Friday, 27 April 2018

5 tips for small businesses to survive and thrive in tough economic times

The UK has just announced that growth in the first quarter fell to only 0.1%. Construction and retail sectors were hit particularly hard with the bad weather having a significant impact. Consumer confidence remains low with high inflation and slow wage growth being contributing factors

So how do small businesses cope in these challenging times? How can they keep stable and even grow when the overall economy is underperforming?

Here are 5 tips for staying on course:

1. Pay attention to the financials

This is a time to put additional care into financial management. Ensure that you have a regular routine for record keeping and reviewing business profits. Use forecasting to look ahead and ensure that your finances are stable for three, six and twelve months into the future.

2. Stick to the knitting

This is not the time for being distracted by exciting and speculative new ventures unless you have significant reserves or adequate financing in place. Focussing on the fundamentals of your core business - looking after customers, ensuring operations are efficient and effective and that current trading is profitable will pay off in the long run

3. Keep creditors informed

If cashflow is tight it is important to keep creditors informed and work with them rather than lying low and hoping things improve. If your suppliers know that you have a plan and are intending to settle with them when you can, they are more likely to stay supportive than if you keep them in the dark or break promises

4. Talk to your bank

If your business is going through a difficult period, talking to your bank at an early stage is a good idea. It is possible that a refinancing package or extended overdraft taken at the right time could make the difference between fire fighting and a more managed recovery

5. Don't stop marketing

When finances are tight the temptation is to cut back on all discretionary spending, including marketing. That could be a mistake because when the upturn happens you will not be in the best place to take advantage. It is a good idea to review your marketing however and concentrate on the activities which are delivering tangible results.

There are no guarantees for survival and growth for any business. In tough times, doing the basics well and following these tips should help.

If we can help at Base52, please get in touch

Saturday, 14 April 2018

Don't get mad - do something positive

I've recently finished reading 'How to be human'. It's written by the very clever people at New Scientist magazine and is full of facts about how our bodies and minds work and what makes us special.

As a life-long runner I was delighted to learn that we were 'born to run'. It seems that humans are built for long distance running. We have apparently evolved this way to help us hunt and 'run down' prey to exhaustion and also forage over a wide area.

I learnt there is no such thing as a 'sugar rush' and the secret to long life is a combination of exercise, diet, managing stress and good genes. We can do something about the first 3 things but not the last unfortunately.

I also learnt a bit about emotions. I hadn't realised that there are 6 basic emotions - happiness, sadness, fear, anger, surprise and disgust. There are also secondary emotions like curiosity and confusion. A fascinating fact is that all these emotions illicit different facial responses which studies suggest are innate rather than being learned. So when we are curious our heads tilt to one side and the muscles in our forehead and around our eyes contract. Useful information for poker players but they probably know this already.

So what about using emotions as a force for good and for pursuing our goals?  On the face of it anger is a destructive emotion but there is evidence that it can also be beneficial and energising. To be a catalyst for positive change, anger needs to be channelled in the right way.

There is a very famous saying from Aristotle about anger, 'Anybody can become angry - that is easy, but to be angry with the right person and to the right degree and at the right time and for the right purpose, and in the right way - that is not within everybody's power and is not easy'

Saturday, 24 March 2018

GDPR and all that...

These things keep coming along.

It starts with maybe a newspaper article, then a post on Linkedin or Facebook, then more posts and articles. Pretty soon there seems to be a whole industry built around the latest ‘thing’. Recent ‘things’ have been PPI claims, bitcoins, blockchain, crypto currencies and pensions auto enrolment.

The new kid on the block is GDPR. Can we ignore it and hope it just goes away? Well for a while perhaps we can. But the new General Data Protection Regulation (GDPR) comes into effect on 25 May 2018. For all businesses who hold data relating to customers, employees and other contacts there are new rules coming into force and a penalty regime for non compliance. So the time for putting this in the ‘too difficult’ box has passed. Businesses need to act fast to assess what the new rules mean for their business and how they can ensure they are compliant.

The Information Commissioner’s Office (ICO) is responsible for overseeing compliance with the new regulations in the UK. They have published a guide and other reference material which is a useful starting point.

We have also prepared our own summary here GDPR - what is it all about?

If you are still struggling we are running a training event in Hitchin on 18 April which will help you evaluate what you need to do to ensure your business complies with GDPR.

This link provides further details and booking instructions GDPR event Hitchin

Saturday, 17 March 2018

On counting things...

Accountants like to count stuff and I'm no exception. Sales, costs, profits, tax, debtors, bank balances etc have all been thoroughly counted over the last few years. I've been very good at counting things that accountants like to count but not so good at counting other things that can be equally useful to keep an eye on.

A little while ago I read a book called 'Better' by Atul Gawande. An interesting read about improving standards in the medical profession. Here's my summary of Better

The author closes by giving some tips on some things to do to get better in your own area of work. One of his tips was 'count things'. He didn't say what you should count. He just said, have a go. Pick a few things you think it might be useful to count and start doing it.

So I did. As well as my usual accountancy things I started counting how many tax returns we filed in a month, how many VAT returns, how many payslips we processed, how many meetings with new prospects we had, how many clients we signed up, how many clients we lost (not many thankfully) and so on.

Well I admit I'm a numbers nerd but I have found this very enlightening. Instead of relying on my gut feel for operational and marketing measures I now have some hard facts. Over time we have built up a trend and year on year comparisons. So I can see growth and areas that need some attention.

I think counting these non financial things has helped me to manage the business more effectively. If you are already doing this, that's great. If not, I can recommend it. Pick a few things to start counting now and see how it goes. Let me know if it works for you - I would be interested in your feedback

Saturday, 3 March 2018

8 things to do before the end of the tax year

It may not feel like it with the UK in the grip of snow and ice but we have already had the first day of Spring and the end of the tax year will soon be upon us. 

A little time spent planning in these last few weeks before the end of the tax year could provide useful savings. The tax year end for individuals is 5 April 2018.  Many self employed people also have their accounting year end as 5 April or 31 March to coincide with the tax year. For private limited companies, 31 March is also a common date for the year end. 

Here are some ideas: 

1) Buy business assets and bring forward business expenditure before the year end 

If you are thinking of investing in business assets - new plant & machinery, vehicles, office furniture, computer equipment it is sensible to make your purchase before the end of current financial year, rather than the start of the next one. 

Timing your investment could mean that you can claim your capital allowances sooner, saving on cashflow. Similarly if you are intending to carry out some repairs or maintenance work, doing this before the year end will reduce your next tax bill. 

2) Manage your income

If you are in the fortunate position of being able to manage your income, plan now to optimise your income for tax purposes. For example, as a company director and shareholder, you may be able to reduce salary or dividends to keep your income below the key tax thresholds of £45,000, £100,000 or £150,000. An income level of £50,000 where child benefit is withdrawn from the highest earner in a household is another key threshold to monitor. 

The £100,000 threshold is particularly unattractive from a tax perspective as the personal allowance is gradually withdrawn at a rate of £1 for every £2 of income. This gives an effective rate of tax at a very painful 60% at income levels between £100,000 and £123,000. So best avoided if you don't need the income and can defer this to another year. 

3) Consider the effect of the dividend Tax 

A dividend tax was introduced from 6th April 2016. This affects people who receive a significant amount of dividend income each year – mainly business owners with their own limited companies. 

There is a £5,000 dividend allowance for 2017/18 where dividends are free of tax. The dividend allowance is reduced to only £2,000 per annum from 2018/19 onwards. It makes sense to use this allowance if you have scope to pay a dividend. Above this level new rates of dividend tax apply for varying levels of income. 

The dividend tax has a significant impact on business owners who may be used to drawing a relatively high proportion of their income as dividends. If possible the higher and additional dividend rates of 32.5% and 38.1% respectively are best avoided by capping gross income at the basic rate threshold of £45,000 if this is feasible. Gifting shares to a spouse so that they can utilise the dividend allowance may be appropriate in some cases. 

4) Contribute to a pension 

Pension contributions before the year end are a tax efficient way of saving for the future and reducing your tax bill. This tax savings are particularly attractive for higher and additional rate taxpayers. Advice should be sought from a suitably qualified Independent Financial Advisor to ensure that your particular circumstances are considered. 

5) Use gift aid for donations 

Using gift aid for charitable donations has the effect of raising the basic rate tax band and saving 20% tax for higher rate tax payers. So for every 80 pence you donate, your chosen charity receives £1.00. 

6) Use your tax free savings allowance 

If you are lucky enough to have surplus cash, make sure that you use your annual ISA allowance. Within an ISA, all income and gains are tax free. You can save up to £20,000 for 2017/18. You can choose how you split this between stocks & shares and cash ISAs. There are also new ISAs such as the Lifetime ISA and ͚Help to Buy͛ ISA which are aimed at first time home buyers and offer additional incentives. 

7) Use your annual capital gains exemption 

If you have personal assets (shares, property etc) and are intending to sell them soon,  consider the capital gains tax implications in advance. You may be able to time the sales of shares for example to spread over 2 or more tax years and utilise your £11,300 annual exemption for 2017/18 effectively. 

For married couples and civil partners consideration should be given to each spouse/civil partner using their allowance. 

8) Set money aside for your tax bill 

If you take some of the steps above you should be able to reduce your 2018 tax bill. It is unfortunate that however much we plan, many of us will still be faced with a tax bill for 2017/18, payable in the following January. Setting aside a percentage of your income to cover your tax bill and placing it in a deposit account is a sensible measure and will help avoid any last minute panics trying to find the funds. 

Another tip is to get your tax return completed as soon after the end of the tax year as possible. This gives you an early warning of any additional tax due so that you have sufficient time before the payment deadline in January. 

If you would like Base52’s advice and assistance with any aspect of your tax planning, please contact us.

Saturday, 10 February 2018

When in a hole you MUST stop digging - when insolvency strikes

As business owners we are invariably optimists. Things will get better. Work a bit harder. Tweak a few things.

But what if the business is insolvent?

This can creep up on a business. One or two unprofitable projects, a significant bad debt perhaps and all of a sudden cashflow is extremely tight. The definition of insolvency is a business not being able to meet its payment obligations to creditors when they fall due. This is not a short term cashflow blip, but something more systemic. On the balance sheet liabilities will exceed assets. Of greater concern is when short term liabilities - bank overdraft, tax due and payments due to suppliers exceed cash and payments due from customers.

In this situation the directors of the business have legal obligations. They can't just keep calm and carry on. Choosing to pay some creditors in preference to others when the business is insolvent is a legal offence and the directors could be held personally liable if the business fails.

The choices for the directors are:

1. Contact all creditors and see if you can reach an informal agreement

It is recommended that a financial projection is prepared in advance of any discussions with creditors so that there is a realistic view of what is affordable. A turnaround plan may involve deferring payments on 'old' debt whilst keeping up to date with new obligations. It is critical that the plan shows that the business is profitable going forward. This is likely to require significant cost cutting and restructuring

2. A Company Voluntary Arrangement

This is where an Insolvency Practitioner is engaged to make binding arrangements with creditors. Unlike the informal arrangements at 1 above, this is a formal arrangement the creditors must adhere to. The company can continue to trade during the CVA

3. Administration

Again this is a formal arrangement where respite can be gained from creditors and the company can continue to trade. Property may need to be sold to cover debts

The final option is liquidation where the company is wound up and any assets are sold and distributed to creditors

So when the company is insolvent, carrying on as normal is not an option. The choices listed above must be followed or the directors will be open to the charge that they treated some creditors more favourably than others

With speed and resolve, following option 1 can turn a company round and bring it back to stability. If action is taken too late, it is more likely that the business will fail and liquidation becomes the only option.

If you think your business may be insolvent I would recommend an urgent discussion with your company accountant.

Saturday, 3 February 2018

How do you know if your business is in a turnaround situation...and what should you do about it?

Business can be tough. Some business owners dig in when times get hard. They work longer hours, get more stressed, do more of the things they have always done. But sometimes that isn't enough. The business keeps trading unprofitably, suppliers demand payment and the business finances get worse.

Spotting the signs of a struggling business early enough can make the difference between survival and failure.

What is needed is a radical review or 'turnaround plan'. My own professional body, The Chartered Institute of Management Accountants describes this as 'a set of actions required to save an organisation from business failure and return it to operational normality and financial solvency'

There are 6 stages in a turnaround situation:

  • Management accept the need for change
  • Carry out a business review and identify underlying problems
  • Prepare a recovery plan
  • Implement the plan
  • Stabilise the business
  • Embed the change

Often an external consultant or turnaround specialist can help senior management make the challenging decisions which will be needed. There is a an Institute for Turnaround which recognises the specialist nature of the skills required to deliver this kind of work. Finance professionals also have a key role in supporting a turnaround - reporting on the financial status of the business and the areas of poor performance and setting up reporting systems to track improvements. Good financial forecasting models are also essential.

I have been involved in several turnarounds in my role as an external accountant, usually working alongside a turnaround specialist and the business owner. The most successful outcomes have been where the business owner has accepted the need for change at an early stage and put their full weight behind a turnaround plan. The few instances where management have just carried on doing the same thing and hoping for the best have inevitably not ended well

The tell tale signs of a business which might need a 'turnaround' remedy are:

1. Shortage of cash
2. Pressure from suppliers for faster payments
3. Showing continued losses in monthly or quarterly accounts

If your business is in this position taking urgent and radical action is probably required. If you would like an informal discussion to see how we can help please get in touch using the link below