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Rules of thumb for starting a business

September 24, 2010 by Chris Barling

I am sure we have all heard the expression “rule of thumb”. I am also sure we can all relate to decision-making based on these rules. In a past role as an IT director, the rule “never be biggest and never be first” proved true on numerous occasions, some of which were when I didn’t follow it.

Rules of thumb based on our own experiences can be useful, but can equally be dangerous. Of course we can conjure up a rule to justify virtually anything. The choice between “too many cooks spoil the broth” and “many hands make light work” springs to mind in this context.

So with that caveat, I present my four rules of thumb for starting a business:

1 Don’t just plan to compete on price

It amazes me how many people plan a start up, especially selling online, where they intend to undercut everyone else. The only way this can work is if you have something that makes your costs lower than all of the competition, for instance, by having a special relationship with a supplier that ensures you receive the best prices. If you don’t and stick with that strategy, you will go out of business, overwhelmed by all the new entrants pursuing the same strategy as you, and by those that have a cost structure that enables them to succeed.

2 Do something that interests you

If you are good at something, you tend to enjoy it. If you enjoy it, you tend to be good at it. Starting a business is bad enough without being involved in something you know nothing about or worse still – hate.

3 Aim for happy customers as soon as possible

Until you have some happy customers, you only have a theory. Once you have some happy customers, you have a business. Some people who deep down in their heart are unsure about their idea postpone the day when the customer meets the product. In contrast, you should make that day happen as soon as possible. If it’s not going to work, the sooner you know, the better.

4 Don’t spend what you don’t need to

Money is the most precious resource when starting a business. You need to focus this resource on finding customers and giving them what they want. Everything else should be kept to a minimum.

These are my top rules of thumb for starting a business – what are yours?

Chris Barling is Chairman of ecommerce software supplier SellerDeck

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How you can legally get away with not paying Corporation Tax

September 22, 2010 by Elaine Clark

Amazingly, a change in policy means that if Companies House compulsorily closes your company you could avoid paying any Corporation Tax you owe.

How? It seems that Companies House has adopted a new approach to closing a limited company (by a process known as “striking off”) if that company does not complete an annual return.

An annual return, of course, is a snapshot of certain company information at the made-up date (ie address of registered office, details of directors etc). It is different to the company accounts and does not contain any financial data about the company’s performance.

There are no fines for filing the annual return late, unlike if you file your accounts late, where fines start at £150 and rise to £1,500 for private companies.

For clarification, I telephoned the Companies House helpline and was told: “We changed this in about August 2009. If companies do not reply to our letters, we begin the ‘strike-off’ after about two to three months. The change was as a result of a policy decision – not a change in law.”

What does this mean?

As a result of the action by Companies House to close the company, technically, the company no longer exists. And a company that no longer exists cannot pay Corporation Tax.

Because Companies House took this action, the directors or shareholders have not avoided their duties to inform creditors.

So let’s just say you have a company that has traded, made a profit but for whatever reason has been compulsorily closed down by Companies House, then you could just start another one and do the same again.

What is going wrong?

It seems that while HMRC is told of these compulsory closures, it is not doing anything about them.

It could easily stop the close down until it has the final accounts and tax paid by the limited company.

Why doesn’t HMRC do something about it? That’s the question I would love to have answered.

Should HMRC do something? Well in my opinion – yes. At the moment, in this regard, HMRC is avoiding collecting taxes. Mind you – should we be surprised about another HMRC fiasco?

Footnote

While I totally disagree with the ethics behind owners of companies taking advantage of this loophole, it is legal and done with full knowledge of Companies House and HMRC. So who am I to question it?

Caution – if the company is closed the business bank account will be closed and the money belongs to the Crown, as will any other company assets.

There may also be other reasons for not wishing your company to be closed down. However, I’m sure there will be a few who will enjoy making use of this loophole.

Elaine Clark, www.cheapaccounting.co.uk

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Lessons learned about social media marketing

September 20, 2010 by Alex Astell

Recently, I spoke to Nicki Grainger of The Cherry Closet, a customer of my business, to find out about her experiences of social media marketing.

Nicki started her online vintage boutique a year ago on the back of her career spent in fashion journalism, women’s magazines and websites. Having always loved clothing with a sense of history and fancy dress, she started sourcing unique and charismatic vintage items from the UK, America and Europe.

Nicki says: “The boutique is all about style-savvy women having fun experimenting with fashion, encouraging eco-friendly shopping and preserving a piece of the past in their own individual way.”

She’s been using social networking sites since she launched the business in August 2009. Mainly she uses Facebook, Twitter, Flickr, Blogger, MySpace (not as regularly) and professional sites such as LinkedIn.

I try to update Twitter daily – if not every other day – and Facebook, on average, once or twice a week. I used to blog every day, but time constraints now mean I can only manage once or twice a week. The MySpace page is pretty static, and I update Flickr every month or so with new stock images.

Does she have any tips for successful use of social media for business?Keep at it!” she replies, “You have to do regular updates to maintain interest. Be creative – think outside the box. We only just started posting pictures of celebrity outfits and finding the vintage equivalent on our website. Also, link, link and link some more. Promote other people who promote you, tag photos, mention names and use content that will engage. You’ve also got to use social media channels differently. Facebook and Twitter are two very different tools, so try and use them both to their full potential.

To measure traffic, Nicki has Google Analytics installed on her boutique website so she can see who is coming from where. She adds: “Facebook emails me weekly stats on how many fans my page has and comments made; Blogger has a 'followers' tool and I get a lot of messages through Twitter and my website from people via social media.”

Social media has also enabled Nicki to more conveniently gather customer feedback on her products and website, which is crucial for an online shop that can’t interact with customers face to face. Her business profile has also been raised. She says: “Our recent video and feature for GLAMOUR magazine actually came from Twitter. I took the time to help a girl out with something for her university fashion course, and she was in the right place at the right time to recommend us directly to the magazine.”

Does she think social networking is worth the time she spends on it? “Yes I do. Social media is essential for modern marketing - especially when you’re primarily an Internet-based business such as ours. You rely solely on getting those clicks and getting your brand out there and social media is hands down the best way to achieve this. By listening to what customers and people online are saying about your business and your brand, you will only improve your service. My only regret is that I wish I had more time to dedicate to it, because it can be so time consuming - but so worth it!”

If she could only use one social networking site, which would it be? “A very tight contest, blogs second only to Facebook. As much success as Twitter has bought me, whatever you tweet feels so momentary. Also, you can’t represent who you really are and what you’re about in 140 characters and I like having more creative control over social media. Facebook allows this and also reaches out to a wider audience. Some of our fans are 16, while some are 60.

“Facebook is more recognised channel, whereas many people I know still don't understand Twitter. Facebook is the easiest site to get people engaged because your updates land in their own personal feed, keeping your presence known, without being intrusive. You can combine links, photos, feedback and status updates plus receive comments all in one place - which is why I think it’s best.”

Alex Astell of Manage My Website

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National Insurance holiday: key points

September 17, 2010 by Justin Randall - Accountant London

On 6 September, the government launched its National Insurance Contribution holiday. Under the three-year scheme, eligible new businesses will not have to pay the first £5,000 of Class 1 Employer NICs for each of the first 10 employees they take on in the first 12 months of trading, offering a potential saving of up to £50,000.

The scheme is open to new businesses set up on or after 22 June 2010 and will run until 5 September 2013.

Once the £5,000 cap is reached the ‘holiday’ will end for that employee and Class 1 NIC will apply as normal. Any unused relief (eg if the employee leaves) is not transferable. The relief applies only to Class 1 contributions – not to Class 1A or Class 1B.

Relief is not compulsory and businesses will need to apply for the holiday. If you have not applied and been accepted, you will be required to pay as normal.

Business can apply at www.businesslink.gov.uk/nicsholiday

The regions that will benefit include Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

However, excluded are businesses in Greater London, the South East Region (Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Surrey, West Sussex, Bracknell Forest, Brighton and Hove, Medway, Milton Keynes, Portsmouth, Reading, Slough, Southampton, West Berkshire, Windsor and Maidenhead and Wokingham) and Eastern Region (Bedford, Cambridgeshire, Central Bedfordshire, Essex, Hertfordshire, Norfolk, Suffolk, Luton, Peterborough, Southend-on-Sea and Thurrock).

Most staff will be included, but there will be some specific exclusion, for example, employees operating under companies caught by the IR35 rules. Restrictions also apply to subsidiary business, businesses in association and managed service companies.

NOTE: The legislation is not expected to receive Royal Assent until early 2011 and has not been formally accepted. Therefore, if the coalition government falls apart and the NIC Holiday is never implemented, any relief already obtained will be repayable. Other exclusions and restrictions apply.

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

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Investing in your local community

September 15, 2010 by Matt Bird

Investment is a common term for most start-ups, usually in the context of technology, buildings or staff training, but what about philanthropic investment? And in particular, should a start-up look to give to the local community when finances are usually so tight?

Your community would benefit from it

We’re in the midst of a recession and that doesn’t just affect commerce, but also local activities and groups. Any assistance you can give to your local community will surely be appreciated and remembered, for example, sponsoring local events or sporting teams. It need not be financial; products, time and manpower are just as valuable a commodity for some projects.

To my mind, if you can afford even a small input, there is no reason not to invest – a humanitarian deed for the day is a great way to live. But as with any investment, there must be a return – mustn’t there?

Could it benefit you?

A truly philanthropic investment would yield no direct financial return for your business, but with my most cynical of capitalist hats on, why be in business if not to make money? Yes, do things for the community, but away from work, with your own time and your own money. After all, without profitable businesses, there is no economy, no livelihoods and no thriving communities in the first place.

But there are less tangible returns that you might gain, for instance, on the public relations front. Everyone loves a ‘feel good’ story and if you have the opportunity to make a difference in your local community and can publish it correctly, this charitable activity can do wonders for your reputation.

Take Christmas, for example. If you normally send cards to customers and suppliers, think again. Instead, perhaps you could email everyone and explain that you are donating £xxx to a local cause.  Everybody wins, including the environment.

What if it backfires?

Breaking News: “Lovely generous business gives money to [insert charitable cause]” . Who doesn’t read it and replace the “Lovely generous business” thought with “looking for some public good will” judgement. We all do. And does this feeling really disappear when it is a start-up or small business? Has today’s hurly-burly environment removed our ability to see a selfless act and not be suspicious?

My thoughts

Personally, I think all businesses should make an effort to give something back to the community, whether you are resident there or if your business is simply based there. My employer invests an awful lot in the local Alveley community in Shropshire, with barely any of the investments receiving mention outside the parish. But it’s worthwhile because we see the appreciative faces, receive the handshakes and know our small contribution enabled an event to get off the ground and realise someone’s dream.

Yes, businesses exist to make money, but there is no need for that money to sit in a bank when it could be put to good use.

Matt Bird of printer cartridge supplier, StinkyInk

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Tap into graduate potential

September 15, 2010 by Anita Brook

We’ve all heard the news that times are tough for graduates, suffering from cut-backs in jobs and graduate schemes due to the ever-present state of the economy. While bad for ex-students, this is potentially good news for employers as there is a massive pool of keen and well-educated young people, ready to bite your arm off for a job, or even just work experience.

In some respects, these young people are blank canvases that can be moulded to fit your way of working. And, with more degree courses than ever before including a work-placement, plus the majority of students having to supplement their income with a part-time job, it’s likely that employment isn’t a completely alien concept.

Why graduates are great for start-ups

If your business is in the fledgling stages, taking on experienced members of staff might be a risky expense you can’t afford. What graduates lack in experience, they make up for in brains, quick-thinking and a fresh attitude. The majority are eager to learn and will cost a lot less than somebody that has earned their stripes following many years on the career ladder. If it’s just a placement you’re offering, potentially, graduates won’t cost a penny – although I have to say, I am not particularly supportive of the current trend for abusing the situation and getting graduates to work for long periods, for nothing.

Funding streams

There is funding available. In the North East, for example, Graduates for Business, offers £70 a week towards the salary of a graduate for the first 15 weeks of their employment. Specifically aimed at smaller businesses, qualifying SMEs must have less than 250 employees and be able to pay new graduates a minimum of £14,000 a year. For information about graduate funding in your area, visit www.businesslink.gov.uk.

Placements

For a short-term commitment, a placement can provide a mutually beneficial exchange between employers and graduates – particularly in the summer holidays when those that are still studying have a lot of spare time on their hands. Depending on the length of the placement, this doesn’t necessarily have to be paid – especially if it’s over the summer break – however be realistic, if you take someone on for six months and don’t pay them a bean, then that’s a little unfair!

Rate my placement is a website for undergraduates looking for work experience and employers offering internships – like a job dating agency. Students will ‘rate your placement’ so it’s important that if you get involved, you provide good levels of training. Placements can be anything from a few months to over a year.

Giving these young people a chance could be good for your business and will help dent the massive levels of graduate unemployment. If all goes well, you never know, you might find just the right person to take your company on to the next level.

Anita Brook, founder of Chartered Accountancy firm, Accounts Assist

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