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The benefits of being a small business

20-Jul-10

The popular media and the internet have both played a role in ensuring that many people are aware of or have some knowledge of many of the multinational corporations that operate on a global basis. Hence it may seem that there are advantages of having the lion’s share of business. As such it may well appear that there are numerous advantages of being a larger business. Consequently smaller companies may look as though they are significantly disadvantaged by virtue of their size. However, there may well be a hidden aspect of a small business that gives them distinct advantages and benefits over large multinational companies.

Good business planning and financial management can help a small business make the most of their strengths. The current climate of mergers, downsizing, and outsourcing has left many workers with uncertainty about their working future. Hence working for larger companies is not currently as attractive as it used to be. The loss of appeal has led to many prospective employees seeking employment elsewhere. As such the choice of employees for smaller businesses has improved.

So what are some of the advantages of a small business?

  • One key advantage of smaller businesses over large companies is their ability to commit to long-term innovation. Frequently many large multinational companies are driven by shareholders who have a narrow perspective on the long term future of the business. That is many shareholders want to maximise profits rather than invest for the future.
  • Small businesses are predominantly free from the constraints of operating on the stock market or having to consult numerous shareholders. Consequently small businesses are free of the constraints that go hand in hand with being a multinational company. Hence small businesses are largely able to react quicker to changing circumstances.
  • Conventional wisdom indicates that the key to success is to increase your share of the market. Which in turn implies that businesses require large numbers of customers? Catering for a larger number of customers could lead to overstocking and wasted resources. A smaller business has the advantages of being able to read changes in the marketplace sooner and more accurately. As such they are able to keep their stock at more cost efficient levels.
  • Generally, the larger the share of the market a company commands, the more remote it becomes from its customers. By contrast, in smaller firms the managers tend to remain closer to customers and more able to provide a tailored or individualised service. Owing to their size multinationals are unlikely to be able to offer a similar level of specialist service. Smaller businesses are better able to operate in a niche market that it would be impractical for bigger companies to compete in.

In spite of the challenges, the opportunities for small business have never been better. There is no need to spend time wishing for a bigger business. You simply need to evaluate the strengths of your business and play to them. The grass is not always on the other side.

Limited Company Formations on the up

16-Jul-10

New businesses registered with Companies House numbered 362,300 in the year to March 2010, up 10 per cent on the year before, however, the previous two years showed a fall.

With hundreds of thousands of people losing their jobs since the banking crisis started it would now appear that we are seeing these people dusting themselves down and starting up their own businesses.

This is great news, starting your own business is a very brave step for anyone to take, never more so than now with such a tight squeeze by the banks on lending to small business and reports about that the ‘taxman’ is looking to increase the ‘tax take’.

The web is full of good and not so good advice to those starting up in business, but a few tips I would offer:

  • Think big, be small
  • Be aggressive, move fast, make your decisions count
  • Don’t let the naysayers get to you
  • Borrow from family and friends, forget the banks
  • Keep overheads to a minimum, if your spare bedroom will do use it forget about paying for office space
  • Use the internet to further your reach, where else can you operate 24 hours a day every day of the year
  • Engage the services of a mentor, someone who has done it before, someone with experience
  • Engage the services of a good commercially minded accountant, you may not like us but you will need one
  • Use the online solutions offered like Google apps or if you want more then look at winweb.com, this is apps on steroids
  • Join an online business community, although the advice is free it may not always be correct, but still worth joining as being on your own can be lonely

And most importantly, work ever hour there is, do not give up, remember you are doing this for you and no one else, but remember if you have a family they also need some of your time.

Good luck.

 

When will you retire?

12-Jul-10

It is possible that some people may have to work for longer than they can imagine. The simple reason being that they do not have a pension or a means of supporting themselves once they retire. As such, what should be a pleasant journey into old age, may in fact be one that is fraught with financial difficulty.

The recent economic downturn may have led to pension contributions being put on a back burner. Needing to work for a few years longer than you had originally anticipated will be a strong likelihood if you do not have sufficient capital to support yourself once you have retired. Needless to say it is important to have a pension provision, as it is also likely that you will be living longer.

Lessons in saving for retirement pitfalls.

  • Lesson one in saving for retirement: Saving for retirement: this is probably the most important lesson - it is never too early to begin contributing to a personal pension the earlier that you begin making contributions, the more your money will have in the long-run. There are quite a few people who think that it is reasonable to start pension plans later, although they may be financially able to do so, it is not a truly efficient way of managing money. Pensions have compound interest and any interest that is added to a fund can itself earn interest, so the earlier contributions are started, the greater will be the compound interest, plus the contributions will not be so high because the person will be able to spread out their payments over a longer period of time.
  • Lesson two in saving for retirement: The highest priority should be given to pension contributions and other forms of retirement investment. Whenever you are constructing a financial budget, retirement must be factored into your outgoings to the same extent as other expenses such as mortgages and utility bills - a pension is a necessity not a luxury. It is easy to overlook retirement as a day-to-day expense, especially when it appears to be so far away in the distance. Failure to factor retirement into the everyday cost of living will cost dearly in the long run.
  • Lesson three in saving for retirement: considering the alternative options to retirement. Life can be unpredictable, and sometimes it does not travel along a straight line. If financial constraints have prevented you from saving for your retirement, then there are other options that can be considered. Such as taking a late retirement - continuing to make pension contributions is a sure way of improving your situation. Another alternative is to downsizing your property if you have one. 
  • Lesson four in saving for retirement: start working with your accountant and independent financial adviser to find a pension plan that is suitable for your circumstances and financial means. Your accountant will be able to help you work out the tax relief you will be entitled to thereby giving you a true cost of contributing towards a pension.

Accountants – Holden Associates new telephone number

08-Jul-10

Please note our new telephone number is 0845 652 2350. We should be grateful if you would amend your records to this number as the old number will cease to work in the next few months.

 

Downsizing for stability

05-Jul-10

There have been many recent reports in the media about different employers that are considering the option of downsizing their business in order to secure the long term viability of the business.

The process of downsizing a business normally focuses on the legal, economical and financial aspects of the business. It is bad enough to receive the news that a company is planning to downsize. Hence the business will have to go through a process of restructuring and change. It is a totally different ball game if you are the person that has to make most or all of the important decisions. Naturally the tough decisions about what to reduce, what to eliminate altogether and who to lay off are far from easy. Even so they are decisions that must be made.

The Process

The legal implications of downsizing are often difficult to work out, who should get what redundancy package and who or who does not have employment rights can be a minefield. The economic aspects of downsizing mean that some of the work that will be undertaken during the process falls within the remit of being management related tasks. Keeping your eye on the financial side of the business is an accounting task. Ultimately the bottom line resonates around what the business can or cannot afford financially. Needless to say it pays dividends to have a good set of financial records that can be referred to for guidance.

Who can help?

No doubt if you are the owner of the business then you may well find the whole process traumatising to say the least. It is difficult sometimes to separate the tasks in hand from the emotional side of the business. At times like this it pays enormously to have a good accountant to help and guide you through the process. Impartial advice, professional knowledge and moral support can go a long way towards - reducing some of the emotional and logistical barriers that may be encountered whilst going through the process. Additional support from a business planning adviser may help to prevent serious errors being made that may damage the sustainability of the business.

What are the alternatives?

One alternative to laying off staff may be to implement furloughs. Furloughs are mandatory time off work periods with no salary. Some employees may well prefer a period of time away from work with no salary – in the short term. Opposed to the long term effects of losing their jobs completely. This process is generally implemented by employers as a cost saving measure before thinking about the harder options of laying staff off. As with any other process there are advantages and disadvantages of using of furloughs. Other options may revolve around asking workers to either reduce their working hours or offer their labour on a voluntary basis for a fixed period of time.

Whatever you decide to do you will most certainly need a good strategy. You will need to find a strategy that will encompass good practice and give your business a new lease of life after downsizing.

Good luck.

 

What does the Emergency Budget mean for a small or medium sized business?

24-Jun-10

The long awaited budget was finally announced on Tuesday by the new Chancellor. Most business people are not sure what the implications will be for the long term. The budget was certainly a mixture of taking the ‘bitter with the sweet’ in an effort to reduce the national deficit.

Tuesday’s budget announced a mixture of tax rises and impending cuts which will almost certainly have a knock on effect impact on how businesses are run and managed. Businesses which are dependent on public sector contracts will certainly not receive the news of impending public sector cuts with a smile.

The recent recession has seen many a business struggle to survive. As such more cuts may well mean a prolonged period of recession for some businesses. Both the FTSE and sterling fell on Tuesday...let us hope that this is not a sign of times to come.

So what are the implications for businesses?

VAT

VAT will be increased from 4 January 2011 to 20%. It is possible that the rise in VAT will lead to a rethinking of spending habits. There are no changes to items that were previously exempted from VAT.

Manufacturing allowances and reliefs

April 2012 will see a change in the Annual Investment Allowance which will be reduced to £25,000 a year. Capital allowances for plant and machinery will fall from 20 to 18%. Any assets held for longer periods will only receive an 8% allowance.

National Insurance

The planned rise in employers’ National Insurance Contributions (NICs) has now been scrapped. Alternatively the threshold for employers’ NICs will rise by £21 per week above inflation. Outside London, the South East and the East new businesses will receive a £5,000 exemption from NIC payments for their first 10 employees.

Capital Gains Tax

Capital Gains Tax will rise from 18 per cent to 28 per cent with immediate effect. However this will only affect people who pay tax at the higher rate. Entrepreneurs’ relief at 10 per cent will be extended from the first £2 million to the first £5 million of gains.

Corporation tax

Small businesses will benefit from a reduction in the Small Profits Rate of corporation tax from 21 per cent to 20 per cent. This applies to firms with profit not exceeding £300,000. The standard rate of corporation tax will be reduced to 27 per cent next year, with further 1 per cent reductions in each of the following three years.

On the face of it the budget has not been too detrimental for small and medium sized enterprises. There are definitely benefits which will be beneficial for businesses.

Much of the anxiety and worry is linked to the reduction in public services. In reality this could mean anything from reduced services, reduction in procurement or job losses. All of these will inevitably have a knock-on effect on how much the spending power of the individual.

As such many businesses may continue to see their clients spending less rather than more.

For our full Emergency Budget Report click here.

 

Penalties for late filing of returns and payment of tax

23-Jun-10

As previously announced in the March 2010 Budget, although many small business owners could be forgiven for not noticing, a revised penalty regime will apply to taxpayers who fail to file their tax returns on time or pay their tax liabilities in full and on time for:

  • VAT and insurance premium tax;
  • aggregates levy, climate change levy and landfill tax;
  • air passenger duty, alcoholic liquor duties, tobacco products duty, hydrocarbon oil duties, general betting duty, pool betting duty, bingo duty, lottery duty, gaming duty and remote gaming duty; and
  • other excise duties.

The revised penalties will:

  • be introduced over a number of years;
  • treat late payment of tax and late-filed returns separately;
  • reflect the more frequent filing and paying obligations for these taxes and duties compared to direct tax;
  • try to encourage filing and payment by the correct dates by imposing an escalating series of penalties, depending on the number of failures within a set penalty period. Further penalties will arise if there is a prolonged delay in filing returns or paying the tax due;
  • include a right of appeal if the taxpayer has a reasonable excuse for the lateness; and
  • be avoided where taxpayers have agreed a time to pay arrangement with HMRC (as regards the late payment penalties).

The key features of the revised penalty for late filing of quarterly returns are:

  • £100 penalty immediately after the due date for filing (whether or not the tax has been paid);
  • the failure also starts a penalty period, which is set for a year;
  • if there are further failures within the penalty period, then the fixed penalty escalates by £100 for each of those subsequent failures, up to a maximum of £400 per failure. The penalty period is also extended to the first anniversary of the latest failure;
  • if any of the failures are prolonged, then additional penalties of five per cent of the tax on the relevant return are charged at six and 12 months from the date of the failure; and
  • if, by failing to make the return, the taxpayer is deliberately withholding information to stop HMRC from correctly assessing the liability to tax, then penalties of up to 100 per cent of the tax on the return may be chargeable.

The revised penalty for late filing of monthly returns is similar to the quarterly model as explained above, except that, the fixed penalties are £100 for the first three failures in any penalty period, £200 for the second three failures, etc., up to a maximum of £400 per failure.

The key features of the revised penalty for late quarterly payments are:

  • if a taxpayer first pays late, although there is no penalty, it starts a penalty period, which is set for a period of a year;
  • any further failures within that period attract a penalty of two per cent of the unpaid tax, as well as extending the penalty period to the first anniversary of the latest failure;
  • a third failure within the period attracts a penalty of three per cent, with further failures attracting a maximum of four per cent; and
  • if any of the failures are prolonged, then additional penalties of five per cent of the unpaid tax are charged at six and 12 months from the date of the failure.

The revised penalty for late monthly payments is similar in structure to the quarterly model above, except that, after the first failure, the tax-geared penalties are:

  • one per cent for the next three failures in any penalty period; and
  • two per cent of the next three failures, etc., up to a maximum of four per cent per failure.

Special provisions deal with circumstances where taxpayers change from a monthly to a quarterly return, or where exceptional payment obligations arise.

The necessary legislation will be contained in a Finance Bill to be introduced after Parliament's summer recess.

So now you have been warned, be very careful not to be late with any filings or payments to HMRC in future, otherwise it could cost you dear.

 

2010 Emergency Budget Report

22-Jun-10

For our £FREE Emergency Budget Report 2010 please click here.

For all our previous £FREE Budget Reports and Pre-Budget Reports please go to our Budget Page.

How will the 2010 Emergency Budget affect you?

VAT increased to 20% from January 2011
Increased personal allowance
Small Companies Corporation Tax rate to be reduced to 20%

Any of these measure any good? Well for the above and more please download our £FREE Emergency Budget Report 2010.

 

Catching a bigger fish

21-Jun-10

It is amazing to learn that some businesses do not really understand where their core business comes from or how their sales are generated. In fact many business people even neglect or overlook the opportunity to introduce existing clients to new products or services. They always seem to be seeking that elusive ‘new and bigger contract’ that always seems to be evading them. The emphasis always seems to be on the new rather than on nurturing and growing the existing.

Generating new business and new revenue streams is an integral part of running a business. It does not always follow that securing your first sale will automatically lead to a rush of people beating their way to you because they have heard how good your services or products are. A key factor of generating new sales is to help your customers to view you as an expert in your particular field. It is easier and far less time consuming to gain a sale from an existing customer than it is to find a ‘virgin’ customer.

Knowing where your sales are generated and where they ‘fall over’ is important and vital information that all business owners should possess. Taking the time analyse where sales are generated on a monthly, weekly and daily basis can go a long way in helping you to understand your business. Creating a simple spreadsheet to assist you will make the task easier when compiling data. Rather than fishing for bigger clients randomly you will be able to focus your efforts and energies where they will be most effective and reap the highest rewards.

There will always be a tussle between ‘working in your business and working on it’. Any time spent gathering data about sales and analysing it is actually an investment into your business. Any information acquired can be used to leverage new sales. Having accurate and intelligent data can save your business from spending money on ineffective marketing. The point is that any time spent on gathering this data will pay for itself in the future.

Some things intelligent data can be used for are:-

  • Setting sales targets.
  • Deciding whether or not to hire a dedicated sales person responsible for securing additional sales.
  • Plan the timing of when to order new supplies.
  • Forecast sales.
  • Reduce wastage.

If you are looking for an investment into your business – then there is a high probability that investors will want to see some information on sales forecasting. It is the norm now to run a business with the aid of intelligent data drawn from the business itself. If you are not sure how to approach the gathering of such information then the first port of call should be either your accountant or business adviser. Operating without such data is akin to arriving at an airport and buying a ticket – without having any idea of where you would like to go or where he plane is scheduled to fly to....

 

What is the aim of your business

15-Jun-10

When a business is setup there are always a hundred and one things to be done. Often the business owner starts off with a list of aims and objectives for the business. This list can be anything from simply the desire to survive the first year to how many customers they would like to acquire after a specific period of time. After awhile it is not uncommon for theses aims and objectives to be either sidelined or forgotten. This is understandable as is not possible to focus on all aspects of business at all times. Additionally this also depends on the size of the business and the number of people working within them.

The purpose of this short aide memoire is to keep business foremost in the minds of business owners.

  • An aim is where the business would like to be in the future. Often this is written as a statement of purpose, e.g. the desire to develop from a regional business to a national business.
  • Whatever your business objectives are - they must be measurable. For instance this can be a sales target for annual sale e.g. achieving £100,000 for the year.
  • A mission statement will set out the values and the vision of the business that enables customers and staff to understand the purpose of the business and why it exists.
  • Business Objectives provide clearly defined targets of what is to be achieved. A strategy can then be formulated to achieve these targets. These enable the business to measure its progress towards achieving its aims and objectives.

The most effective business objectives meet the following criteria:

S – Specific – objectives are aimed at what the business does, e.g. a hotel might have an objective of filling 60% of its beds a night during October. Objectives should be specific to individual businesses.

M - Measurable – the business can apply a numerical value to the objective, e.g. £60,000 in sales in the next six months of trading.

A - Agreed by all those who are responsible for trying to achieve the objective.

R - Realistic – the objective should be challenging, but it should also be able to be achieved by using reasonable effort alongside available resources.

T- Time specific – they should have a time limit of when the objective should be achieved by, e.g. by the end of the year.

The overarching purpose of any business should be to make a profit in order maintain existence. It may be possible that some objectives may conflict with each other. There may also be issues about whether to reinvest profits in order to achieve long-term sustainability. That is the business may only break even in the short-term.

Being mindful of your business aims and objectives will help to ensure that your business stays on track and moving forward. Additionally they can act as an aid towards making decisions about where and how your business develops.

 

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