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If you’re thinking about starting up, you must carefully consider whether to form a limited company straight away or hold off for a while and become a sole trader.
You may think forming a limited company will save you tax and must therefore be the best route. However, many start-ups incur considerable costs in their initial months. And even if you do not have sizeable initial outgoings, you should still factor in a realistic margin for error in your budgeting.
You will more than likely have a “learning curve cost” if this is your first time in business or if you’re going to be operating within a sector of which you have no prior experience. In either case, you should not expect the same return straight away as your more experienced competitors.
If you make a loss as a sole trader, it can be set against your employment income for previous years, which in all likelihood will give you a handy refund after the first tax year. If you make a loss as a limited company, it can only be carried forward and set against future the company’s profits. If the company never makes a profit, it will be wasted.
Even if you’re more confident that your business plan will be a success, you may still profit from waiting until you form a company. As a sole trader, you can build up custom, contacts, brand awareness and reputation in the business. From a tax point of view, this goodwill can be sold to the company. Future drawings from the company can be taken in the form of a director’s loan repayment, which will be especially beneficial if you expect to be paying tax at a higher rate.
You can set up as a sole trader by simply telephoning HMRC or registering online, whereas the route for a company formation is more complex. Ongoing accountancy costs are bound to be higher and Companies House will publish your company’s financial results for anyone to see – including your competitors, suppliers and potential clients.
Yes, if your salary and dividends are organised properly, a company can save you considerable tax. It can also limit your liability to company debts. But the decision is not so straightforward. If you want to protect your trading name, you can always form the company and leave it dormant at Companies House until you are ready to start trading.
A limited company can save you tax in certain situations, but it is not always the best way to start out. A brief review of the options with your accountant could save you time and money in the long run.
There are a huge number of companies peddling different solutions to boost ecommerce sales, and of course they all state that they are the future. Some claim that they will address the “trust” issue of online commerce; others are working on smart imagery, providing the consumer detailed product information via zoom, crops and 360 degree transitions. Then there are the latest developments enabled by smart phones, including augmented reality.
Anyone considering starting an ecommerce business needs to take all of this into account. There are many different things to think about, and in this blog I try to touch briefly on a number of them.
SellerDeck has around 12,000 sites using our solutions to sell online, so I do feel that we have acquired some insight into what works and what doesn’t. Interestingly, the most successful sites seem to focus on some of the most basic things: like a great range, helpful descriptions, competitive pricing and a dedication to customer service.This may be the case, but complacency is not a business virtue. So what is really likely to prove important to the future of ecommerce?
Payment on the mobile
The first area is payment. It’s difficult to make payments online, and the fact that it’s still possible for buyers to see charges appear on their card if their details are stolen is a real issue. We’re waiting for the banks and the mobile operators to get their collective acts together. There’s lots of optimism that the next couple of years will see progress towards the mobile being the prime payment and payment validation device.
It’s never been easier or more cost effective to sell online, and the trend is to put online, in-store and telephone sales together in one integrated application. It makes sense that some people want to see merchandise for themselves, think about it at home, then order online. Conversely, some people want to look at what’s available in the web store, then visit the shop to pick up the goods in person. As demand has risen, ecommerce suppliers have been able to provide these integrated systems without breaking the bank.
Mobile commerce and augmented reality
Nowadays a large and growing proportion of the population are carrying around sophisticated computers – aka smart phones – that know their geographical location, can combine this with real time pictures or sound and are continuously talking to the web. This is very exciting and brands such as RayBan sunglasses and IKEA are already demonstrating the possibilities. Companies such as Red Lazer are also working on innovative applications that allow you to use the power of the smart phone to combine real world items with online shopping; I’m convinced that there is much more to come.
One area that has moved from beneficial to vital in ecommerce terms is reputation management. I’m very excited about this because my company has recently done a deal with one of the companies that we see as a rising star in this field – Feefo. This area is about managing online merchant’s reputation online, and services like Feefo have a vital role to play. Feefo (which stands for Feedback Forum) runs an independent service which asks customers for feedback on both merchants’ service and products. The merchant can’t change the feedback (anything illegal or obscene is edited), but has a right of reply. There will always be feedback about merchants on the web. Having it in one place where the positive balances the negative, and having a right of reply are major benefits of an independent feedback service. The result tends to be around a 10% rise in sales, more on some sites.
The final word
We are now in the second ecommerce boom. The first, around the year 2000, proved partly illusory and partly a harbinger of the future. This time it’s for real. Someone contemplating a start up needs to assess pursuing brand new areas enabled by the latest technology and where much more technical skill, money and luck is required. In contrast there’s more chance of success with a traditional ecommerce venture, although the potential rewards are smaller and it’s still vital to be aware of the latest trends.
Budding entrepreneurs need to decide whether to build a traditional business with reasonable chance of success, or shoot for the stars in areas that are yet to be discovered. Whichever route you take, good luck.
We’ve seen many new taxes come in under the radar over the past few years, but for me, this is probably the most badly thought-out, badly communicated of the lot. And once again, it’s being left to accountants and tax advisors to communicate the bad news.
If you employ staff, you’ll be familiar with the need to pay monthly PAYE and NI contributions to HM Revenue & Customs (HMRC) by the 19th of the following month.
Up until now, the legislation has been such that if you pay late, it doesn’t really matter. HMRC might write nasty letters – or even send someone round – but ultimately, there was no penalty for paying late. The trick was to get everything square by 19 May annually, and there was no comeback.
This changed on 6 April this year, when the new legislation came into effect.
Here is a brief synopsis of the new rules and penalties for those on the main monthly scheme:
No due reflection is given to the extent to which you’re late. If you are one day late, the penalty will apply.
From an administrative point of view, the law allows HMRC to charge penalties at any stage during the tax year, or after the end of the tax year up to two years of the due date.
In 2010-11, penalties will be charged after the end of the tax year. Therefore, penalty notices will not be sent out until April or May 2011. So please don’t test the system and think you’ve got away with it – you will get a nasty shock in April next year!
Tim Haggard is founder and managing director of My Bookkeeping Online Ltd
You may well be using various social networking sites to promote your new business, but are you exposing yourself (and the company) to identity theft and malware attacks in the process?
In March 2010 my company published results from a survey of over 1,100 members of Facebook, LinkedIn, MySpace, Twitter and other popular social networks. It showed an increasing awareness among social network users of how to keep personal information private, BUT it also revealed how they still put their identities and sensitive information at risk. For instance, 28% of respondents never changed their default privacy settings and over 60% published their date of birth (a key piece of information for identity theft).
What can you do?
To help business owners understand and protect themselves while online, here are some tips as a guide for safer social networking:
Use a free password generating tool like LastPass if you can’t come up with a good one yourself. I’d also recommend changing your password at regular intervals, and never use the same password at more than one site.
Jeff Horne, director of Threat Research at internet security software supplier, Webroot (www.webroot.co.uk)
I’ve always found small businesses compelling – what makes them work and the challenge of going it alone are to me the most interesting questions in business. And after 19 years of running my company, Atom, I admire SMEs more than ever.
Why I started the Donut
I’ve always found small businesses compelling – what makes them work and the challenge of going it alone are to me the most interesting questions in business. And after 19 years of running my company Atom, I admire SMEs more than ever.
Running your own show is tremendous fun, especially if you know what you’re doing and can manage the 101 challenges that come your way every month. Which is where Atom content comes in.
We’ve been producing our expert how-to guides, sponsored by blue chips and government organisations, for nearly two decades. But, of course, as an entrepreneur, I wanted something new to do. In a (rare) idle moment online, I scouted about for a really good marketing website for small businesses. There wasn’t one.
So we decided to do it, launching on 20 April 2009. We built small and medium-sized enterprises (SMEs) their own site with everything they needed to make their marketing thrive. Founding partners Google and Royal Mail backed us all the way, as have our ever-growing list of sponsors such as Vodafone and Yell.
What we’ve achieved in a year
As well as Marketing Donut, we launched two more Donut websites to cover starting up and law. We’ve just announced that the fourth site to launch will be IT Donut, scheduled for the week commencing 23 August.
We use 300 top people to provide the expert advice on the Donuts, but, for me, the real experts are also the users. Before we started work, we asked people running small businesses what they wanted from a site. They told us they needed fast, practical and accurate answers to their questions. The Donuts give SME managers that, free. Tools, templates, checklists, the lot: plus the news their business needs to know.
All the Donuts report live on major small-business happenings - we were the first business advice site to break news of the rise in minimum wage on Budget Day. MyDonut, the e-newsletter, now goes out to tens of thousands of people a month – next year numbers should top 100,000. (This is in addition to the 300,000 subscribers to the SME newsletters that we publish for our clients. Life at Atom is one big deadline.)
Since the launch a year ago, the Donut sites have fast become a key player in the UK small-business scene. Our Twitter accounts have over 40,000 followers and our Twitter team picked up two national awards last year.
Local versions of marketingdonut.co.uk, startupdonut.co.uk and lawdonut.co.uk are syndicated to our partners, both nationally and in the regions. Thirty-five organisations already have their own Donut websites and more are coming on stream every month.
The Donut is a strong business model, because it is a win-win for everyone involved. Crucially, Atom had already invested several years building up the strategic relationships and the content before launching the first website. As with most successful SMEs, we always knew that the Donut project would not be a sprint to success, it would be a marathon.
2010-2011: what’s in it for you?
As we expand the core "answers to your questions" pages of the Donuts, we will continue to cover news and key topical issues for you. For instance, this month the Law Donut explains how to cope with recruitment and redundancy as the economy remains fragile, as well as what to do when all your staff want time off for June’s World Cup.
We’re currently building the IT Donut, which will be a comprehensive resource for demystifying IT, troubleshooting and trading online. It will become the first place any small business turns to when they have a tech problem that needs sorting fast. We're currently recruiting experts who will rid us all of pesky IT stress forever, I hope.
We’ll also be providing a local service for users, thanks to our partners. Law firms, chambers of commerce and enterprise agencies are all getting involved. This is really exciting, as it gives users the best of all worlds - a huge library of constantly updated advice from experts throughout the UK, combined with local content.
An SME owner's work is never done, so I'm signing off to tackle the above. Before I go - thanks to you, our users, and all our partners and experts, for a great year.
Earlier this year, entrepreneur and founder of The School for Startups, Doug Richard, published his Entrepreneurs’ Manifesto – a “declaration of rights” for small businesses.
The manifesto sets out eight demands to a new government, each of which addresses a different key concern for businesses. In the build-up to the 6 May general election, Donut MD Rory MccGwire is offering his thoughts on the issues raised by Doug Richard.
Scrap Business Link?
In Part 1 of this blog I summarised the recent history of business support in the UK. I concluded that, after 20 years of heavy expenditure, one precious asset that we have is a brand that most business people recognise. Business Link is “the place to go to access whatever help is available”.
I take this view notwithstanding the fact that I’m still hearing the same things now as I’ve heard every single year during that period.
“Business support is too fragmented.” “I don’t know where to go for help.” “It needs to be more practical.” “The advisers need to be people who have run SMEs.” “It must be local.” And meanwhile the civil servants seem as keen as ever to have a service that is “innovative”, a word that is prominent in every tender that comes across my desk at BHP, the company behind the Donut websites.
In his intentionally controversial Entrepreneurs’ Manifesto, Doug Richard proposes scrapping Business Link and moving business support online.
Traditionally, business support has been delivered one-to-one through business advisers and telephone helplines, together with an extensive calendar of training courses and networking events.
But hold on a minute, let’s start by asking what we are trying to achieve. What are the objectives of government business support?
Well, it’s support for businesses of course. There are about four million of them.
Some of them are like Doug Richard and me: successful (OK, he’s a lot more successful than me, I’m the first to admit it), confident, experienced, and so on. Do these individuals seek Business Link’s help on how to start a business, or how to comply with all the regulations surrounding employing someone? Probably not, but we do take advantage of tailored support for ‘high growth’ companies. The UK invests a lot of money helping its most capable businessmen, not least because the next Google, Dyson or Nokia may be among the businesses that they start. I have mixed views on this.
I generally prefer ‘pull’ to ‘push’. So who are the people who actually come looking for help?
In a word, novices. It is people who feel they would like to be self-employed, but want to bounce their idea off someone with some experience who can also tell them how to go about getting started.
One obvious group that springs to mind is women who are returning to work once their children are in full-time education. They have a high propensity to seek help.
Another group who ask for help is people who have never run a business, but suddenly find themselves out of work. (By the way, Tony Robinson, the well-informed boss of SFEDI, the standards-setting body, was quoting a UK statistic that if you’re made redundant at age 45 you only have a 10% chance of getting a new job.)
There are lots of subgroups like this. Some of them get lumped together in reports under the unflattering name of ‘disadvantaged groups’, or ‘the hard to reach’.
Do these guys all use the web for business support? Er, no. The latest research from the Small Business Research Trust reveals the true extent of this non-use.
In 2007, ‘information on websites’ was the most popular form of business advice, having just pushed ‘face-to-face contact with an adviser’ into second place. But the latest data, published in December 2009, puts the business advisers back at the top of the charts. I guess there is simply too much information out there on the web for people to cope with.
BHP’s own user-testing bears this out. Users with a specific business question are unlikely to be able to find the answer online. Their first port of call is businesslink.gov, which is also their best chance of finding the answer. So it should be after the vast sums of money that have been invested in it. Happily, they also find the Donut websites useful for the topics that we cover. And likewise a specialist website such as j4bgrants is a treasure trove for that specific search. But while other small business websites are brilliant in other ways, they don’t always give you direct answers to direct questions.
As the data shows, businesses are once again finding it easier to simply ask someone: a friend, an accountant, an adviser, or whoever.
Business Link, and the plethora of business support organisations that it acts as the signposting for, delivers this face-to-face support. So it’s no good simply scrapping it. The question is, how can we improve it and which organisations should be delivering this one-to-one business support?
I’ve got lots more to say on this fascinating topic. On call centres; on how to objectively establish the success and value of a service; on the psychology of start-ups and micro businesses; on how to make the front line and the back-office of Business Link (etc) hugely more cost-effective; on how to involve the banks (an old idea, but a good one); on how to get the support/messages of 1,001 different public sector organisations out to small and medium-sized enterprises; on how to do public sector procurement without financially damaging so many of the bidders; and, sticking with procurement, on how to tap into the specialisation, experience, passion and sheer hard work of the smaller suppliers more than we do now; and that is just the first list of things that springs to mind…
But let’s see what others have to say first. Comments please!
(By the way, thank you to everyone who commented last week on my business regulations blog, I’ve enjoyed reading them all.)
Rory’s other Have your say! blogs