'Everyone needs a Willie'

So Margaret Thatcher famously said about Willie Whitelaw.

He was her Home Secretary when she was Prime Minister in the late 70s and early 80s. He went on to be Leader of the House of the Lords and during this time he became more of a confidant to her. She was a passionate and driven leader and one not inclined to listen or compromise. Whitelaw was one of few trusted advisors who could give her honest and direct feedback and perhaps help to soften some of her harsher inclinations. Thatcher still divides opinion but Whitelaw undoubtedly helped her cope with the demands and pressures of being number 1 and probably made working with her a little more tolerable.

In business too there are many examples of supporting actors backing up charismatic and high profile leaders. Charlie Munger with Warren Buffet, Steve Wozniak with Steve Jobs to name two of the most prominent. Who knows if these business superstars would have reached such great heights without their lesser known compatriots?

Premiership football is one of the most public and hostile arenas to be a leader. Everyone has an opinion and performance is there for all to see, week in, week out on the football pitch. The pressures are enormous. So having a trusted lieutenant can be very important. Jose Mourinho was sacked by Manchester United several months ago. There were probably multiple factors which brought this about but some have cited the departure of Jose's longstanding number two, Rui Faria a few months earlier as the start of his fall from grace. Alex Ferguson too had several assistant managers during his time at the top - Brian Kidd, Steve McLaren, Carlos Quieroz and Mike Phelan stand out.

An interesting observation, particularly in the football world is that these brilliantly successful 'number two's' rarely go on to have stellar success being number one. Many have a go but often revert back to being number two somewhere else. That is their strength. They don't crave the limelight or the plaudits. They quietly get on with doing what they need to do to help their boss and their team be successful.

Small businesses are often founded and managed by a single individual. It can be a lonely place and the pressures can be significant. The more successful business owners build a team.

Being a boss often means having to do things the team don't like, but are best for the business. Having one or more members of the team 'on side' can help to ease the pressures and make managing the business more enjoyable.

So whether it's a Willie or a Steve or a Stephanie, I think on this point at least, Maggie had it right.

www.base52.co.uk

The annual budget still has its place

Accountants like scorekeeping.

Keeping accounts up to date, reconciling the bank accounts, reporting monthly profits. This is  'bread and butter' work and an essential part of maintaining financial control for a business.

Another key tool is the annual budget. Typically in our business we do this towards the end of the current financial year. Already at Base52, we are thinking ahead to the next financial year. Plans are taking shape, things we would like to achieve. Extra costs we need to allow for. Pulling the budget together brings this to life. 

In a larger organisation, preparing the annual budget can be a major exercise taking a Herculean effort from the company accountants and senior management. In a small business, it might just be the business owner and their spreadsheet. 

Often the first draft is a disappointment. The projected profits are lower than expected. Then some tweaks and adjustments and it starts to take shape. Decisions are made about priorities.

Voila! You have it. 

Your financial plan for the year. You now know what is possible and what you need to do month by month to reach your financial goals.

Of course, that's the easy bit. You now need to work with your team and your customers to deliver the plan.

Without the budget or target, scorekeeping on its own is missing something. A bit like a runner recording his time without having a target time to aim for. Roger Bannister would probably never have achieved the 4 minute mile if he hadn't set it as a benchmark.

So in my view the annual budget should be an essential step for all small businesses.

It's one more thing to add to the already very long list but it should pay back many times over by providing clarity and improved financial control.

www.base52.co.uk

A hotel with a difference

It's good to be different in business.

Marketeers call it having a ‘Unique Selling Proposition’ or USP. It’s what differentiates you from your competitors and gives your customers a reason to buy from you rather than them.

On a trip to Morocco with my wife we booked to stay in a Riad close to the Atlas Mountains, a little over 20km outside of Marrakesh.

We arranged to stay for a few days as a change from the hustle and bustle of the city and maybe to do a little walking. The reviews were good so we settled on Riad Sougtani.

What we stumbled upon was something very different from a typical hotel.

It is run today by the nephews of one of the descendants of Caid Omar who completed the construction of the Riad and an adjacent Great Kasbah in the 19th Century. The brothers inherited the Riad in a run down state and have painstakingly restored it to its former glory.

Their ethos has been to recreate the welcome and sanctuary the Riad used to provide for their forefathers and their special guests who used to stay there. A beautiful central courtyard is fully enclosed by high walls and 6 self contained apartments. Guests and their families used to stay in their own accommodation and gather together for meal times and to discuss family business.

The atmosphere is less of a hotel and more akin to staying as a guest with welcoming and attentive hosts. There are no set meal times. You just turn up when hungry or pre-book if you choose to. There is no menu, but for breakfast and dinner an array of simple Moroccan food is served. Trips can be arranged to the mountains, back to Marrakesh or further afield. For the less active, lazing around the Riad is not a bad option.

The brothers could have chosen to make the Riad into just another hotel, with smaller rooms, a varied food menu, maybe a spa, lots of extras.

In choosing their USP they may be less wealthy than if they had chosen a more conventional format.

They are however generating enough income to keep their beloved Riad well maintained and  through their guests their illustrious family history lives on.

That is a rewarding and distinctive legacy to keep going and more satisfying I suspect than the pursuit of ever increasing profits.

Being different isn't just about making more money.

www.base52.co.uk

The perfect sales pitch

Have you ever met a brilliant salesperson?

My wife and I met one on a recent trip to Marrakesh.

We went on a walking tour through the ancient souk with our jovial and knowledgeable guide, Fouad. The souk is a labyrinth of alleys with stalls selling wares of every description. We strolled along for an hour or two dodging people and motorbikes and marvelling at the sights, smells and sounds.

Then almost imperceptibly we crossed the threshold into a carpet shop. We were greeted by the charming and fluent Omar who welcomed us and ushered us inside. We explained that we were not really looking for carpets but this did not dint our garrulous host's enthusiasm.

He asked us to go upstairs to, 'Admire the beautiful building' and have some mint tea. 'No pressure we are just friends speaking together'. Fouad nodded encouragement so up we went.

Pleasantries were exchanged - Where were we from? How long were we staying? Then the show started.

Omar's helpers proceeded to roll out carpets of all shapes, sizes and colours. He tells us they supply Liberty, John Lewis and other prestige British stores.

'Which do you like?'

'Er...we're not looking for a carpet but maybe a small one?'

Omar claps his hands and shouts a command. More helpers arrive with armfuls of small carpets. By this time Omar has noticed that my wife is more receptive to his charms than I am. 'Let's choose the ones you like - just say yes or no'.  In no time at all he had narrowed it down to 6 'possibles' and then 2 'most likely.'

Now to talk money. 'These are hand made. Every one is unique. A work of art.' Omar tells us, 'They are a snip at 1,000 of your English pounds each.'

'They are really very nice but we are not looking for a carpet.'

'Ok you make me an offer'

At this point my wife leaves (she hates haggling) and goes off to find Fouad.

This is where my years of watching Antiques Road Trip and Bargain Hunt on the telly pays off. I make a ridiculously low offer (which I would be happy to pay) and refuse to budge despite Omar's pleading and big reductions from his initial price.

Eventually he gives up. We parted friends (I think) - Omar still with his carpets and us with our money.

I reflected on the experience afterwards and especially Omar's sales technique - being referred by a trusted mutual contact, the lovely welcome, building rapport, demonstrating credibility, offering choices, changing the conversation from, 'Do you want?' to 'Which ones do you want?'.

All brilliant and much to admire and learn from. Except one important thing. He didn't really listen to what we wanted.

Omar's well rehearsed theatre undoubtedly works for one off sales where he is unlikely to meet the buyer again. I'm sure there are lots of mild-mannered tourists who leave Marrakesh with expensive carpets they never knew they needed.

If we want customers to buy again and spread the word about our business, we need to listen and try and give the customer what they want. Sure, sometimes we may need to help them appreciate what is possible but we are still listening and fulfilling what is right for them.

Sprinkle that with a little bit of Omar's magic and I think then you may be close to the perfect sales pitch.

www.base52.co.uk

VAT - a killer for some small businesses

The quarterly VAT bill.

It can literally be the death knell for some small businesses. The worst affected are those who deal with 'Joe public' rather than trading with other businesses in competitive sectors like retail and the trades.

Unlike VAT registered businesses, individuals cannot recover any VAT charged on to them so the VAT is just part of the price they pay. If the VAT registered business is competing with other businesses who are not VAT registered this makes things even more difficult.

Businesses on the cusp of the VAT registration threshold of £85,000 feel the pain the most. They don't quite have the volume or profit to be financially comfortable and they have the double whammy of charging and paying VAT and being less competitive.

Many are faced with the 'Hobson's choice' of keeping their businesses small and staying below the VAT registration threshold or going for growth and volume and dealing with the extra cost and administration of VAT

So how can small businesses manage the dreaded VAT and stay solvent and viable?

Well firstly they should investigate whether any of the special VAT schemes will help. There are retail schemes, a flat rate scheme, a cash accounting scheme and others. Choosing the right scheme can save on tax and also make administration simpler. Your accountant should be able to help you evaluate which scheme (if any) is best for you.

The next thing is to 'know your numbers'. I would strongly recommend modelling your business profits, allowing for VAT and ensure that you can achieve your desired profits and the business model 'stands up'.

What is not generally an option is to split your business into two or more smaller businesses to keep one or both of the businesses below the VAT threshold. HMRC would consider this to be an 'artificial separation of trade' if the purpose of splitting the businesses is to avoid paying VAT.

Examples of artificial separation could be:

• a pub which separates drinks and catering.
• a retail outlet which opens a smaller branch or branches but the branches have the same brand, ownership and resources.
• an entertainer with business (VAT registered) customers and non business (not VAT registered) customers.

If HMRC investigate a case of 'artificial separation' and the business is at fault the arrears of tax and penalties can be significant, not to mention the stress caused by a lengthy tax enquiry.

So there is no easy fix for the smallest businesses to deal with VAT

With care and planning it can be managed however and the most important factor is the underlying business model

VAT is just a cost of doing business.

The passive or disorganised business owner will blame VAT for all their woes.

The savvy and proactive owner will accept that it is something which needs to be dealt with and adapt accordingly

www.base52.co.uk

8 tips to save tax this year

Record high temperatures and a change in the air.

Spring is approaching and we are also not far away from the end of the tax year on 5 April.

A little planning and action now could save you tax when this becomes due in January next year.

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 £46,350, £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 £123,700.

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.

The 'tax free'  dividend allowance has 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 different 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 £46,350 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. The 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 2018/19.

You can choose how you split this between stocks & shares and cash ISAs. There are also 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 £11,700 annual exemption for 2018/19 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 2019 tax bill. It is unfortunate that however much we plan, many of us will still be faced with a tax bill for 2018/19 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.

www.base52.co.uk

I, capitalist

Being a capitalist is not something one would normally shout about.

As a word it is sometimes followed by 'pig' and spat out as an insult. So capitalists tend not to brag about being one. It's just not good form.

But maybe some of us are capitalists without realising that we are?

A good place to start is with a definition.

Wikipedia defines a capitalist as:

'A person who uses their wealth to invest in trade and industry for profit in accordance with the principles of capitalism'

Ah, so that would be George Soros, Warren Buffet and co. The super rich who invest billions in the stock market. Not us ordinary Joes and Joannas who strive for our daily crust.

But what about the self employed and small business owners? Are we capitalists? Well, some self employed - 'the gig economy', who sell their own services are probably acting more like an employee. Employees with a little more choice and freedom, but 'employee-like' nonetheless. They are an essential part of the capitalist system but are not exhibiting capitalist behaviour themselves.

On other other hand, the business owner who has built his or her business to a reasonable scale and has employed people and resources to achieve this, is probably now a capitalist. The cafe owner, the chap with the small industrial unit, the boss of small professional services firm. They may have built the value in the the business with their own 'sweat' capital or their own modest savings but (going back to our definition) they have 'invested in trade and industry for profit'. So they make the cut as capitalists.

So that's the Buffets of this world, other wealthy investors and business owners. That's a small slice of the population who are described by the 'c' word.

But under a change by the government introduced from 2012 it could be argued that we are all (or most of us) capitalists now. Pensions auto enrolment means that all employees above a certain earnings threshold need to be enrolled into an employer pension scheme. The pension provider will on their behalf invest the employee's and employer's contributions in trade and industry, hopefully for profit.

We can of course opt out, or maybe choose our own pension scheme which invests in  government securities rather than the capitalist stock market. But the returns are likely to be much less. Do we really want to choose to be poorer?

Maybe we could insist our pension provider looks at ethical investments? Yes but that is still capitalist - softer and fluffier, but capitalist.

So don't say it too loudly, but most of us, knowingly or unknowingly, are capitalists.

And probably better off for being so.

www.base52.co.uk