Posts for March 2011

StartUp Britain: so what?

Talk about a love-in. Anyone who’s anyone in UK enterprise was there - and then some. David Cameron’s giving a speech? You’re kidding, right?

And not only Cameron (as if his presence weren’t impressive enough). We also had George Osborne hinting at new policies for small investors, Vince Cable making cutting asides about the banks, Peter Jones speechifying sincerely, Duncan Bannatyne growling tongue-in-cheek.

So, you could say the launch of StartUp Britain was a fairly high-profile affair. Always a risk, that. It was slick, it was glossy, it had inspirational music and clever sloganeering (“by entrepreneurs for entrepreneurs”, “itunes for entrepreneurs”, etc). There was a fair bit of hype, to say the least.

But beneath the marketing gloss, what have we actually got? You can read the detail elsewhere, but basically we have a web portal linking to existing start-up resources; we have corporate offers for small businesses, many of which are already available elsewhere; we have the promotion of enterprise education, most of which was already happening; and we have the start of a mentoring system which aims to put business owners in contact with each other (this is new, but hardly an original idea).

Reading between the lines, it looks a lot like the Government has looked at StartUp America (launched three weeks ago), said “We need some of that” and approached a few of the entrepreneurs who carry most influence with small businesses. The conversation probably went something like this:

Government stooge: “Dave wants to launch StartUp Britain.”

Enterprise campaigner: “Great – we’re up for that. When? July time maybe?”

Government stooge:  “No.”

Enterprise campaigner: “Ok, June then. I expect we could get something decent together by June.”

Government stooge:  “Er, no. March.”

Enterprise campaigner: “But it’s already March.”

Government stooge:  “Yeah.”

Enterprise campaigner: “Oh. Right.”

The whole thing has been pulled together in about three weeks by a small group of exceptional people, quite possibly to a schedule set by the Government. Yes, it’s far from perfect, but it’s out there now and it’s just the start of something. The PM and his chums will likely now move on to the next publicity opportunity (they’ve not actually put any money into this); meanwhile, the founders will have to make something more of what they’ve started. Believe me, these are not the sort of people who will want to let an opportunity like this go.

The thing is, StartUp Britain is actually something we need. In the last few years, a huge number of small business resources have sprung up online (Donuts included); how the hell are prospective business owners supposed to know what’s worth looking at? Until now, they’ve only really had Business Link serving this kind of function in a systematic way, and Business Link has always been very conservative about its recommendations (with good reason). StartUp Britain doesn’t have to be - if it’s the most useful resource, it should get on the portal. How you decide what is ‘most useful’ is a different matter.

Of course, there are plenty of gaps - we’d like to see more focus on helping people get to grips with the technical and legal aspects of setting up and running a business, for example (Law Donut, anyone?). But it’s a start, and the founders themselves admit they’re only “two per cent” of the way there.

Perhaps it was launched prematurely - but, hey, it’s been done in true fly-by-the-seat-of-your-pants entrepreneurial spirit, and the people behind it should be given a high five for just going for it. This is something “by entrepreneurs for entrepreneurs”, after all, so let’s support StartUp Britain and help to turn it into something genuinely helpful to small-business owners. I haven’t even mentioned the potential lobbying power of this group of people (it’s considerable) - in fact, it's in the unified campaigning for enterprise education where StartUp Britain might have the biggest impact. This is an opportunity for the UK’s enterprise community - let’s take it.

Do you suppose they’re going to remove David Cameron’s giant disembodied head from the home page now they’ve launched?

Two irritations - the language of enterprise and navel-gazing by the media

One thing that annoys me whenever I go to small-business events is the readiness with which everyone talks about ‘enterprise’ and ‘entrepreneurship’. On the one hand, they discuss the ‘fear factor’ of starting a business and how we can help people overcome it; on the other, they use the very terminology that puts people off in the first place. How many ordinary small-business owners associate themselves with the qualities of a ‘classic’ entrepreneur? Not many, I bet.

My concern is that by indulging the fantasy that everyone can be a restless, risk-taking, dynamic wealth-generator who starts another business - sorry, enterprise - with every million made, we distance ourselves from the reality of what it’s like to actually start and run a small business. It’s just one more step from this to Government business policies that offer a disproportionate benefit to a niche section of our total business community. Take last week’s Budget, for instance…

My second irritation is the media talking about the media. So I’m going to finish this blog by mentioning two ‘real’ people I met today, both of whom I’d love to feature on the Donuts in the future.

Eliza Rebeiro is 17. She started her community interest company at just 14, to campaign against the growing threat of knife crime to young people in south London. Of course, Eliza didn’t know she was starting a business when she launched Lives Not Knives. She just did it and it gathered momentum and now she organises events, provides mentoring to young people and has all sorts of other plans to pull young people away from the gang culture that surrounds them (including business education, a theme of the day). Eliza’s properly inspiring.

The other is the beautifully-dressed Adam King, co-founder of affordable bespoke tailor King and Allen. I have to declare an interest here - King and Allen is based down the road from my flat and I bought one of their suits with some redundancy money about five years ago. At the time they were plying their trade from some pokey rooms above, I think, an abandoned bank branch, and I was struggling to find a job. It’s a very nice suit.

Anyway, Adam’s story started with a successful world record attempt and - well, more of that another time. Meeting Eliza and Adam made my day. There are hundreds of thousands of excellent people starting and running myriad businesses all over the UK. Every one of them has a story worth telling and every one of them is deserving of support and recognition. As long as initiatives like StartUp Britain don’t lose sight of this simple principle, they should do all right.

Budget 2011: a budget for small business?

This week’s Budget speech was full of references to enterprise, start-ups and growth. But it remains to be seen just how much George Osborne’s budget will actually do to help small firms in the UK.

Like every Chancellor of the Exchequer, George Osborne has had to try and deliver something for everyone — and in business terms that includes local shop-keepers and high-growth technology firms, big businesses and the city.

But while there was some good news for small businesses — and lots of talk about helping entrepreneurs — many of the substantial changes look set to benefit large companies.

In fact, as Robert Peston noted in his BBC blog, this was a budget for big businesses.

First and foremost, the surprise two per cent reduction in Corporation Tax is good news for big companies. But what about the small business rate? That drops one per cent (as previously announced) to 20 per cent but there’s no extra reduction for small firms in this Budget.

The relaxation of planning restrictions will be music to the ears of some of the UK’s largest corporates such as supermarkets and construction firms. But will it really make a great deal of difference to the average small business?

George’s big moment was the announcement that fuel duty would be reduced by 1p, effective immediately. In addition, the planned inflation rise in fuel duty due in April was delayed and the annual 1p above inflation “fuel escalator” rise was scrapped until 2015.

But these gestures mostly represented a chance to grab — and make — the headlines with the clever message that this is the Budget that “fuels” growth. Do you see what they did there?

In fact, the price of petrol has gone up by 17p in the past 12 months and the price of diesel has risen by 23p. That’s the reality on the forecourt for small firms.

Good news from the budget for business?

OK, yes we’re getting 21 new Enterprise Zones — but how these will work has yet to be revealed.

And yes, from April, there will be a moratorium exempting start-ups and all businesses employing less than ten people from new domestic regulation for the next three years. That’s just new legislation, mind.

And yes, the tax code is being simplified, with 43 tax reliefs being abolished. Call me cynical, but I would bet these are the 43 most obscure parts of the tax code — the removal of which may not radically reduce red tape for the average business.

OK, the government has agreed with the banks a 15 per cent increase in the availability of credit to small businesses. But how that translates into real lending remains to be seen. Does that mean that your business will get the lending it needs to invest in people, product development, equipment, stock — all necessary for growth.

Then there’s the merging of National Insurance and Income Tax. With NI costs rising, this sounds like a plan that could make a very real difference to SMEs. But it’s only a consultation. And the government is looking at merging the administration of NI and income tax, not necessarily fully merging the two systems. And anyway, it’s going to take ages…

Budget 2011: Substance or soundbites?

Much of the talk about encouraging enterprise in the Budget was full of soundbites — tell the world, “Britain is open for business”, we are making the UK “the best place in Europe to start, finance and grow a business” and this is a “budget for making things not for making things up”.

But soundbites don’t fuel growth. And, as important as Wednesday’s Budget was, the effect of the sweeping cuts is about to be felt. With this year’s growth figures revised downwards, we’ve got a long way to go.

Rachel Miller, editor, Marketing Donut.

 

• Read our round-up of the 2011 Budget.
• Find out how small business groups and SMEs have reacted to Budget 2011.
• Catch up with the live blog transcript of Budget 2011.
• Tell us what you think on the Forum.

Budget 2011 summary for small businesses

The Wordle above illustrates the frequency of words that appeared in George Osborne’s Budget speech. The bigger the word, the more frequently it appeared – and so, we assume, the more important it is.

The biggest relevant words here are tax and new. Tax is understandable – there were a lot of announcements around the tax system and its simplification. New? Well, I guess the Chancellor took a lot of pride in announcing one "new" initiative after another.

We then have Britain (naturally) and growth. This, the Tories have been saying, would be a “Budget for growth”.  Was it? Well, given that the Budget was accompanied by a downgrading of growth forecasts, we’ve got to wonder… Nevertheless, the words business and businesses are reasonably prominent, too.

Work, however, is not. Neither is manufacturing, despite the apparent emphasis on this sector. One surprisingly large word is also. Well, maybe it’s not so surprising – this was, after all, something of an ‘also’ Budget. How many times did the Chancellor say, like a conjuror, “I promised you this, but I’m also giving you this.”

Are we impressed? It remains to be seen. Below is a very brief list of the key points for small firms. You can read our full round-up, as well as the reaction of businesses and business groups.

• 2011 growth forecast downgraded from 2.1% to 1.7%

Investment in growth

• 21 enterprise zones, with ten to follow later
• £2 billion pledged to the Green Investment Bank
• Funding for 12 university technical colleges, with more to follow
• An extra 40,000 apprenticeships for unemployed young people

Tax and business rates

• Small business tax cut from 21% to 20%; corporation tax cut by an additional 1%, from 28% to 26%
• VAT registration threshold increasing to £73,000, deregistration threshold increasing to £71,000
• Personal tax allowance to rise a further £630 to £8,015 in April 2012
• Doubling of entrepreneurs’ relief to £10 million
• A 100 per cent business rate discount worth up to £275,000 over five years to businesses that move into an Enterprise Zone
• Fuel duty cut by 1p per litre
• 43 tax reliefs to be scrapped as part of simplification of tax code

Regulation

• The right to request ‘Time to train’ will not be extended to businesses with less than 250 employees
• No new regulation on firms with fewer than 10 staff for three years

Relive the Budget blow-by-blow with our live Budget blog

Enterprise Budget will deliver for "real businesses", says Chancellor

Budget a "reasonable stab at growth" for small firms, say business groups

Forum: Did you get what you wanted? 

First four enterprise zone locations announced by Government

Five common start-up mistakes

In all my years as an advisor, I’ve seen businesses start up and fail more times than I would have liked. Here are a few common reasons why:

1. Lack of research. Whether it their products or services, customers, competitors or the wider industry/sector. Businesses often chase the uniqueness of a product or service rather than the value to the customer. Remember the Sinclair C5? Look at things from your customers’ perspective and if in doubt ask them. Remember to be aware of any potential pitfalls regarding intellectual property – which means protecting your own and making sure you don’t infringe someone else’s, of course.
2. Underestimating time required. A high percentage of start-up failures I have had experienced have failed because of time. Not time in the sense of time-management, but time it takes to develop, launch and gain enough momentum behind a product or service. Do not underestimate how long this will take.
3. Lack of passion or motivation. Only start a business if you genuinely have a passion for the idea. I’ve seen too many businesses struggle only for the owner to give up because they don’t have the necessary passion or motivation.
4. Ostrich mentality. When things get difficult, burying your head in the sand and trying to ignore problems will not make them go away. Generally, they get worse. There’s lots of help available for small-business owners and none of the help that exists out there will judge you or think any worse of you for admitting you need a hand. Don’t be too proud to seek advice. Even the most experienced and famous business owners have business advisors and mentors.
5. Lack of cash. The classic reason. Cash is the lifeblood of business. As you know, if you don’t have enough blood in your body, soon you’ll become very sick and you could even die. Similarly, if you don’t have access to enough cash when you need it, your business won’t last. Plan effectively and regularly and keep a constant communication with your bank manager and accountant.

Stuart Hartley is senior consultant and manager of the Corby Enterprise Centre in Northants.

Seek to grow your business on profit – not loans

The last two years have been tough. My business, Karacha.com is based in Bangor in Northern Ireland. It sells musical instruments, online and through my shop. Up until a few years ago, sales peaked around customers pay days. Now, people are much more cautious with their money.

Many of my customers now prefer to rent instruments rather than buy them. Our rental business has tripled, because parents are not racing out to buy ‘wee Johnny’ a saxophone until they know it’s more than a fad. Increased caution is to be expected, but it does not necessarily need to result in businesses closing.

In fact, despite the recession, many small businesses we supply have grown. And we’ve had more applications for trade accounts over the past two years than we did before the crunch.

The reason why many independent smaller shops have weathered the storm, I believe, is they are inherently run completely differently than large business. In a well-run small business, the owner has a good knowledge of all areas of the business. The larger a business becomes, the more cracks can appear in the foundations, cracks that can go unattended until it’s too late.

Certainly, in my sector, many businesses that failed were asking for it. Too many people believe the way to grow a business is to add as many locations as quickly as possible. Personally, my aim has always been to secure the biggest net profit on the lowest possible turnover. In other words – maximise my margins, not my turnover.

But in my sector (and in others, I’m sure) the focus hasn’t been on margin, more the drive to grow at all costs, with the misconception that with scale will naturally come profitability. This is why as soon as the recession hit, the smallest dip in turnover was enough to bring down some of the biggest chains.

I saw it firsthand several weeks ago. A company that held stock belonging to Karacha.com went into administration, entirely out of the blue. They had just moved into bigger and better premises and hired new staff to grow the business. All well and good, but they were balanced on such a knife-edge that the loss of the smallest amount of business resulted in them going bust.

In August I was being regaled with their success story. In October I found myself at their warehouse at 5am on a Saturday morning overseeing a considerable amount of our stock being moved by lorry before the administrators turned up.

If your business is worth a £100,000 loan, you or your business should probably be investing the same amount yourself. In the years leading up to the crunch, businesses were opening new premises and expanding too quickly without having a sound bottom line. Consequently, when the banks would no longer play the game, many businesses failed.

The general lesson from what I’ve seen over the last year is that small businesses should aim high, but don’t overstretch yourself or try to run before you can walk. You should seek to grow your business on profit – not on loans.

Adam Ewart, Karacha

Limited company director? Could you be earning more?

Some of you may be operating your own limited company. It might be just you, maybe you and your partner/spouse or you and your employees.

So how much can you pay yourself? Did you know that from April 2011 you can pay yourself a salary of £589 a month without paying any tax or NI?

At this level:

• You get National Insurance Credits towards some benefits (eg pension)
• You must register as an employer and complete employer’s annual returns
• You don’t have to pay any tax or National Insurance
• This is a perfectly legal and acceptable way of paying yourself from your company.

Dividends

One of the tax-efficient ways to operate* as a shareholder of a limited company is to pay anything over and above the salary as dividends. A dividend is the distribution of ‘after-tax profits’, so it’s essential that the company has sufficient retained profits to pay a dividend.

If this rule is not followed, the dividend could be viewed as an unlawful distribution of the company’s funds.

No additional income tax** is due on dividends received where the total income of the person is below the higher rate threshold.

The higher rate threshold from April 2011 is £35,000.

Assuming that you have no other income, you can pay a divided from the company of £31,866 before you pay any additional income tax.***

Other income covers interest received, rental income received, additional dividends etc

Total

On an annual basis you can pay:

• Salary of £589 per month = £7,068 per year
• Net dividends from the company of £31,866
• Total = £38,934

Notes

*Subject to your specific circumstances. Check with your accountant whether this is best for you. This is a guide only.

**Corporation Tax has been paid on the company profits at 21 per cent until 31 March 2011 and 20 per cent from 1 April 2011. So while the above is free from additional income tax, Corporation Tax has been paid on the profit where profit = income less costs (the salary is an allowable cost).

***Calculation for dividend – here’s the maths!

• Personal allowance £7,475
• Higher earnings threshold £35,000
• Gives total income of £42,475 before additional income tax is due
• Salary of £7,068 leaves gross dividends of £35,407 to be paid
• Net dividends (the amount paid from the company) £35,407/100 * 90 = £31,866

Elaine Clark, www.cheapaccounting.co.uk

How intellectual property can add value to your start up

Intellectual property – also known as ‘intangible assets’ – comprises patents, copyrights, trademarks, design rights and registered designs.

Some intellectual property rights (eg patents, trademarks and registered designs) need a formal process of registration and payment of fees by the owner to the Intellectual Property Office, to provide protection and monopoly rights to their owner.

Copyright and design rights arise automatically upon creation, but do not protect the owner from a third party’s independent creation – only from actual copying.

Intellectual property rights differ in terms of duration and procedures, but their effect is to ensure the owner has the exclusive right to use its rights and decide how those rights are used and exploited, which includes preventing any other party from using the same rights. This is extremely important for start-ups seeking to protect their assets, to achieve growth and potential investments.

Intellectual property rights only protect the expression of ideas, not the ideas themselves, so appropriate confidentiality agreements must be put in place to ensure initial actions do not jeopardize future intellectual property.

A start-up must have a process for identifying and capturing its intellectual property. To this effect an intellectual property audit carried out periodically is always useful. Once a start-up has identified its intellectual property, it needs to:

1. Manage its intellectual property portfolio by deciding which intellectual property to maintain, since intellectual property can be costly to maintain and protect. Remember that even when some intellectual property assets may not be of direct value to the business, they could still be licensed or assigned to third parties, bringing extra revenue and profits.
2. Adopt effective policies for the capture and retention of innovative ideas, trade secrets, inventions, know-how and confidential information. Intellectual property is not only patents. Although patents can add significant value to an intellectual property portfolio, it is important to use appropriate agreements, such as confidentiality, consultancy or licensing agreements.
3. Monitor and enforce its rights, which may create an opportunity to recover lost licensing revenue through settlement or damages awards. By contrast, a failure to take action to prevent and address intellectual property infringement may result in lost license fees and royalties. Similarly, being aware of the intellectual property assets of your competitors and implementing clearance policies for new products or services, helps to avoid unwanted and costly infringement claims by third parties.

This article is for general purposes and guidance only and does not constitute legal or professional advice. You can read more information about protecting your intellectual property here.

Dr Maria Anassutzi, Anassutzi & Co Limited

Why you’ve got to communicate confidence and professionalism

We never had much money when I was growing up, but whenever my mum bought something, she made sure it was of the best quality she could afford.

I don't think we were alone – and I don't think that attitude is confined to the ‘80s. Most people would rather pay for quality than search out the cheapest. And the old adage "You get what you pay for" is just as true now as it was 25 years ago.

If you're good at what you do, you won't need to compete on price. People will recognise the value in what you offer and they'll be prepared to spend more. Or will they?

Often I meet small-business owners who struggle to earn a living because their customers won’t pay their prices. Consequently, they have to be the cheapest or discount just to make the sale because their customers don't recognise/appreciate the value of what they’re being offered. 

And this is partly down to the small business’s sales process, partly what’s written on its website/ brochure and partly (largely if you're not doing the selling) down to the fact that their brand isn't communicating confidence or professionalism.

Fiona Humberstone, Flourish design & marketing