession is not easy, but keeping an eye on the finances makes it easier to plan.

 

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Health and Safety – don’t cut corners

19-Jun-09

During the current economic downturn businesses across the UK are looking to cut their costs in any way possible. Trades unions and business groups have all warned that the recession cannot be a reason to cut back on health and safety.

Recently there has been a spate of significant health and safety cases, many of which have resulted in large settlements in favour of the employees.

There is concern that the financial pressures on companies brought on by the current downturn will result in a reduction of vital safety measures, and an increase in the number of accidents.

The Institute of Occupational Safety and Health ‘IOSH’, which represents 35,000 health and safety professionals worldwide, has stressed the importance of ensuring that safety standards are maintained during the recession, suggesting that the consequences of scrimping in this fundamentally important area are likely to be severe.

The IOSH was recently addressed by Lord McKenzie, a Department for Work and Pensions minister with responsibility for ‘Health and Safety at work’. Lord McKenzie stressed that economic pressures would not be considered a valid excuse by the Health & Safety Executive for slipping standards, saying: “There’s been little change in the injury and deaths rates over the last six years and we cannot allow the difficult economic circumstances to drive things back. Health and safety is not an optional extra”.

Health and safety can have an important impact on your company’s bottom line. Employees who feel safe are likely to work harder, more inclined to be productive knowing their employer is paying attention to their health and safety. As such, employers who continue to take proactive steps to improve working conditions are likely to be rewarded by a more productive, more efficient workforce.

It is important to note that every employer has a set of health and safety responsibilities that they have a legal obligation to fulfil. Remember, health and safety is not optional, it is a vital part of any business’s operation, and must form the bedrock of your management strategies.

As a business owner you must make sure that you are fulfilling your duties under health and safety law, and that you have sufficient employers’ liability insurance – another important legal responsibility.

Health and safety must continue to be a top priority for all businesses. While the recession has resulted in severe financial pressure for many companies, employees’ safety is a sacrosanct area that must not be the subject of dangerous cost cutting.

 

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