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The importance of family and friends when starting a business

June 18, 2010 by Chris Barling

I would like to look at an aspect of starting a business that isn’t often considered. Mostly discussions are about finance, marketing, recruiting a great team, VAT, legals and all of the other stuff of start ups. But most people need the support of family, friends, and partners. Start ups are hard, and you must be sure that everyone is with you, everyone is supporting you, and everyone understands what you are doing.

My decision to start a new business was made jointly with my wife. Although she’s had limited involvement in the management, she was a full participant in the original decision. And as a result, she has supported me in every up and down since then, which has been a real help. Similarly, my sister and a friend both lent me money when we had an early cash flow crisis. They wouldn’t have done this if they hadn’t been taken on the journey beforehand.

And that’s the rub. If people close to you aren’t with you, they may be a source of discouragement. In the extreme, broken relationships can greatly increase the chance of business failure. I’ve actually seen this with a friend, where they ultimately ended up with nothing. On the other hand, constant encouragement and reassurance can be a real help – as can financial support.

If you start a business, it won’t only affect you, it will impact those close to you as well. They deserve to be told what that will involve and to be consulted for their opinions. Do this, and you will increase your chances of success significantly.

Chris Barling is Chairman of ecommerce software supplier SellerDeck

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Capital gains tax planning for the emergency budget

Although capital gains tax (CGT) is set to rise, we do not know when. The start date may be deferred to 6 April 2011, but the changes could also take effect from 22 June this year.

Property owners and investors can expect to bear the brunt of the increases. Trading businesses and shares in trading companies may continue to benefit from Entrepreneur’s relief, although that relief is fairly restricted compared to the old “taper” relief it replaced.

While it may be possible to sell assets by the end of the tax year, it might not be feasible to sell to a third party by 22 June. For this reason, it could be worth locking in the gain at the current 18 per cent using a family trust.

CGT on trust transfer

A transfer into most types of trust is treated as made at market value for CGT purposes. It should therefore crystallize CGT at the current rate on the accrued gain to date. Similarly, the trustees will be deemed to have acquired the asset at current market value, which is then their base cost used for a future sale taxed at the new higher rates.

There is, of course, a risk that if values fall, the trustees actually make a loss that cannot be offset against their gain going into the trust. However, this may be outweighed by the tax rate saving achieved.

The tax on the trust transfer will fall due on 31/1/2012, by which time the asset may have been sold to a third party. Alternatively, there may be scope to pay the tax in installments.

Stamp taxes

A gift of property into trust should not attract Stamp Duty Land Tax (SDLT), although SDLT would arise on any transfer of mortgage to the trustees (this representing consideration). Similarly, there should be no stamp duty on a gift of shares into trust. Stamp taxes will be incurred where there is actual consideration.

Inheritance tax

It is important to note that for inheritance tax purposes, gifts to trust are generally taxable at a 20 per cent lifetime rate once the nil rate band (£325,000) has been exceeded. The tax does not need to be incurred on larger transfers, but the process needs to be carefully managed.

Avoiding unnecessary CGT

Obviously there is a concern that if the asset is not eventually sold to a third party, a CGT liability has been triggered unnecessarily. There are strategies to mitigate the CGT charge on a transfer, if the asset is to be retained.

Those with property or shares likely to be sold in the not too distant future should think carefully about a transfer before 22 June. The position is uncertain, but if the CGT rate goes up to 40 per cent or even 50 per cent, individuals are going to lose a substantial part of their capital appreciation. This, in my view, is akin to retrospective tax.

The points raised above are only intended to provide general information. Professional advice should always be sought in specific situations before taking any action.

Justin is a partner at London-based chartered accountants and tax advisers Jeffreys Henry LLP.

How to manage your cashflow

June 16, 2010 by Brendan Flattery

Brendan Flattery, managing director of Sage’s Small Business Division, answers some key questions about the importance of maintaining healthy cashflow.

What is Cashflow and why is it important to SMEs?

“Any successful small-business owner will tell you that healthy cashflow is critical to the smooth running and growth of their business. It’s been a challenging time for all businesses recently, regardless of size, and one that will have a lasting impact on the way businesses structure and manage their operations. One of the key lessons that many small businesses have taken from the recession is the importance of healthy cashflow.

“Put simply, cashflow is the movement of money within a business, but this seemingly straight forward concept can have detrimental effects if badly managed.”

What are the likely consequences of poor cashflow management?

“Healthy cashflow is vital for all businesses, but the consequences of not managing it effectively can quickly have a massive impact. A small business can only survive for a limited period with a negative cash flow. Ultimately, the business will end up insolvent, which means it will fail because it won’t be able to pay its creditors.”

How can SMEs monitor their cashflow?

“Cashflow forecasting software is an important business tool that can not only show payment patterns and forecast the year ahead, but also highlight re-occurring late payments.

“It’s been widely reported that most failed businesses have closed because of problems caused by inefficient cashflow management rather than anything else. If small businesses put into practice the correct processes they will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues early enough. Then they can take action to avoid any anticipated downturns. More effective cashflow management will help stabilise the business, as well as ensure the business emerges from the recession in a stronger position and cash positive.”

How will monitoring and planning cashflow help?

“Julia Boggio Photography is a Sage small business customer. The business has experienced first hand why accurate cashflow forecasting is a must. They used Sage 50 Accounts forecasting tools. MD Julia Boggio says:

‘When I was reviewing our cashflow forecasts in November of last year, I could see there was a dip due in February. We reorganised our finances, cutting down on advertising and came up with an alternative contingency plan, which we put in place. This ensured we were well positioned to account for the dip and even enabled us to have a better February than the previous year.”

What impact do late payments have to a small business?

“More than half of the 2,000 small businesses polled by Sage in our monthly Omnibus survey said they had been impacted by late payments over the past year. The Department for Business, Innovation and Skills reported that more than 4,000 businesses failed in 2008 solely because of late payments.

“It is critical that start-ups and all other businesses to remain aware of exactly how much money they are owed and when payments are due. This helps to prevent late payments in the first instance. However, if they do occur, good management can ensure that they do not have a damaging effect on the business’s overall cashflow. These are all aspects that business accounting software can help you get to grips with.”

What are your top tips for maintaining healthy cashflow?

“Make sure all your employees – if you have any – are kept informed about the state of the business’s cashflow. This will hopefully prevent them from making purchases your business cannot afford. At times you might be waiting for a large invoice to be paid, so you may have to put spending plans on hold.

“Create accurate cashflow forecasts for the year ahead. It will enable you to plan for the future. Forecasts allow you to identify potential cashflow crises, for example, be identifying periods when your costs exceed your revenue. At such times, your business might need to seek financial help. To be fore warned is to be fore armed.”

Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland

  • Visit the Sage website to download its guide to effective cashflow management.

Mumpreneurs and money

June 16, 2010 by Antonia Chitty

Most mums with businesses are serious and committed, but don’t always find it easy to turn this commitment into big bucks.

Many women need to change the way they think about money and how they feel asking for money. Research has shown that women are less comfortable to ‘name their price’ than men, and women in ‘helping’ professions are less comfortable than, say, women working in IT. Say how much you want for your service out loud: are you comfortable saying this or do you feel a bit apologetic? I know I do.

When I run courses the majority of women attendees are in business to HELP in some way. You can only be truly effective as a helper if your business is strong and making a profit will allow your business to grow and help more people.

If you are in the position of running a business that doesn’t make enough profit you could:

  • Pay close attention to where the money comes from. Which clients/product lines bring in most profit? What can you do to maximise these?
  • Look at your outgoings. Could you source more cheaply, alter suppliers to ones with bigger discounts or buy in bulk?
  • Work out which jobs you should outsource to allow you to work more effectively. Pick tasks that you struggle with which someone else could do more efficiently.
  • Ask clients and customers about the value your business offers. Collect their feedback and spontaneous thanks to help build your confidence in what you offer.
  • Work out what motivates you to earn through the business. Is it the feeling of independence, the need to put food on the table or the ability to pay for treats? Remember this when it is time to chase for payments.

Follow these tips, stay in control of your finances and you will see your business grow.

Antonia Chitty of Family Friendly Working

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How do you get real people to read your blog?

June 15, 2010 by Fiona Humberstone

Have you seen Julie and Julia? It’s a heart-warming (read cheesy rom-com if you’re a cynic) tale of a downtrodden woman in a dead-end depressing job who wants to make something of her life. She’s tired of her over-achieving friends looking down on her career and one day, decides to blog her experience of cooking all 575 Julia Charles recipes.

There’s a classic moment in the film when, on the verge of a nervous breakdown (or meltdown as she calls them) Julie is wondering why on earth she’s bothering, and whether anyone is even reading her. Then she gets her first comment… except it’s from her mother, asking if she’s the only one reading this and when she’s going to give it all up and start behaving like a wife.

Of course it all ends happily ever after. Julie gains an enormous following, she is inundated with calls from book agents, she’s now a writer AND she gets a film deal. Wow! That’s some happy ending.

When you start blogging (and even when you’ve been doing it for a while) it’s easy to worry about who, exactly, is reading you. Is anyone visiting your blog? Do they like what you have to say? Is it adding any value to your business or your life?

I remember talking to Karen Skidmore a few years back. She always used to have such vibrant conversations happening on her blog, and I’d be lucky to get a comment a quarter.

Karen told me that they’d start to happen. And once they started to happen that they’d snowball. And she was right. Although it took a little longer to figure things out than I’d hoped. Comments, retweets and people stopping me at a networking event to say that they love my blog is the ultimate validation for me that the hours I spend blogging are doing something. That I’m not just talking to my mum and dad through this blog, but that there are real people out there enjoying and benefitting from what I have to ramble on about.

And when I get new clients because they’ve been following my blog for a few months and love what we’re doing, that’s great. In fact, it’s more than great, it’s now a core part of my marketing strategy.

But how do you get your blog to a point where you have regular readers, subscribers and your blog has a real presence?

I think there are lots of factors. Design is key, think about blogs like decor8, designsponge or some of the foodie blogs I like to read such as Sweet Paul. The photography and design is utterly gorgeous – people keep coming back for the inspiration and escapism these blogs provide.

Content is king, but there’s more to a blog that people want to read than good content. We’re suffering from information overload. If your blog looks dull, it doesn’t matter what you’re saying, your readers are going to think your blog is dull. And it doesn’t matter how compelling your post, they’re likely to forget you. As people start to comment more you’ll be able to suss out what they want to know about.

When I started blogging I didn’t post much on what we’d been up to in the studio. I thought it would be too boastful, that people wouldn’t want to read about it. But actually, the more ‘In the Studio this Week’ posts I wrote, the more comments I received. Of course, I always make sure I intersperse with some “how tos” as well, or it would just turn into one massive online portfolio.

Your writing style also has an influence. I’ve found that the more I let my emotions loose in a blog, the more comments and dialogue I seem to gain. And uber-bloggers like Holly Becker seem to do the same.

One of the things that’s revolutionised my blog more than anything is my use of Twitter. By feeding my blogs in to Twitter, I’ve been able to “promote” my blog to my followers, who, if they like what I’ve written, have retweeted on to their followers. When I get this right, my hits shoot through the roof and I know I’ve struck a chord.

But how about you? What do you do to promote your blog? How do you engage with your readers?

Fiona Humberstone, Flourish design & marketing

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Employees and business responsibilities

June 14, 2010 by www.inafishbowl.com

In the latest installment of Marcela from Rico Mexican Kitchen's startup story, she employs her first member of staff and decides how best to distribute the everyday responsibilities.

Marcela was advised that her new employee would be extremely important to her business so she wanted to find someone she could trust and who could take on some of the responsibilities to allow her to concentrate on making Rico Mexican Kitchen a success. Having found that employee, can they find the right balance between friendship and work relationship?

With her new employee in place, they created a mind map to help them list all of the jobs that need to be done, who will be responsible for what and how they can support each other.

Do you have any advice for Marcela on her new employee and how having him around may affect her and the business? How can she ensure she is aware of what needs to be done at all times? How much input should she have in the work done by her employee now that they have split their responsibilities?

You can find out more about Marcela on the interactive business website www.inafishbowl.com

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