Monday 13 November 2017

Deal or no deal?

I had lunch with a lovely chap yesterday who helps people sell their businesses for a living. One of his many insights was that the people who get the best deals are ready to sell but also ready to continue running their business if the offer on the table isn't good enough. The other side of the coin is where the seller has had enough and is desperate to sell. Inevitably they end up getting a poor deal.

So the lesson is that if you are thinking of exiting from your business in the future, it's never too early to start thinking about it and plan your strategy. 

The topic of the moment is Brexit and there has been much debate about 'hard Brexit' and 'Crashing out out of the EU without a deal'. The reality is, from a negotiating perspective, the UK needs that alternative or they have an even weaker hand in negotiations with the EU.

In their acclaimed book about principled negotiation,'Getting to Yes', Fisher and Ury describe the concept of a Best Alternative to a Negotiated Agreement (BATNA). They argue that it is foolish to enter into an negotiation without a BATNA and you should work hard to make your BATNA as attractive as possible. This gives significant leverage in a negotiation and allows the holder to walk away until a better offer is put forward.

So if you are in a negotiation, be it a multi-million pound deal or a relatively minor customer complaint, think about your BATNA and be prepared to use it. It may help you achieve a better outcome.

Monday 30 October 2017

What's your dream income?

Earning without working or 'passive income' is many people's ideal. Like the guy in Nick Hornby's, 'About a Boy' whose dad wrote a hit pop song and he was able to live a life of leisure on the royalties.

So how do you start to acquire passive income? Many people in employment (and more now with the Government's pensions auto enrolment initiative) will be putting funds aside into a pension. For most, that, along with the State Pension will be their passive income in retirement.

But what about passive income before retirement age? How can we start to build up investments which generate income whilst we are still young enough to enjoy it?

I like George S Clason's book, 'The Richest Man in Babylon'. It's full of tips about thrift and personal financial management purportedly based on the wisdom of the ancient Babylonians. Two tips which have stuck with me are (and I might be paraphrasing here), 'Pay yourself first' and 'Save 10% of what you earn'.

'Pay yourself first' means that you put some money aside for investment before you start paying the household bills etc. That is top of the list and gets done every month. What's left is to live on. 10% is his suggested minimum for setting aside. This is easy to say and much harder to do, particularly if finances are tight. His point is that 10% of even a small amount will not be missed and over time will accumulate if invested wisely.

So let's look at someone earning £30,000 after tax, or £2,500 per month. Paying themselves 10% before they do anything else would generate £3,000 over a year or £250 per month . Within a few years this could build up to a sizeable pot. Let's be clear this is not for a holiday or to put towards a new car. This is for investment, to generate a passive income. Sure, the £250 will be missed but Clason's point is it will not be missed as much as we think. Most people will adapt and reduce their discretionary spending.

What to invest in is a separate question and will depend on a number of things. There are lots of tax incentives for some investments in the form of ISAs, LISAs, Help to Buy ISAs etc. Clason suggests taking some time and doing some research to find the right investment for you. An Independent Financial Advisor can help devise an investment strategy suited to an individual's goals and attitude to risk.

Generating a passive income stream is not easy. It takes discipline and sacrifice but it can reap significant rewards and potential escape from the drudgery of work. Starting early is key so take a tip from the Babylonians and 'Make thy gold multiply'.

www.base52.co.uk

Saturday 23 September 2017

Is the price right?

Getting the price right, or setting price at a level which provides good value to the customer and profit for the business is one of the most important business decisions. It is an area that some businesses give little thought to however and as a result they get by on poor margins and struggle to make ends meet.

Steve Ballmer, ex CEO of IBM puts it more starkly, 'This thing called ‘price’ is really, really important. I still think that a lot of people under-think it through. You have a lot of companies that start and the only difference between the ones that succeed and fail is that one figured out how to make money, because they were deep-in thinking through the revenue, price, and business model. I think that’s under-attended to generally'

So what is the right price?

Ron Baker, Value Pricing expert argues it should be based on value provided to the customer rather than 'accounting' methods like chargeable hours or 'cost plus'. In his book, 'The firm of the future' he gives an example of an accountant who helps a wealthy client sell their business. He is at the client's beck and call for many weeks, uses his knowledge and lifetime experience to deliver an exceptional deal and then he is very pleased with himself when he eventually presents the client with a quite a large bill for hours worked. The client is even more pleased  because in the context of the business sale the fees charged were minuscule. If the accountant had charged a fee based on value delivered, his client would have still been very happy and he would have been able to charge significantly more than the self-limiting hourly rate. The same principle  applies to tradespeople who often limit their pricing with day rates when the value delivered is often significantly higher.

Let's be clear. This is not about overcharging. This is about thinking carefully about the value provided, agreeing terms in advance and then delivering on your promises.

'My business is different' you might say. 'It's very competitive, the price is set by the market'. This can be true of commodity products or services. If you are trapped in this mindset it is not a nice place to be. The challenge I think is try to differentiate your product or service offering so that you provide some unique value and are not competing solely on price.

All accountants know that an increase in price feeds straight through to the bottom line. It is additional profit with no energy expended other than making the decision and presenting it to your customers. A decrease in costs also increases profit (to  a lesser degree) but often there are consequences - you need to give something up, improve productivity, work with another supplier etc. Pricing is the biggest lever for increasing profits.

So I don't have all the answers but I do know that getting the price right is critical for business success. As Steve Ballmer says business owners need to think it through and keep thinking it through. It can be the difference between success and just muddling through

www.base52.co.uk

Sunday 20 August 2017

Ugh! Post holiday email - my low tech tips for getting it done

Holidays are great. Time to unwind, relax, spend time with loved ones and forget about work for a while. Getting back to work is often a challenge with the build up of email being one of the issues to cope with.

I've developed a bit of a system for dealing with the email build up which kind of works for me and I thought it might be useful to share. It's fairly low tech and I'm sure that there are more sophisticated ways of doing a similar thing.

For what it's worth here are my 5 D's for clearing the backlog:

Diary time

Allow some time on your first day back to start to clear the backlog. If you can book this in your diary before you go away, that's ideal. You can then spend some uninterrupted time working through your emails. The sooner it's done, the sooner you will feel 'caught up' and be able to get back into your stride

Delete

Getting rid of any SPAM, things that don't require action etc is a positive first step. It's a good idea to unsubscribe from mailing lists you are not interested in and mark unwelcome email to go straight to junk in future.

Delegate

If you are lucky enough to have people working for you, maybe there are things which can be delegated. You can either forward the email with a note for action or print/save in a folder for next time you have an opportunity to discuss it with the person you are delegating to. Even if you don't have people working for you there may be emails you need to pass on for someone else to deal with or perhaps refer upwards to your boss

Deal with now

If you can respond to an email easily, straight away, it's best to get it done. Maybe set a reminder to follow up if a response is required from the recipient. It's off your list for now

Deal with later

For chunkier jobs you can't respond to straight away add these to your work list or direct to your calendar to deal with later. You might print or save the email as a reference for when you start the work. You might also send a holding email to say you have noted the contents and will respond in due course. You can then tackle this at a later date with a clear head.

That's it! I did say it was low tech

With focussed effort I find I can usually clear the mountain a lot faster than seemed possible at first glance. I've then got the larger tasks scheduled and can work through these over the next few days.

It's still not easy leaving the holiday mood behind but this simple system works for me and after a week or two I'm usually back in the normal routine and hopefully not feeling swamped.

Almost time to start thinking about the next holiday...

www.base52.co.uk

Saturday 12 August 2017

How many businesses do you need?

Running a business can be pretty intense. But very now and then, there is a lull. Maybe it's a summertime thing? The volume of emails goes down, the phone is not ringing quite so much, there are no major issues worrying you. What next?

My tendency over the years has been to dabble with something new. Kick off that new business idea I've been thinking about but have not had the time or energy to do anything about. Being an optimist, I inevitably focus on the upside and getting started and think less about what is required to keep things going. So let's go for it. This is going to be big! 

But with me at least, it never quite turns out like that.

Inevitably the lull in your core business ends. Your intensity returns, the phone starts ringing again, issues crop up, you get stuck in and the new idea has to take second fiddle. It kind of bubbles along in the background, sometimes for several years but never reaches its potential. Eventually you kill it. It's become a drain and it's time to concentrate exclusively on the main business.

There are entrepreneurs who make a success out of starting several business and running them simultaneously. Nigel Botterill famously built up  5 (probably more now) £1m businesses within a few years. Felix Denis, the late publishing billionaire, used to start new 'baskets' for his new ideas and run these alongside his core business. Some of our clients too have had modest success with running multiple businesses side by side. 

So it might be just a failing in me that I've not been able to make this work. These days, when I get that new idea and rush of enthusiasm, I stop and think a bit more before diving in. Have I really got time for this? If I put the same effort into my main business would that deliver more benefit? 

Let me tell you about my new idea for a great on-line shop though...

www.base52.co.uk



Sunday 6 August 2017

A tale of two sales

Last year my wife and I had the holiday of a lifetime in India. It was a wonderful experience with fantastic monuments, history and culture, great food and the warm and friendly people.

We came back with lots of stuff we hadn't really intended to buy due in no small measure to the local merchants' talent for selling.

The format usually went something like this. We would have a morning's sightseeing with a local guide. On the way home he would invite us to drop in at a local merchant - jeweller, potter, fabric trader etc. Let's use the jewellers as an example but the experience was similar, whatever the trade, 'Would you like to visit a local jewellers? The owners are very nice and they have a workshop on the premises which they will be happy to show you'. 'Why not?, we thought. There was no 'hard sell', we were free to say no but we usually opted to have a look around. We were greeted by the owner and several others at the entrance and warmly welcomed. Masala tea was offered and we were invited to look around the workshop. We had a personal tour and were shown the journey from raw gem stones, through cutting to designing and manufacture of the jewellery. Nothing was too much trouble. Lo and behold at the end of the tour we ended up in the jewellery shop. More tea was brought in and we were asked about our holiday so far. 'Would we like to see some jewellery?' No one asked us to buy anything but somehow we just did. Not things we needed or had planned to buy but presents and mementos from an enjoyable trip.

Let's contrast this with a trip to a carpet shop at home this weekend. We are in the process of redecorating our house. My wife has thought very carefully about the decor, we just needed the carpets and wanted advice on what to buy. We were ready to be sold to. We had a budget (well sort of) and a deadline. A couple of sales people were sitting down as we entered. We were welcomed and shown a few samples and basically left to potter around and well...leave. We had lots more questions, we wanted some ideas, some input, to let us know what was possible. A cup of tea and a chat would have been nice.

Ok so it's a different situation but I think illustrates a point. In India we had not intended to buy but were shown the possibilities and buying was made easy. So we bought. In the carpet shop we were ready to spend. We had the money ready and wanted help. The kind of help we wanted wasn't forthcoming so we didn't buy.

Off to a new carpet shop today so will see how that one goes...

www.base52.co.uk

Saturday 1 July 2017

A case for outsourcing

In the early days of running a business, often the business owner does a bit of everything. Looking after customers, sure, but doing the accounts, paying the bills, fixing the computer, cleaning up, sorting out problems and anything else that comes along too. The phrase, 'Chief cook and bottle washer' describes it well. From the interesting and important stuff to the plain boring and mundane, it all needs to get done...somehow.

As the business grows the business owner might start to bring in help. They then need to decide what tasks to let go of and what they need to keep hold of. Michael Gerber's, 'E-Myth' describes this dilemma well. He advocates that over time the business owner should delegate the 'technical' stuff and in due course, the 'managerial' stuff and end up being the entrepreneur who develops and guides the business. It's a difficult journey and many don't stay the course. Many stay stuck in the mire of dealing with technical matters, often where they are not an expert and fail to focus on developing their businesses.

A good solution can be outsourcing. Outsourcing is passing responsibility for a set of tasks to an external party, usually a specialist in this line of work. There are many advantages but these include:

  • It's often cheaper than employing someone to do this work for you as you only pay for the support you need
  • They are are experts and have the knowledge and resources to do the work better than you can
  • It's scaleable - as you grow or contract you can adjust your level of support accordingly
  • It leaves you to focus on the entrepreneurial stuff


 It's almost a no-brainer but I see many businesses of a reasonable size who deal with their own IT (if something breaks they get someone in to fix it), have no HR back up, do their own marketing (when they get time) and yes, do their own bookkeeping, payroll and VAT, not always in the most effective way

Since starting Base52 we made an early decision to outsource IT and HR support, website maintenance and aspects of marketing. I've never regretted this. It's a monthly overhead but I feel it is an essential cost of 'doing business'. Similarly we offer an outsourced accounting service to many of our clients covering bookkeeping, VAT, management accounts, payroll and well as year need compliance. I believe this arrangement works very well and many of these clients have stayed with us for many years on their business growth journey. 



I found this quote from a chap called Alphonso Jackson, 'The other part of outsourcing is this: it simply says where the work can be done outside better than it can be done inside, we should do it'. 

I think that's pretty good. Cost is also a factor of course (you'd expect an accountant to say that) but if it's affordable, I'm a big fan.

Monday 26 June 2017

A lesson in value

It sounds rather grand but for the last few years I have hired someone to help with the gardening. It's never been my favourite thing, more a chore than a hobby, so getting some help to do the pruning and heavy lifting seems to make good sense.

The chap I have been working with is his own man and he works around his own schedule. I've tried to book him for specific times in advance but he prefers to keep it more flexible. So it turns out that when I need him he's not always available and when I don't need him (in the depths of winter) I get a text asking if we have any work.

That said, he knows his plants and generally his work is tidy and he's reasonably efficient. His hourly rate is quite high but all in all, he is reasonable value for money.

I was walking to town the other day and saw a young chap with a hedge trimmer attacking my neighbour's privet. I stopped for a chat and found out he charged half the hourly rate of my man. This seemed too good to miss so as the garden needed a tidy up I arranged for the young man to come along and have a look. We had a chat about what needed doing and arranged a time.

Big mistake! Turns out this chap is basically a 'man with a lopper' who appears to know nothing about plants. He has butchered the Rosemary at the side of our steps so it has gone from being a luxuriant shrub to a misshapen bunch of leafless twigs. He carved all the flowering heads off the Buddleia to leave a sorry looking clump of withered leaves and he left when the bin was full of debris so one half of the garden was untouched and half was left scarred by his indiscriminate attack.

As the saying goes, 'You get what you pay for'. My new guy was cheap, but an unmitigated disaster. He sent me a text asking if I would like him to come round and finish the other half. I have gently said that I have this covered

So I am back with my somewhat inflexible but knowledgeable and expensive original gardener. I rather sheepishly told him about my trial with the other chap and he took a little too much pleasure in letting me know what a mess he had made. I think I heard him whistling and chortling while he went about his work.

So a few lessons learned there but the main one being that 'cheap' isn't necessarily good value. I will take a little more care next time I think something is too good to miss.

www.base52.co.uk

Saturday 3 June 2017

VAT Flat Rate Scheme - are you getting the calculation right?

I think it's well known now that the VAT Flat Rate scheme changed with effect from 1 April this year.

The government introduced a new concept of 'Limited cost traders' (LCTs) which have expenditure on 'goods' of less than 2%.

For these LCTs, if they remain on the Flat Rate Scheme they need to use a new Flat Rate of 16.5%. Typically, many will have been management or IT consultants with 'old' flat rates of 14% or 14.5% respectively.

Ok, so that's an increase but it's still worthwhile, right? 16.5% is still less than 20% so it's still possible to make a 'profit' on the scheme? In fact, this is wrong.

Here's the maths:

VAT charged to customers on a net sale of £100. £100 x 20% = £20

VAT payable to HMRC at 16.5% Flat Rate. £120 x 16.5% = £19.80

The key thing here is the Flat Rate percentage is applied to the VAT inclusive amount. 

There is therefore virtually no benefit in remaining on the scheme as an LCT and we have advised all our clients to withdraw and change to standard VAT accounting. Even with very modest expenses which incur VAT, they are likely to be better off if they make this change

I have a suspicion that some businesses are getting this calculation wrong and still feel they gain a benefit using the 16.5% Flat Rate as an LCT. I have no hard evidence for this other than conversations I have had with several business owners who believed the new Flat Rate should be applied to net sales.


Misinterpreting the rules will not be seen as a reasonable excuse by HMRC if the VAT declared and paid is incorrect. 

So please check your calculations. The devil is in the detail and there's a big difference between net and gross sales.

Saturday 13 May 2017

Taxing times for business owners

These are taxing times for business owners. Despite the narrative from some political parties that business has had an easy ride, for small businesses at least, this is far from being the case. Let's look at one example - the dividend tax

It was introduced in April 2016, effectively placing a double tax charge on business owners when they draw basic rate dividend income from their company. In tax year 2016/17 company profits are taxed at 20%. If the profits are then drawn as dividend by a shareholder, the first £5,000 is covered by the tax free dividend allowance, above this dividend is taxed at a variable rate depending on the taxpayer's total income. For higher rate tax payers the dividend tax rate is 32.5%. Add this to the corporation tax rate of 20% and that is a sizeable composite rate of 52.5% - ouch!

Well that's old news you may say - we are going back over 12 months to the introduction of this tax. But here's the rub, it will only start to bite over the next few months as business owners complete their personal tax returns for year ending 5th April 2017 and have to pay the tax next January. Many may have heard about the tax but the reality may not dawn until the bill from HMRC lands on their doorstep.

For business owners who have been accustomed to drawing a relatively modest income of around £40,000 and paying no personal tax (remember the company will have paid corporation tax on business profits), they will have the unpleasant task of paying around £3,000 income tax to HMRC before the end of January next year.

Fine you might say, everyone needs to pay their fair share. Agreed, but in my view this places a disproportionate burden on small, entrepreneurial business owners and will have an adverse impact on profits, growth and jobs. Where are business owners going to find the funds to pay the extra tax? For those without personal savings it will need to be drawn from their businesses, many of them hard-pressed and getting by on small margins.This will inevitably have a knock on effect to their businesses. 

It would be nice to see one of the political parties championing small business and providing genuine support. I'm afraid that in a time of austerity and uncertainty we are 'fair game' and I can only see the tax outlook becoming more challenging, whoever wins the 2017 General Election.

If you drew dividends in tax year 2016/17 my tip is to make sure that you are prepared for any additional tax bill which will be due next January. Putting a little aside every month from now might avoid a last minute rush to find the funds when they become due.


More on the dividend tax

Monday 8 May 2017

Getting better

I've just finished reading Atul Gawande's book, 'Better - surgeon's notes on performance'. Not much there that's relevant to running an accountancy business you might think...but you'd be wrong. Gawande looks at systems and how people work in systems - his specialism is healthcare but there are lessons for any business or organisation looking to improve.

There are some great stories in the book but the most compelling one for me describes the bell curve. We are all familiar with this curve from statistics and 'normal distributions' in school maths lessons. Gawande applies this to performance in the care of cystic fibrosis and concludes that the best performers are continuously striving to improve and small margins make a surprisingly big difference. The best, keep changing to stay at the right end of the bell curve.

He ends the book with 5 tips to help you improve - become a 'positive deviant' to use his terminology:

1. Ask a question

If you are a professional - doctor, accountant, lawyer - the tendency is to focus on the task at hand with a client. Time is short, you have your list to get through. Ask an unscripted question and make more of a personal connection

2. Don't complain

When mixing with fellow professionals, don't whinge. It's draining and not productive. Lighten up and focus on the positives

3. Count something

Accountants like this one. What gets measured, gets done. Try counting some aspect of performance in your area and see what you learn.

4. Write something

I'm following this tip. The process of writing makes you think about things more deeply. Helps you to have an opinion. Blog, letter, book. Whatever, just have a go.

5. Change

Be receptive to change and become and early adopter

So if you are currently 'good', this book can inspire you to be better and I will be taking some of that inspiration to work with me this week

www.base52.co.uk


Monday 17 April 2017

10 reasons to come to our next Growth Club meeting

We started Base52 Growth Club a couple of years ago as a networking forum for our clients and other business contacts with an emphasis on learning. Learning from our brilliant guest speakers, from other visitors and from great books about business.

Here are 10 good reasons to come along to the next meeting:

1.      Make some new contacts

Meet some people involved in other local businesses. You never know who could be your next customer or help you grow your business

2.      Great speakers

We have a guest speaker who will share their business journey and lessons they have learned along the way. Pick up some tips to help grow your business

3.     Book review

One of our visitors will share an overview of one of their favourite business books and how it has influenced them and their business

4.      A great venue

We meet at Los Reyes in the centre of Hitchin. You are guaranteed a warm welcome

5.      Breakfast! 

A continental breakfast is included in your entry fee

6.      Prize draw

Your chance to win a copy of the book we review at the meeting

7.      Timing

The meeting is from 9.30 to 11.30. No need to set your alarm for a crack of dawn start and still time to get some things done on your list with the rest of the day

8.      Raise your profile

Our facilitated networking slot gives everyone an opportunity to promote their own business to all the other visitors. 

9.      No commitment

Come along once, twice or as often as you like. There is no requirement to attend regularly although we hope to see you again after your first visit.

10.      Great value

A modest entry fee gives you all of the above. Now that's great value!

To book your place at the next Growth Club meeting visit our events page www.base52.co.uk/events

We hope you can join us 


Sunday 19 March 2017

After the NIC reversal, a significant cut in the 'jobs tax' would help small business

The recent U turn by this government, reversing the proposed increase in Class 4 National Insurance Contributions for the self employed is very welcome. It followed a storm of protest from all political persuasions after the Chancellor's Budget announcement. The climbdown was due, not least, to the fact that it went back on the Tories manifesto commitment not to increase VAT, Income Tax or National Insurance. It was a change made reluctantly, with the Chancellor insisting that the increase was 'fair' but not in the spirit of their manifesto commitment.

So a small victory for beleaguered and hard-pressed small business owners but it did throw into focus this government's broader strategy for small business. They seem to be gradually removing any tax incentives for small business owners and creating more parity with employment. So entrepreneurial small business owners have received little help from this government in creating a more favourable trading environment.

There is more bad news on the horizon for the smallest of small businesses with the removal of Class 2 National Insurance Contributions. To maintain their entitlement to a State Pension many small business owners will need to make voluntary NI contributions which will be significantly more costly than in the previous system.

So how can the government really help and show their business-friendly credentials? Well it is unlikely that they will reverse the regressive dividend tax or changes to the VAT flat rate scheme so we won't go there. We are also stuck with the increased burden and cost of pensions auto enrolment. The rates revaluation is underway and there will clearly be winners and losers and more uncertainty for many small businesses.

The best idea I have heard for a real 'leg up' for small business was proposed from an unlikely source in the run up to the last General Election. The Scottish National Party proposed an increase in the Employment Allowance, then £2,000 per annum, to £6,000 per annum. This so called 'jobs tax' costs employers 14% of an employee's wage cost above the NI threshold. Increasing the employment allowance significantly above the current level of £3,000 is a radical idea and in my view one with a great deal of merit. Unlike cuts in corporation tax which benefit larger businesses disproportionately, the SNP's own figures suggested that 95% of the employment allowance increase would go to small business. It would reduce the cost of taking on employees and increase competitiveness.

It would be nice to see a coherent strategy for small business which includes a fair tax system which encourages growth, investment and entrepreneurship. The most recent changes seem to be more about filling up the Chancellor's depleted coffers from small business owners who have been inclined to shrug, roll up their sleeves and get on with things. Maybe the NIC U turn will be the start of a small business fightback and show that we are not a soft touch any more. A significant increase in the employment allowance would be a step in the right direction for this government to show they really want to support growing small businesses.

www.base52.co.uk

Friday 17 March 2017

Scam Alert for newly formed companies - beware of bogus letters

I was just nipping out to lunch and stumbled on 3 very similar envelopes in the post relating to companies we have recently formed.

All the letters are slightly different but purport to be from the 'Central Register of Companies and Businesses' or 'National Register...'. They are addressed from 'London, 15 March 2017

They all give a (different) website address and request a payment of roundabout £200 (they are all different amounts).

It looks to me like an elaborate scam so please be on the watch out for this and spread the word

The letters look quite plausible and I can see people being caught out by these and paying the fee

I hope this helps

www.base52.co.uk

Monday 13 March 2017

Small business has become this government's 'cash cow'

The increase in National Insurance contributions announced in the Spring Budget is the latest in a number of tax increases introduced by this government which have a negative impact on small business. The government is in need of cash and it seems like squeezing small business is a relatively easy way of swelling their coffers.

Let's explore the evidence for this. Recent tax changes targeted at small business include:
  • The introduction of a dividend tax effective from April 2016
  • Changes to the VAT flat rate scheme effective from April 2017
  • Increase in national insurance for the self employed from April 2018
  • Reduction in the tax free dividend allowance from £5,000 to £2,000 per annum from April 2018
The case put forward by the government for making these changes is that they are 'Levelling the playing field' between 'self employment' and employment. I use the term 'self employment' in its broadest sense here to include those who trade via limited companies, usually as owners (shareholders) and directors (employees). So they have set about withdrawing all the relatively minor tax breaks which were in place to support risk-taking and entrepreneurship.

The issue here is that self employment and employment are not the same and in my opinion should not be taxed in the same way. Many of the smallest businesses are already struggling to make ends meet, particularly in the early stages of their business. Many entrepreneurs do not have a pension or if they do it is often inadequate. They don't get paid if they are absent or sick. All spare funds are often put into keeping their business going and paying their employees and other costs. An extra tax burden on top of this will be hard to bear and in some cases will have a significant effect on the businesses and their owners.

The dividend tax has been introduced without so much as a murmur of protest. For a basic rate tax payer the extra tax burden will be around £2,000 per annum. There were no marches on Downing Street, no petitions on Facebook and no outcry in the Press. The changes to the VAT flat rate scheme again have passed through with little opposition although the cost to a small businesses turning over say £50,000 will be around £2,000 annually along with an increased administration burden. The National Insurance increase has generated more resistance, not least as it went back on the Tories election manifesto pledge not to increase National Insurance, Income Tax or VAT. At the time of writing the government has said the change is 'fair' and it will go ahead.

So what is the conclusion to be drawn from this? Well it seems clear to me that this government does not understand or value small business and sees it as an easy target to hoover up cash. It's an easy target as the Tories are attacking their natural constituency. There has been little protest from the opposition to these tax changes. Small businesses seem to bracketed in with 'big business' excess and tax avoidance scams and as such are seen as fair game to squeeze a bit harder. The danger with attacking your natural supporters is that when things start to bite as they will soon, you find that you cannot take your core support for granted any more.

The UK is still a good place to do business. It's relatively easy to start up and administration, although burdensome, is simpler than in many other countries. If we take away all the tax incentives for business owners we will see more businesses failing and more entrepreneurs thinking, 'What's the point'? if an increasing chunk of their endeavours goes straight into the Chancellor's purse.  Small businesses are the engine for job creation, they give our high streets their diversity and colour, they are the big businesses of the future. We need to nurture and encourage them rather than squeeze the life out of them.

www.base52.co.uk

Sunday 5 March 2017

The power of forecasting

One of my annual rituals at this time of year is to prepare a detailed financial forecast for the next financial year.

It's part of my training as a management accountant and I spent many years as a retail accountant compiling company budgets and forecasts so I guess it is in my DNA now.

I've developed a simple but accurate template for this and with a day or so's effort my first draft emerges from the magic of Excel and I can reflect on how it looks. Inevitably it's below my expectations. After allowing for clients who have stopped trading or their circumstances have changed and factoring in cost increases and new costs, I'm usually left with something of a gap between where I want to be and where my forecast is pointing. So although a bit disappointing, that's not necessarily such a bad thing. At least now I know there is a gap and I can think about what to do about it.

The two ways to close the gap are more sales and reduced costs. I will always give a lot of thought to how we can increase sales - attract more customers, look at the services and value we offer to our existing customers and what new services can we offer. As far as cost reduction goes, a proportion of our costs are fixed but some are discretionary. I will look at these and ensure they provide good value for money and are affordable. So with some tweaking and decision-making I will start the financial year with a forecast that shows a good improvement on the previous year and a plan to make it happen.

In some ways this is the easy bit. It's the month in, month out effort to deliver the plan  which is the bigger challenge. I find this annual forecasting process really valuable and an essential part of my business routine. It gives me comfort that we have a plan to move forward and something to measure against during the year.

So here is to another good year with more sales, satisfied customers, more customers and more profit. That's what the plan says so we now need to roll up our sleeves and do it.

www.base52.co.uk

Monday 20 February 2017

How do you write a letter to a lord?

My mother-in-law is a bit of a raconteur. One of her many family stories is how her father started up a filter cloth business in the 1960s. As the story goes he was listening to the news on the radio and became very exercised about something he heard. He came running into another room and shouted to his wife, 'How do you write a letter to a lord'?

What had caused his excitement was listening to a lord (it would be a better story if we knew his name) bemoaning the fact that a local firm was having to import filter cloths for commercial vehicles from overseas despite the fact that (at the time) we had our own cotton industry. My wife's grandfather, who at the time was a bus driver, thought he could do something about this by supplying filter cloths from a local cotton mill in Lancashire. He knew people at the mill and felt sure he could use his contacts and knowledge to good effect. 

He wrote his letter to the lord who agreed to arrange an introduction to the firm looking to purchase the filter cloths. He managed to secure the contract and his business was launched. It became a thriving and respected small family business supplying filter cloths to firms in the U.K. and overseas. It improved the income and quality of life of my wife's grandparents in the latter years of their working life and the business was eventually sold giving them a comfortable retirement.


So that may be a good family story but what are the business lessons to be learned? Well the main one for me that my wife's grandfather didn't just have an idea, he acted on it. He wrote his letter to the lord, used his contacts at the mill and won the contract. Every business starts with a first step towards winning that initial order or making that first sale. Something needs to be done to follow up on that great idea or flash of inspiration. So what will your 'Letter to a lord' be this week?

Saturday 11 February 2017

9 things to do before the end of the tax year

It's that time of year again when some planning in the last few weeks before the end of the tax year could provide a useful tax saving.


The tax year end for individuals is 5th April 2017. Many self employed people also have their accounting year end as 5th April or 31st March to coincide with the tax year. For private limited companies, 31st March is also a common date for the year end.

Here are some ideas:

1) Buy business assets and bring forward 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.

Click here for more details

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 £43,000, £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 painful from a tax perspective as the personal allowance is withdrawn. This gives an effective rate of tax at a very painful 60% at income levels between £100,000 and £122,000. So best avoided if you don't need the income and can defer this to another year.

3) Consider the effect of the new dividend tax


A new dividend tax was introduced from 6th April 2016. This affects people who receive a significant amount of dividend income each year. There is a £5,000 dividend allowance where dividends are free of tax. Above this level however 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 rate dividend rate of 32.5% is best avoided by capping gross income at the basic rate threshold of £43,000. Gifting shares to a spouse so that they can utilise the dividend allowance may be appropriate in some cases

Click here for more details


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. 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 £15,240 for 2016/17 and the limit will be increased to £20,000 for 2017/18. You can choose how you split this between stocks & shares and cash ISAs. 

Click here for more details

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 £11,100 2016/17 annual exemption effectively. For married couples and civil partners consideration should be given to each spouse/civil partner using their allowance.

Click here for more details

8) Review use of the VAT Flat Rate Scheme

For businesses using the VAT Flat Rate Scheme the government have introduced a new definition of a 'Limited Cost Trader' whose expenditure on goods is less than 2% of VAT inclusive turnover. If using the scheme you should consider if you are a LCT in which case it is likely to be advantageous to revert to Standard VAT Accounting from 1 April 2017.

Click here for more details

9) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2017 tax bill. 

If all or some of your income is not taxed at source however, it is likely that you will be faced with a tax bill for 2016/17.

Setting a percentage of your income to one side to cover your tax bill and placing it in a deposit account is a sensible measure and will help avoid any last minute panics in January 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 give you an early warning of any additional tax due so that you have sufficient time before the payment deadline in January.

Note - This draws on a Blog first published in February 2016 and is updated for new tax rates and allowances.