Does the July mini-budget really help SME’s?

Yesterday, the Chancellor, Rishi Sunak, delivered a mini-budget that on the face of it appeared to deliver a great deal of aid to struggling businesses. But did it really?

Just 24 hours later and the bones of the package are being pulled apart by all and sundry. Most notably, the Labor party saying that it isn't focused enough. This post isn't politically inspired, far from it; it's business inspired. But is there a point here? Will it deliver the much-needed assistance to the companies that need it?

Let's have a quick look at some of the points affecting businesses.

Ending the furlough scheme and the job retention scheme

Well, free money had to end sooner or later, we all know that. However, that does mean that businesses now have a stark choice to make. To restart employment for millions currently furloughed or simply letting them go.

Nothing particularly positive has happened to the business environment to warrant a company suddenly returning to where they left off before the crisis. If anything, it's got much worse. We are facing a recession as bad if not worse than that of the '80s.

Retail businesses may be able to open, but their footfall is severely reduced:

  • By a general reluctance to visit a store, due to the uncertainties that remain around the virus.
  • In-store customer flow control and protective measures.

Neither is conducive to business as usual. Let's also not forget that a lot of high street businesses were already struggling because of the trend of internet shopping.

So, on the one hand, with nothing much happening to change the pre-Covid business environment (in fact the opposite), and on the other hand a raft of measures to encourage employees to retain staff . . . are they likely to?

The Chancellor has offered businesses £1000 for every employee furloughed that they keep continuously employed until January 2021, as long as they are earning at least £520 a Month from November to the end of January. The question is, 'is £1000 even an inducement to do so?'.

This is where the argument gets going. If you have work for employees that you'd naturally keep until February, then you'd likely keep them anyway! So why do they need the money in the first place? It's a nice bonus, for sure, but isn't that a bit of a waste? At least that's one of the questions bouncing around the papers and the opposition party.

If you are the owner of an SME, we're sure you'll take the money anyway, but only for those you know you'll keep on, otherwise, you'd need to pay it back. Think about that for a minute. Or, maybe, you'll keep them on, just until February, although that may be a tall order for only £1000.

Apprenticeship incentive

Getting a bonus for employing an apprentice isn't new, and the availability of an increased number of new places is good news. The Kickstart scheme takes it one step further, though. Offering employers up to £2000 to create a new apprenticeship position is a step up and could be worthwhile for those businesses that have the staff to work with, help train and mentor new starters like this. It's to something to take lightly.

Also, you should read up on the legal rights of apprentices. Employing an apprentice isn't the same as hiring a regular employee; there are protections in place that make it very difficult to let an apprentice go if the business gets into trouble. However, as several of our clients have found, good apprentices are worth a lot and can become highly valued full-time employees at the end of their apprenticeship. Plus of course, the government pays for their education and training and is now paying you £2000 (or £1500 for those over 25).

Kickstart scheme

This scheme is for those between the ages of 16 and 24 'on Universal Credit and at the risk of long-term unemployment'. The idea is that the placements are for work experience, not actual jobs, and will end after six months. It's a good idea (similar to Labour's scheme in 2009, the one that David Cameron scuttled once PM), as many younger people are struggling to get the work experience and necessary confidence they need if they are going to get a full-time job.

The government will pay 100% of the national minimum wage for 25 hours a week. It's up to employers if they want to top this up.

One concern is that the scheme is open to abuse and nobody seems to know how it will be policed. More unscrupulous employers could use it as a way to get cheap Labour. It could also lead to those 25 to 26 years olds who may have presented better potential, loosing out.

The other question that comes to the fore is that these positions need the utmost supervision, as they are work experience positions. So, somebody has to be doing the actual work to be experienced - which as we have seen, presents its own set of problems.

Still, as the unions commented, "It's a good first step".

Final thoughts

The measures presented don't have all the answers, but then what does in such challenging and rapidly changing times. The critical thing is, something is being done.

We hope that there's something in there that works for some companies and employees. It does, however, leave those with established experience, families and mortgages, exposed. There is more incentive to hire younger people, in their 20's than those in their 30's and 40's, who, because of their existing commitments, probably need more help than the younger ones who are probably still living at home. Maybe the parents (who have their own employment problems) can see the bright side, and let the kids become the breadwinners for a while - now that's real work experience!

 

This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Time to shake up your business model

Is it time for a business shake model up?

There’s one certainty that the Covid-19 pandemic has brought about, and that is many businesses are taking a second look at their business practices and some, at their primary business model - their whole reason for being.

Time to shake up your business modelAll businesses need to review how their employees conduct daily business life, especially if they are in customer-facing roles or large office-based teams. But, what about the broader impact this pandemic has had on business in general? How might this make you look at your business differently for the foreseeable future? What triggers may be responsible for this?

Berley is a business advisor

The team at Berley Chartered Accountants are more than accountants. Our experience with a multitude of different business over many years, means we are uniquely placed to assist business owners to look at how they can adapt and change their business models in the wake of the recent pandemic and help them become more resilient to the fast pace of change we typically see.

It’s business again, but not as we remember it.

An area of business management we at Berley have noted many times with clients is that of cash flow management and maintaining adequate cash in the bank to support operations in times of weak market conditions - the ‘rainy day fund’. Well, we’ve certainly had that recently, and it has tested businesses cash and overall liquidity positions severely.

Total closure of business premises and the inability to reach their customers saw some business go to the wall soon after, as they quickly ran out of cash, despite funding available. Companies in retail, travel and hospitality were hit hardest. While loans are possible, they are ‘loans’ and must be paid back. So, while the temptation is there to seize the cash, the prospect of mountain debt can be enough to put business owners off.

According to some reports from the City, up to half of the business owners that took advantage of the Government’s BBLS facilities may face difficulty paying them back, even defaulting. A reason for this is that the loans are likely being used just to pay debts and maintain essential payments, or to accommodate changes in the way they have to manage customer footfall in the immediate future. However, these loans may not be used to change the way a company operates significantly.  In other words, the loans are not being used to increase the value in the business and adapt them to fundamental changes in how they do business in the future.

For many companies, a return to business is far from ordinary. During the crisis, some businesses realised that the only way they could operate was through the internet or by running takeaway services. Those that appear to have thrived the most were businesses that were able to run on a distance basis, or through online channels and offer home delivery. Some companies did manage to adjust and add an ‘online’ channel to their model, although hastily added.

Even as the restrictions on businesses are relaxed, there’s the ever-present threat of them being reapplied. Not only that, but the precautions companies will have to take for the foreseeable future will likely reduce footfall in retail establishments and direct contact with clients. For many, customer volume is the lifeblood of their business, and such reductions will place them on a knife-edge.

Businesses most at risk and whom need to review their business models

McKinsey & Co recently released research highlighting the business sectors especially threatened by the Covid-19 outbreak. A summary can be found here:

Covid-19 business sector threatIt’s clear from this that a variety of different businesses are highly susceptible to pandemics of this nature. The rather obvious conclusion from the chart is that those businesses that rely on close personal proximity to engage their clients successfully or to operate effectively in teams have the most risk.

For these businesses, they must look at how their business models can adapt under the circumstances we have seen, especially as it’s likely there will be more in the future.

Adaption will look different in each business type. For instance: Many healthcare services rely on close personal contact - caregivers as an example. Solutions here mostly come down to improved safety equipment and procedures when interacting with patients. However, alternatives to private healthcare exist, especially for those in most need. An example is live-in care. This type of service, along with more advanced monitoring services, could offer solutions to companies prepared to adapt.

Other businesses may find it very hard to adapt; the travel sector, for instance. Mass travel is how pandemics spread. But, even this opens opportunities. Easily affordable travel had seen a boom in overseas holidays in recent times, but these have now been hardest hit. Because of this, the ‘staycation’ is likely to see a significant resurgence for the foreseeable future. Also, although not as fulfilling, virtual travel may offer some short term relief.

Business models may need adjusting more often

Businesses should regularly review the basis of their business against changing customer behaviour. Understanding the ‘customer journey’ and the intent behind it is essential if a company is to engage effectively and fulfil successfully.

The main pain points for businesses affected severely by the pandemic have been customer engagement and fulfilment. Although the crisis has brought these issues into sharp focus, a trend already existed that threatened many traditional retail models, as we saw with some high profile retail establishments shuttering their doors. The motivation to adapt to changes in consumer behaviour was already there.

With many traditional retail outlets, this means a brick and mortar shop window. As their weakest link during such crisis and given consumer’s online trends, a physical presence is a potential liability in the future. But, it need not be, if these businesses can achieve a balance. Many already have online portals but found it difficult to make up the loss from their physical shops. The question is why, when so many online businesses have thrived. Here are some possible reasons:

Existing commitments: Commercial property rent is a significant factor running a business through a shop front. As such, much effort is concerned with paying the rent, paying the staff and then making a profit. The online store came second.

Scale: The extent of a businesses physical operation can be a double edge sword. On the one hand, it can yield the type of back of shop operation that can support diversification in its sales channels. On the other though, that same operation may be difficult to adapt to requirements in online sales and fulfilment.

Complacency: When times are good, it’s tough to make changes, especially to a business that may appear to be working quite well. Companies can get a little lazy in their approach to long term security. As such, when it came time to react, they couldn’t as the business needs to go through a lengthier change process. Similar situations occur when an industry or product sector faces a new ‘disruptive’ competitor; a market entrant that can upset other businesses with a new paradigm that could force them into obsolescence if they can’t adapt.

A weak online presence: Companies need to be visible online. It’s not enough to have a website or shop on eBay or Amazon; although that helps. A considerable effort needs expending to make the online dimension of business work, especially if a physical side to the business already exists, as this can often take priority. This involves having a suitably funded digital marketing strategy and ongoing campaign to increase online visibility.

Given the business volatility we have seen recently, and how quickly attitudes can change, businesses need to review the basis of their operation more often and be prepared to adapt to such change faster than they have in the recent

Moving forward

The saying, “necessity is the mother of invention”, is very appropriate at the moment and a reminder of just how vulnerable businesses are to sudden change.

Change in our society is occurring at pace. Driven by several factors, significantly, in terms of technological advancement, attitudes towards aspects of life and the expectations these can bring from the market place.

Businesses must find a balance between established modes of business, and the expectations such change can bring. For some, this may be embracing online sales to a much greater degree, while maintaining a more traditional high street presence as a way to experience the brand for those who still want that experience. 

Other businesses may want to move entirely to an online model and perhaps gear existing facilities more to fulfilment side of the customer experience.

Those in the service sector can explore opportunities this change has brought about. Previously thought unprofitable services, may have a new opportunity.

Which ever industry you work in, there’s bound to be new ways to conduct business or in which your existing business model can be adapted. You just need a little help in getting there; and that’s where Berley can help as business strategy advisors.

We are small business accountants – call today on 020 7636 9094

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Worried business man

Insolvency: consequences for company owners

A worried business man

When a company is insolvent, the stressful situation affects company directors and the staff. Find out your options and your responsibilities as a director of an insolvent company here.

Events leading to a company’s insolvency are unpleasant. Poor cash flow and unsustainable loses often lead to frequent pressure from unpaid creditors, causing company owners and staff much stress.

As a company owner, it is natural for you to feel emotional and maybe even confused. Can your company still trade if it is insolvent? What are your duties as a director of an insolvent company? What are the consequences of insolvency to the business, as well as to you and your family? Can you be disqualified from running a company again? Questions like these are valid and we encourage you to discuss your situations with a qualified insolvency practitioner as early as possible. This is because early intervention may put a stop to creditors pestering you, as well as increasing the likelihood of the company surviving.

At Berley Chartered Accountants, we are London-based insolvency experts. We help many worried and stressed out small business owners who are fearful of the future when the company can’t pay its financial obligations. To help alleviate the fears and uncertainties surrounding insolvency, we aim to discuss the consequences of insolvency and what business owners should expect in this article.

What is insolvency?

Insolvency happens when a company either doesn't have the money to meet its financial obligations, or its liabilities are greater than its assets. In most cases, the signs of a company approaching insolvency can be spotted many months or weeks before, as this informative article How to tell if your business is in trouble and what can you do about it explains in great detail.

Options when a company is insolvent

If your company is insolvent, you have three options to keep your company in business. They are:

1. Reaching an informal agreement with creditors

A sensible option when your company is experiencing short-term financial difficulties is to contact your creditors and make arrangements to repay the debts on different terms. However, as these arrangements are informal, creditors can withdraw them at any time if they don’t think that you are able to manage your debts.

2. Entering into a formal agreement

This takes the form of a Company Voluntary Agreement (CVA), a binding agreement between your company and its creditors. A CVA allows your company to pay its debts, often at reduced amounts and over a longer period, while the company continues to operate as normal. This process must involve an insolvency practitioner who will:

  • Work out an arrangement on how your company is going to pay and when. The insolvency practitioner must do this within a month of being appointed.
  • The practitioner will write to creditors about the arrangement and invite them to vote on it. If 75% (by debt value) of the creditors agree, then the CVA is approved. Otherwise, your company could face voluntary liquidation.

Once the CVA is approved, the practitioner will then become the middleman who will receive the scheduled payments from you and pass them to the creditors. Their role will continue until the debts are paid off. As long as you stick to the terms stated in the CVA, you will be safe from any legal action and pressure from your creditor.

3. Administration

This process involves handling your company to an insolvency practitioner who acts as the administrator. Once the administrator is in charge, your creditors cannot take legal action against your company to recover their debts or start compulsory liquidation without the permission of the court. In the meantime, the administrator aims to:

  • Restore the company’s viability
  • Work out a CVA and seek approval from your creditors
  • See if it feasible to sell the business
  • Sell assets to pay preferential or secured creditors

If none of these options is tenable, then liquidation may be the only option – which will see your business struck off from the Companies House register, and the company’s assets will be sold and distributed to the creditors.

It is worth noting that you need to act quickly because your impatient (secured) creditors can appoint an administrative receiver to sell the company’s assets to pay off the secured debt. This option removes all choices from you and it can only be avoided if you contact an insolvency practitioner as early as possible.

Company liquidation

When all options are exhausted, liquidation brings an end to the long process of fighting for the survival of the company. Liquidation is a process that involves an independent insolvency practitioner (who becomes the liquidator in this case) taking control of the company, overseeing the wound-up, and making arrangements to settle debts in an orderly manner.

There are two ways in which an insolvent company can be liquidated:

  • A creditors' voluntary liquidation which will see a company's creditors pick a liquidator to take over the company
  • A compulsory liquidation where company directors agree to wind up the business themselves

Liquidation ensures that company contracts are transferred or completed, legal disputes are settled, and the business is no longer making transactions. Assets are then sold and any outstanding debts are collected on behalf of the company. This money will then be used to pay creditors and any remaining amounts will be paid to the company's shareholders.

What are the consequences of insolvency for a company director?

Business owners whose company faces insolvency know first-hand the stress from events leading to this point. When you are stressed and worried, it is best to avoid making impulsive decisions that will put your personal wealth at risk.

As a director of an insolvent company, your duties include:

  • Do not allow the company to incur further debt
  • Do not continue to trade
  • You must protect the interests of all creditors (debtors, employees and other stakeholders)
  • You must safeguard all company assets (do not sell them below their market value)
  • If a liquidator is appointed, you must hand over the company’s records, paperwork and assets to the liquidator

The best approach is to contact a qualified insolvency practitioner as early as possible so they can conduct a solvency review of your company and discuss available options with you before liquidation.

One of the questions we get from company directors is what will happen to them personally. The answers depend upon your past actions prior to the company becoming insolvent and what you do during the insolvency process. For example:

  • If you have provided personal guarantees to any loans obtained by the company, you will be liable.
  • If you have overdrawn the director’s loan account, you will be liable to pay back.
  • If you have not exercised your duties as a director, like if you have been using company funds for your personal purposes or engaging in wrongful trading while the company is insolvent, you could be disqualified as a director for 2 to 15 years.

Being personally liable or disqualification has serious consequences, which is why we encourage company directors to speak to a qualified insolvency practitioner first.

If you have been acting in good faith and have carried out your duties as a director diligently, then there is nothing to stop you from launching another company even if your current company is insolvent. However, your new company cannot have the same or similar name to the old company. If you want to read more about this, check out Section 216 of the Insolvency Act.

Will I go bankrupt?

One of the main worries for directors of insolvent companies is personal bankruptcy. Companies can’t go bankrupt – they become insolvent – but individuals can.

If you are a company director and you have carried out your duties diligently, your liability is limited to the number of shares held when your company fails. However, if you have not acted in good faith, like you have continued to rack up debts knowing that the company cannot possibly repay them, then you are at risk of being held responsible personally and/or being disqualified as a director.

Your personal wealth is at risk if you have provided personal guarantees to any loans obtained by the company. For instance, you have used your personal possessions and assets (property, cars, etc) as collateral for a loan, then you may well lose these assets. The loss of these items of value, as well as any other debt to which you may be liable, could well cause you to go bankrupt.

How Berley can help directors of an insolvent company

The stress of having a business become insolvent is undeniable; however, it isn't the end of the world. Your best way out of the situation is to seek help from a qualified insolvency practitioner as early as possible.

Insolvency practitioners like our team here at Berley can conduct a solvency review of your company and discuss available options with you. Highly discreet and ethical, we do not judge your circumstances or focus on past mistakes. Our aim is to make sure that you are in a position to continue the company or start afresh.

Quite a few directors prefer to put an insolvent company into administration to alleviate or stop pressure from creditors. This process allows the appointed administrator to restore the company’s viability, create a CVA and see if it is feasible to sell the business. Regardless of what your choice is, you can be certain that we are here to support you throughout the process and ensure that there is a positive outcome in place for all parties involved.

Call our experienced London insolvency practitioners today on 020 7636 9094. We encourage you to act fast and avoid receivership – this means your impatient creditors appoint a receiver to one or more of your company’s assets in order to recover the debts owed – as it leaves little options for you.

You can also email us on info@berley.co.uk or use our contact form to leave a message.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Insolvent concept image

How to tell if your business is in trouble and what you can do about it

Insolvent concept imageBusinesses don't often fail without warning. Learn how to identify common causes that can sink a business, spot warning signs, create counter measures and be clear about insolvency.

As with everything in life, businesses go through ebbs and flows. Sometimes there are periods of success but there are also periods of stagnation. The former and the latter, however, aren't in the laps of any divine beings. A series of important decisions made by you, as well as the level of aptitude for problem-solving from key staff, can make a business sink or swim.

Even when you do latch onto success, the world can start changing. For instance, things look very different for many businesses now when compared to a decade or two ago. Today, traditional high-street retailers are struggling to stay afloat as the digital boom provides a new online battleground for sales supremacy. Technological solutions have also revolutionised the way we approach day-to-day activities in our businesses, like we perform electronic transactions, use cloud computing to back-up files, take meeting notes with an app, among many other tasks.

In more ways than one, business owners are keenly aware that approaches that once worked have become outdated. Also, what is effective today may quickly be replaced. So whether it is through changing landscapes, strict adherence to old methods, a series of bad judgment or simply inexperience, established small to medium-sized businesses can struggle to adapt and thrive, putting the company at risk.

New businesses can also face distress. Numerous studies have noted that about 20% of new businesses fail within a year; and a whopping 60% shut down within three years. This means that learning how to spot when your business is approaching insolvency is a test of your ability as a company director to adapt and steer the company through choppy waters. The majority of these ominous indications cut across all industries and, as such, can be found in businesses up and down the country and around the world. In this article, our London-based insolvency practitioners aim to help you identify these troubling causes and signs. Also, we aim to share what you can do to effectively manage them.

Eight common causes of failed businesses

Comparable to a person’s health, when a part of our body fails or when we face an illness, there are usually a number of signs and symptoms that tell us something is happening. We can choose to either ignore these problems until the symptoms get worse and unmanageable, or we can choose to get treated once they appear. The same goes for businesses – as a business owner, it is vital that you can correctly identify the problems and work on immediate solutions.

But in order to know if the signs and symptoms are serious enough to cause business failure, you must first know the causes and this can be challenging as the reasons are vast and varied. Having said that, there are eight common causes that are often blamed in the failure of businesses.

1. Poor management of cash flow

Poor cash flow management is always a bad sign for any business and is usually the prime culprit in business failure. It can even happen when your business is raking in the profits. This can be caused by a number of factors. If your business is profitable, yet is hampered by poor cash flow, this can suggest that there could be high expenditures, too much outstanding receivable, or that something insidious may be going on behind-the-scenes (such as inaccurate or even fraudulent transactions).

In the UK, late payments from clients are a serious issue and quite often, you may even pay have to VAT or tax to HMRC on income that you stand no chance of receiving first, which can further deepen your cash flow woe.

Over-expanding the business rapidly can also cause cash flow problems – a difficult challenge for even the most experienced of business owners. Additionally, inaccurate or hastily thrown together cash flow statements can also lead to critical failure. Work with reputable accountants who can review your numbers and produce accurate cash flow forecasts that allow you to make informed decisions.

In short, unless you run a business that experiences known seasonal fluctuations, consistently poor cash flow is the key indicator of a business that is on its way to collapse.

2. Inadequate financing

To kick-start an idea, to expand, or even to address a temporary cash flow gap, you need money. If you do not have enough cash in the bank, chances are you need to borrow. In our article What is the right source of funding for you, we discuss nine common types of funding for small business owners and they are:

  • Self-funding or love money
  • Start-up loans
  • Bank loans
  • Secured finance from a specialist lender
  • Angel investors
  • Venture capital
  • Crowdfunding
  • Peer-to-peer lending
  • Grants

Apart from your family members and friends, it is safe to say that no company would loan you money voluntarily. Small business owners must be prepared to compile financial data into easy-to-understand charts and be ready to answer many tough questions from potential creditors.

3. Ignoring customer needs

It is fair to say that almost all customers want good products or services at a fair price. They also prefer the buying process to be relatively easy (without hassle), and they want to feel valued throughout. If they believe that they cannot get any of these from you, they are likely to go elsewhere.

It takes a great amount of data to understand customer needs – why they shop and how they shop. Listen to what your customers are saying (and also what they are not saying) will allow you to create effective marketing messages that can convince your customers that they need your products or services.

The trick, of course, is to make sure that you are always one step ahead, meaning you shouldn’t start listening to customers only when your sales are down – because by this point it could be too late to save your business.

4. Loss of key clients

Following on from cause above, the inability to retain your key and loyal clients is a sure-fire sign that your business is heading for the knacker's yard unless it changes. There are a number of reasons as to why this often happens. It could be that your customers are getting better offers from competitors; your customer service may not be good; you may be offering outdated products and/or services; and, most importantly, you may not be meeting their expectations.

A sensible counter measure is to review your customer service efforts, your prices, what you're offering in comparison to competitors and your product or service line-up.

It is worth bearing in mind that losing clients are unavoidable sometimes – your clients may move away, retire, or their business models may have changed. To soften the blow of losing clients, you must have new prospects whom you can convert into paying clients. Cultivating prospects usually takes time and effort so make it a regular exercise, otherwise losing clients will surely result in a significant decline in sales and revenue.

5. Lack of management control

In order for a company to be operating as intended, managers have to exert a level of influence over staff to ensure that strategies that benefit the business are routinely adopted and correctly applied. Known as 'management control', it is the process that allows managers to determine if a business is performing in-line with its expected standards and whether resource usage is effective or not. A lack of management control occurs when managers are no longer influencing their staff to implement strategies, and when the management loses sight of these standards.

This lack of control can lead to bad decisions (or even no decisions) spiral out of control, putting the company in trouble.

6. Bad employees

Following on from the previous cause, poor recruitment practice that hires bad employees can also sink a business. The words bad employees refer to staff who come to work late, have a poor attitude, rude to customers or even steal from the company. Very quickly, rude employees can reduce the levels of productivity of your good employees, your stock, or even your cash. In the UK, it is said that 40% of fraud is caused by staff, which amounts to some £76 million a year – now that is a staggering sum, isn’t it?

The management or you (the company director) must regularly review staff performance and get tough on bad employees before it is too late.

7. Growing too fast

Every business exists to make money and grow, either organically or inorganically. Organic growth means using your internal resources and processes to achieve better output – this process is sustainable but slow. Inorganic growth, on the other hand, means you achieve instant market share and revenue boost by acquiring or merging with another company.

When you grow too fast, mistakes can happen. Even in organic growth, the moment you have mistaken temporary demand for long-term prosperity, or you lack a robust process to handle additional client requests, you are likely to make decisions that are clouded by errors, leading the business down a path where it can no longer make enough profit to cover its expenses.

8. Legal action

The cost of legal action – whether you are taking action against another company or you are being sued – is significant. If your business loses its case, the company may have to pay fees that can easily wipe out all the profits made previously. It is not just about losing money too. You also lose time and energy that could be better spent on improving your business. In short, legal action can be devastating for small businesses.

To avoid prolonged legal cases, consider out-of-court settlements, although prevention is a better approach. To avoid being sued, for instance, small business owners may consider:

  • Getting a solicitor to review all contracts prior to signing
  • Keeping accurate records and making sure that all sensitive data are safe
  • Implementing policies and procedures within your business
  • Being honest in business dealings
  • Being compliant with the law
  • Providing quality products if you are a supplier, as high quality usually lowers defects and lessen administrative and legal issues, as mentioned in the article 5 ways to manage rising business costs
  • Having the right type of insurance to protect your company

Six signs that your business is in distress and at risk of failing

Now that we've established some of the main causes of business failure, it's time to look at some of the symptoms and signs that can be identified before any of those causes come to pass.

1. Sales are down

If sales have significantly declined over a period of time – like sales dipped 20% in the last three months, which were already down 30% from the previous three months – you must realise that unless counter measures are put in place and they can turn things around quickly, your company will fail.

There are many reasons why sales are down and some of them are beyond your control, such as changing consumer taste or a virus pandemic. Irrespective of the reasons, if you don’t have enough cash on hand to tide the company over, then the business is at risk.

2. Little to no capital

Many reasons can contribute to a shortage of cash. Decreased sales, high receivable and big overhead are among the many reasons. Whatever the case, a lack of capital means that you cannot meet ongoing obligations.

3. Creditors are asking for immediate money

The moment demand letters from HMRC, landlord, utility companies and suppliers start to pill up, chances are, they are likely to take action against your company soon. This is a difficult position to be in, so please talk to a qualified insolvency practitioner like our team at Berley as early as possible. Our aim is to conduct a solvency review of your company and discuss all the options available with you.

4. Selling or refinancing assets to raise cash

Assets are an important resource – your need the machine to process order and the van for delivery, for instance. Consider refinancing first, and if you have to sell them to raise short-term funds, you are clutching at straws.

5. Lenders won't touch your business

If you're finding that you can't get any loans to help finance your business, it’s time to examine your strategies because something in your business is causing them to stay away.

6. Unpaid wages

Many small business owners tend to draw a low salary and use dividends to make up the income, but staff wages must be paid every month. If you struggle to pay wages, then you must let your staff know immediately and work out a solution.

What can you do to save your failing business?

As mentioned in the article, there are similarities between a failing business and a failing body. When we aren’t well, we don't try and treat the problem ourselves; we go to see medical professionals who will identify, treat, and cure our health problems.

It's the same when it comes to business. No matter what your experience level is when it comes to running a business (or businesses), not everyone is King Midas who could turn everything he touched into gold. Mistakes are common, changes in consumer behaviour is a given, other factors like changes in government policies, new threats from competitors, weak economic conditions are also beyond our control.

The moment you realise that your business is in distress, actions you can take to reverse the situations include:

  • Identify the issues – do this quickly so you have time to create counter measures.
  • Cut costs – it is easy to remove non-essential items, but reducing fixed overhead costs can be a challenge.
  • Generate new revenue – increase sales by expanding your client base, creating additional services, reducing prices, working with complementary businesses, among other ideas.
  • Negotiate with your creditors – be honest with your landlord, suppliers and other creditors about your situations as you seek to lower the bills or lengthen the credit period. If you owe HMRC, ask for Time To Pay (TTP) and provide justification.
  • Restructure your company – make your company lean and agile by improving every operational process.
  • Talk to a qualified insolvency practitioner – ask them about your options.

At Berley, our qualified insolvency practitioners will listen to you and access your situations, before discussing options that would work in your case. Our discussions will be honest and may include:

  • How can the company be rescued realistically?
  • Can you sell the company?
  • Can a Company Voluntary Agreement (CVA) apply? A CVA is an agreement between the company and its creditors that often leads to reduced and/or rescheduled arrangement of debt repayment.
  • If all options are exhausted, what liquidation would mean to you and your company?

Can your company avoid insolvency?

Unless a creditor has appointed an administrative receiver to take control of the company’s asset to recover their money, you can still avoid insolvency by talking to an insolvency practitioner and let us work alongside you to address the situations.

Even if insolvency is unavoidable, we can still explore a Company Voluntary Arrangement (CVA) or a pre-pack administration. A CVA, as explained in one of the above paragraphs, often involves paying your creditors a reduced sum over a period of three to five years. A pre-pack administration allows you to sell assets before the appointment of an administrator.

If liquidation is the only option, we would explain what it entails so you could move to this stage efficiently, ending the stress of creditor harassment and working to protect yourself from possible personal liability.

Contact Berley for trusted insolvency advice

The hardest challenge, admitted by many entrepreneurs we have worked with, is to acknowledge that there is a problem early on and seek help accordingly. The sooner one seeks help, the better the chance of avoiding insolvency. Sadly, we have seen too many times that small business owners chose to remain optimistic and hope that the problems would go away – they rarely do.

At Berley, our insolvency practitioners work with small business owners across London. Highly discreet and ethical, we do not judge your circumstances or focus on past mistakes. We also respect your confidentiality. Our goal is to conduct a solvency review of your company and discuss your options. The focus here is about your company’s future, particularly how you can be in a position to continue or start afresh.

Call today on 020 7636 9094 or email info@berley.co.uk for a free initial consultancy. Alternatively, you can get in touch via our online enquiry form and we will be back in touch with you as soon as we can.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


People shaking hands

6 tips for rebuilding damaged business relationships

People shaking handsStrong business relationships can go a long way to help your company, but when a relationship is damaged, there are six meaningful steps you can take to repair it.

A successful business is all about having successful relationships with your customers, shareholders, investors, business partners, vendors, regulators and even the competitors in some cases.

Building and maintaining good business relationships with your business associates requires time and effort from you and the other party involved to establish a healthy level of understanding, openness, integrity and trust. But when disputes or other unfortunate events reduce the level of trust and damage the relationship between you and the other party, it is time to review the situation and do your best to repair it.

It is worth bearing in mind that a damaged relationship should not go unresolved for too long because it may end up causing both parties stress or even financial hardship, particularly when solicitors are involved and the case goes to court. Relationships also tend to outlast companies, so maintaining healthy relationships can go a long way to help you professionally. If a damaged business relationship is needing your attention at this moment, here are the six steps which can help you get a business relationship back on track.

1. Identify the issue

The first step in repairing any relationship is to recognise what caused it to breakdown. Ask yourself what went wrong and also talk directly with the other party to get their perspective. While there are numerous causes, common issues include:

  • Poor communication
  • Lack of collaboration
  • Lack of respect
  • Unmet expectations
  • Money
  • Unequal commitment between parties
  • Differing values
  • Personality clashes

Listening to the other party is key – understand that in a healthy business relationship, you and your business associates tend not to get upset with each other unless the trigger point is something serious. So the best approach is to assume nothing, but ask questions, listen attentively, and seek to clarify.

2. Tackle the issue

Once the problem is identified, a discussion is due with the other party to address it and stop it from escalating further. Sometimes disagreement is unavoidable, but it does not mean both parties cannot discuss the issues calmly and professionally. Avoid making personal attacks or taking things too personally.

3. Admit your mistakes

The moment you realise that it was you or someone in your team has caused the other party to take offence, acknowledge the mistakes immediately and show your commitment to change. Do not hope that the misstep will be forgotten or even forgiven. Remain in control and readily admit any wrongdoings is a sign of maturity and leadership.

If the other business party caused the mistakes – despite an apology is welcome, do not insist that they must apologise. Sometimes people may fear that their apologies will lead to further accusation and conflict, or they simply want time to process their emotions. Let it go if you can, and if you handle the situation gracefully, you will undoubtedly earn respect from your business associates.

4.  Conflict resolution

Conflict resolution is at the heart of negotiation. Once you learn what has caused the business relationship to fall apart, you can engage the other party with a greater level of confidence and make sure that the objectives are aligned. If you would like to know more about the benefits of negotiation skills, this post Why negotiation skills are important for small business owners may make a good read.

5. Formulate next steps

Once the issues have been confronted and everyone has had a chance to air their grievances and cool off, it is time to formulate a plan on how to move forward collectively. A huge part of creating a plan is managing the other person’s expectation. Good questions to ask include:

  • “What would you like us to do to rectify the situation?”
  • “How do you see we can move forward?”

Defining and agreeing on a clear process moving forward, including how to resolve further conflicts in the future, will allow both parties to work effectively.

6. Rebuilding trust

To rebuild relationships, you need four secret ingredients – respect, empathy, trust and most importantly, communication. Take the step to show your business associate that you are ready to collaborate and you are committed to building a strong, long-term business relationship with them.

Rebuilding trust does not happen overnight. It requires both parties to communicate clearly, recalibrate objectives and celebrate success.

It pays to think about how you should communicate with your business associates so that nothing gets misinterpreted. If you are using email, it is essential that you make sure they can’t interpret your emails out of context. Communication in person is always preferred, even in this digital age.

Build healthy business relationships

For small business owners who are keen to work with everyone, having a damaged business relationship often causes unnecessary stress and financial hardship. So before any business relationships become unbearable, ask yourself what you can do to prevent the relationships from falling apart. The following exercise may help to influence your business relationships positively.

  • Describe your business relationship with each party that is vital to the health of your business. The party can include but not limited to your customers, shareholders, investors, business partners, vendors, and regulators. Ask yourself if the relationship is healthy (meaning goals are aligned)? Or is the relationship tense and adversarial?
  • Ask yourself what you can do to improve the business relationships, particularly the challenging ones? Put yourself in the other party’s shoes and see the situations from their point of views.
  • Focus on win-win even if your actions are not being reciprocated. Focus on the future and ready to be an ally to them is always better than waiting for someone else to change the game.

Berley is here for small business owners

As small business accountants in London, we have seen first-hand how healthy business relationships can help to drive growth. Within the company, our teams also work relentlessly to establish and maintain healthy relationships with our clients, our vendors, our partners, and even with ICAEW (The Institute of Chartered Accountants in England and Wales) which we are members.

Strong relationships help create a sustainable and successful long-term business structure. As a small business owner, if a damaged business relationship requires your full attention, and if you need a pair of helping hard to review certain financial numbers at the heart of the broken relationship, do not hesitate to give one of our small business accountants a call on 020 7636 9094. After all, we are here to ease your accounting workload, provide trusted financial advice and manage your regulatory risks.

Our services include:

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


An accountant at work

Planning for the end of the accounting year

An accountant at work

Each year a company has to prepare its annual accounts, also known as statutory accounts, and pay tax on profit made. Our small business accountants explain the process.

What is an accounting year and is this different from a ‘financial year’?

When you first set up your company and recorded its first taxable revenue, you indirectly defined the accounting year of your company.

The accounting year usually starts from the actual month the company is set up, and it may be different from the ‘other’ important accounting period: the financial year. The financial year for Limited Companies refers to the one that the government follows and dictates budgetary policy changes. In the UK, the financial year runs from April 1st of each year. This is not to be confused with the ‘fiscal’ year for personal taxes which runs from April 6th to April 5th of the following year.

Financial year vs Accounting year end
The UK Government sets the financial year. It runs from April 1st to March 31st the following year. This is when the government’s policy changes and new tax rates start. On the other hand, the accounting year end is the date chosen by the directors of a limited company to prepare its accounts for each year. An accounting year may be different to the financial year, or it could also run on the same period as financial year.

When you first launched your company, your accountants might have aligned your accounting year with the financial year. This meant they either shortened or lengthened your first accounting year and submitted the accounts on March 31st to coincide with the financial year. From that point on your accounting year would run from April 1st to March 31st.

Irrespective of you have chosen to coincide your account year with the financial year or not, your ‘year end accounting date’ will require you to submit relevant documents to Companies House and HMRC, and to pay tax (on profits) accordingly. Most small business owners often leave this process to specialist small business accountants like our team here at Berley. If you would like to know more about different accounting periods, see this gov.uk page.

What year-end accounting documents do you need?

The government requires all business entities to file a report on their company’s financial activities and pay any tax due on the profits made. To do this you need to produce two sets of documents:

1. The company’s statutory accounts

The statutory accounts must be filed to Companies House within nine months after the end of your company’s accounting year via online submission or hand-delivery. You must also file these accounts to HMRC 12 months after the accounting period of your Corporate Tax ends.

Your statutory accounts should contain:

  • A ‘balance sheet’, which shows the value of everything the company owns, owes and is owed on the last day of the financial year. This must be printed with a director’s name and signed by the same director.
  • A ‘profit and loss account’, which shows the company’s sales, running costs and the profit or loss it has made over the financial year.
  • Notes about the accounts, usually made by your accountants.
  • A director’s report (unless you’re a ‘micro-entity’).
  • An auditor’s report (this depends on the size of your company; you can click on the article Company audit exemptions to find out more).

There are two ways to make sure this process is efficient, saving you valuable time and money. The first way is to use approved online accounting software like Xero. The second way is to work with a trusted accountant who can help to prepare these accounts for you.

It must be said that your accountant should also discuss tax planning and/or identify areas of improvement. If you have a substantial tax bill to pay, your accountant should also include that in your cash flow forecast so you won’t be caught off guard. If you are looking for an accountant with years of experience in helping entrepreneurs like you in London, please contact our small business accountants in London on 020 7636 9094.

2. company’s tax return - CT600

Your company tax return, the CT600, must be submitted within 12 months of the end of your accounting period. This form reports your business income and tax liability – the figure you need to pay HMRC within nine months (and a day) of the end of your accounting year - even though the actual CT600 can come three months later. You can pay this into your HMRC Corporation Tax account through your bank. Failing to do so can result in a fine.

Please note that even if your company makes a loss or has no Corporation Tax to pay, you must still submit a tax return.

It’s my first year of trading, what accounts and tax returns do I need to file?

If you are about to incorporate a limited company, reporting is a little different in your first year of trading. In this case, your statutory accounts are due 21 months after the end of your incorporation date (not accounting period). Thereafter it is the same as any normal company.

What accounts do sole traders need to prepare?

A sole trader is essentially a self-employed person. You report your trading profits through your Self Assessment tax return each year. Your accounting period is therefore the same as the ‘fiscal year’ - April 6th to April 5th the following year.

Naturally, not all sole traders start their business on April 6th and you are free to choose whatever accounting period you like. For example, if you were to start your business in September, you could set the end of your accounting period as of April 5th the following year. From then on your accounting could match the government’s fiscal year. If you choose to have a different accounting year from the fiscal year, you must inform HMRC accordingly in your Self Assessment tax return, so that they can work out your tax.

What tasks should a small business owner focus on at this time?

As a company shareholder and director, you have an obligation to manage the company efficiently and make it a success – this includes being as tax efficient as possible. Ideally, you have an accountant whom you can trust, and you can also choose to outsource your accounting needs to the accountant and their team. Together, they can make sure all of your expenses are properly accounted for, help you with cost control, and supply you with accurate cash flow forecasts, among other things like VAT and payroll.

In the following section, we aim to discuss seven focus areas which are expenses, invoices, bad debts, VAT, stocktake, liabilities, and PAYE and NI.

1. What expenses can a limited company claim?

A limited company can legitimately claim the following items as expenses.

  • Company formation expenses
  • Accountancy fees
  • Salaries and staff costs
  • Rent and utility bills
  • Fixed assets and their disposal
  • General office purchases, such as postage, stationery and other consumables
  • Business travel and accommodation expenses
  • Business mileage if you use your own car
  • Charitable donations
  • Childcare voucher scheme (now withdrawn to new entrants)
  • Tax-free child care scheme
  • Your company’s Christmas party expenses (up to £150+VAT per head)
  • Equipment expenses
  • Pension payments
  • Professional subscriptions (provided they are on HMRC’s approved list)
  • Communication costs - internet services
  • Mobile phone and landline - provided the contract is between the company and the provider
  • Medical insurance (although it becomes a benefit in kind to the employees)

The important thing to remember here is to make sure you keep a record of receipts and invoices paid, just in case HMRC wants to take a look.

The situation is a little different for a sole trader and the government has some good sole trader expense claim guidelines to follow here.

Now that Making Tax Digital is in operation, you should be scanning and saving these receipts as a natural course of business administration. Cloud-based accounting software services such as Xero make this a simple process to manage, enabling you to upload your receipts into your Xero account for easy access by yourself and your accountant.

2. Is your record of income and expenses correct and up-to-date?

For most businesses, this means going back over your invoicing and expenses, including:

  • Direct debits from your bank account
  • Credit card statements
  • Cash withdrawals
  • Cheque payments
  • Trade account purchases (including Amazon)
  • Invoices issued and paid

The important things to ensure here are:

  1. Make sure all your expenses are recorded accurately and you have the receipts (or have them scanned).
  2. Ensure all transactions are valid. Essentially you’re looking for potential incidents of fraud, so conduct regular reviews of your business credit cards. Fraud is now a major issue, happening more often than one would like to think, especially if your workforce can make purchases or use your trade accounts.

3. Do you have any invoices that are not being paid?

Late payment is a serious issue for small business owners. There are clients who just won’t pay or can’t pay (due to insolvency). For year end purposes, it is natural that small business owners do not want to pay tax or VAT on income that you stand no chance of receiving, so get tough on your debtors. Also, talk to your accountant and make sure there is a provision or a write off for bad debt.

4. Is your business VAT registered?

When you first start out in business, you may have decided not to register voluntarily for VAT. However, there are significant advantages to being VAT-registered and as the end of your accounting year approaches, it is a good time to reflect on this.

The biggest benefit of being a VAT-registered company is that the company can reclaim the VAT on many of the business purchases – and the reclaim can make a significant positive difference to your expenses (and cash flow). The process of filing VAT returns does involve a fair amount of paperwork but with the advent of cloud-based accounting software such as Xero, VAT becomes much easier to manage, and at the end of the year, it makes the VAT accounting job much easier for your accountant.

If you are a growing business, at some point you will likely exceed the VAT threshold, so it makes sense to consider the transition sooner than later.

5. Do you hold physical stock?

If you operate a supply or manufacturing business, you are likely to have inventory. In this case, you will need to conduct a stocktake and find out how much they are worth. Any damaged goods will need to be depreciated and any unfinished goods can be valued by applying a percentage completion against the end value of the goods. Please note that this process takes time, so it is best done as early as practical before you submit your return.

Make a complete list of all your assets, if you haven’t already. This would include computer equipment, buildings, machinery, vehicles, etc. You should keep a record of asset disposals and the income received from their disposal too. These figures will be used to calculate an overall depreciation value.

6. What liabilities do you have?

There are two types of liabilities, namely financial and operational.

Financial liabilities happen when you need to get a bank loan or borrow money from family or friends. These are debts against your business. You should be aware of your ability to pay the money back and record when they fall due.

Operational liabilities may include the lease on a vehicle or equipment. Make sure this information is readily available to your accountant.

7. Double check your PAYE and NI

Remember that if there is an error here, it is your firm that is liable. Make sure your employment dates are accurate and the sums paid as salary are correct so that your accountant can double check and make adjustments if necessary.

Berley assists companies with year end accounts

While the above are common areas you (the business owner) would focus on in planning for your accounting year, we are keenly aware that every business is unique in some way, so there may be other aspects of your business that differ or may require slightly different treatment from an accounting perspective. For instance, your company may have income in other overseas tax jurisdictions or benefit from some form of tax credits (such as R&D tax credits). It is best to discuss your circumstances with your accountant.

In addition, most small business owners start by doing the administrative tasks of day-to-day accounting themselves. But as your business grows, the tasks of accounting and also your year end accounting will become more complex. Eventually, these tasks could possibly reach beyond your immediate capabilities or to a point where they significantly interfere with your main role of running the business and making money. At this point you may decide to employ a part-time bookkeeper, although a better option to consider is to outsource your bookkeeping and accounting needs to a qualified accounting firm that can scale their service as your business growth; an accounting firm like Berley Chartered Accountants.

At Berley, we are a London-based firm of chartered accountants specialising in entrepreneurially-minded businesses. Talk to us today on 020 7636 9094 about your year end reporting and outsourcing your accounting. We can also get you set up with cloud-based accounting solutions, such as Xero.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Accounting concept

Top considerations and benefits of outsourcing your accounting needs

Accounting concept

Business growth is an exciting progression which is more likely to be successful if your business is already running efficiently, so are you still troubled by administrative burdens like accounting, tax and PAYE?

Business growth is an exciting progression desired by small business owners. Once you are in the growth stage, you naturally enjoy increased output and greater sales. Accordingly, you are likely to expand your workforce and take steps to control costs. In this article, our one-stop outsourced accounting team shares the opportunities growth presents and how small business owners can benefit from having our team working alongside you to increase efficiency and control costs.

Organic and inorganic growth

Broadly speaking there are two types of business growth – organic and inorganic. Organic growth means your business achieves better output and enhanced sales through internal resources and processes. This takes time and effort, but it is sustainable and less risky. Inorganic growth, on the contrary, means you gain instant market share and revenue boost by acquiring or merging with another company.

It must be noted that they are no one-size-fits-all strategies when it comes to growing your business – how you grow your company depends largely upon your business model, financial figures, and business acumen. Having said that, once you are in the growth stage, you will instantly notice the followings:

  • Your staff size will expand
  • Your administration overhead will increase
  • Your cash flow may get bigger but that may not mean you are making a profit
  • You are in need of good reporting systems whereby you can compare projections versus business performance and make informed decisions
  • Your growth is more likely to be successful if your business is already running efficiently

Temporary solutions

At this point in time, many business owners (particularly those who have been handling bookkeeping themselves) are faced with a stark choice: hire an account person who can also do payroll, or outsource the accounting and payroll functions to a company who can also act as your financial controller.

Quite often what happens is that the business owner brings in a part-time bookkeeper who comes in just a day a week, depending on the workload. This may be fine for some, but for those whose business is experiencing consistent growth, this is just a stop-gap rather than a scalable long-term solution.

The real challenge with a part-time bookkeeper is that they may not necessarily understand your business well enough to manage the accounting function in a scalable manner as the business expands. More often than not, part-time help leads the business owner to a situation where yet again, they are looking for a more permanent solution and the time and money invested in bringing the part-time help up-to-speed has been wasted.

Even if you have hired a full-time bookkeeper, there is no guarantee that the person has the expertise to review numbers like a chartered accountant does. So what are the options open to an established and growing business that needs help with its accounts and all that running a growing business entails? The answer – look for a one-stop outsourced accounting service firm like Berley.

The accounting challenges a growing business presents

Before we delve into the specific benefits outsourcing your accounting can bring, it is probably a good idea to understand what challenges a business faces with regard to its accounting needs as it grows.

One of the best ways to summarise where these challenges lie is to consider the primary aspects of running a business that will create increased accounting burden. Typically this relates to four main areas:

  1. Tax
  2. VAT
  3. Employees
  4. Costs

Tax

Most small business owners do not have the time to learn about tax returns, tax codes, tax allowances, year-end tax returns, National Insurance and Self Assessment. Things can also get out of hand quickly in the event that you don’t agree with a tax decision or can’t pay your tax bill on time.

For those using a cloud-based accounting package (such as Xero) and with turning over less than £85,000 per year, you may find it fairly straight forward to maintain the sales and purchase ledgers. Xero will produce the information you need to file a basic company tax return. However, the main challenge comes when you need to track sales and purchases, manage receipts, keep the books up-to-date and ensure that the company is actually profitable.

Among small business owners, using dividends to make up their income is a popular practice but your approach depends on your circumstances and it must also be legitimate. At Berley, we do not believe in ‘creative’ accounting practices that will put you in trouble with HMRC as it may jeopardise your business and your reputation, not to mention it may end up cost you more money.

So whenever you need advice on tax matters, give our team a call on 020 7636 9094.

VAT

Generally speaking, if your business turnover is below £85,000 a year, you do not need to register for VAT (although you can choose to do so voluntarily). However, once your business turnover passes £85,000 or when you expect your VAT taxable turnover to be more than £85,000 in the next 30-day period, you must register for VAT. If you register late, you must pay what you owe from when you should have registered. You may even get a penalty depending on how much you owe and how late your registration is.

Once you are VAT registered, you must complete VAT returns via software and keep your VAT records digitally to comply with Making Tax Digital which came into effect on 1 April 2019. Essentially, you will need to carefully maintain records for VAT on sales (to pay HMRC) and purchases (to claim back from HMRC) – this requires a knowledge of what you can claim and cannot claim for, which can be a little trickier than it might seem. A good cloud-based accounting package like Xero can help with this, but like any information system, it is only as good as the data it is fed with. This means small business owners may run into problems as their business grows and when the payments and claims become a significant accounting task that takes up much time and effort. Also, this accounting task requires good due diligence to avoid tax errors and VAT misfiling.

What we have shared above is a simplified overview. In reality, VAT is a complex subject and we strongly encourage small business owners to talk to one of our one-stop outsourced accounting team members first as we can help in various areas including:

  • Eligibility of Flat Rate VAT Scheme
  • VAT advice
  • VAT registration
  • Completion of VAT returns
  • Spector-specific VAT issues
  • VAT issues if you trade with EU countries and internationally

Employees

A growing business needs to be adequately resourced and this equates to increasing headcount. Whether they are contractors or full-time staff, employees are another source of administrative overhead. Full-time employees require PAYE, National Insurance and a pension system. Other benefits may apply too, depending on their individual circumstances and what your company benefits are. This all adds up to more work and for many small business owners who haven’t yet solved this problem; it often means late nights or worked weekends just to keep on top of things.

Controlling costs

A common question we receive from small business owners is why they aren’t making a profit even when the cash flow seems substantial? The answer to this seemingly simple question lies in how much control you have over your costs (particularly hidden costs) and how well you manage your cash flow.

Like business growth, there isn’t a standard cost-control recipe that’s applicable to every business. Ideally, you’d have an accountant you can count on to:

  • Review the financial figures
  • Make realistic projections
  • Help to compare results versus your goals and budgets
  • Discuss options with you if your business growth plan is not working out as it should

Essentially, you need a financial controller but without paying big money and this is where our one-stop outsourced accounting team can help.

What are the benefits of outsourcing your accounting needs?

At the very beginning of your business cycle, you have probably tried to manage the growing accounting tasks and challenges yourself, or hire a part-time/ full-time bookkeeper to run this for you, especially if you use cloud-based accounting software like Xero. In the event that your bookkeeper possesses all the skills required to prepare VAT and Tax filings, you will still need to have a professional accountant look over the numbers to make sure they are correct.

As your business continues to grow, attention will fall on tax planning, something your bookkeeper probably isn’t qualified to provide. Additionally, depending on the type of business you run, there may be schemes available to help mitigate tax or provide tax-efficient financing options, particularly where product R&D is concerned.

It is no secret that the tax system in the UK is always changing, something that most bookkeepers find it tough to keep up, not to mention small business owners. There are many possible considerations to be made, including issues such as:

  • Capitalisation of equipment
  • Depreciation of company assets
  • Directors salaries and dividend payments
  • Company structure and shareholding
  • Financing arrangements
  • Offsetting business expenses
  • Increased reporting requirements
  • Brexit related changes

This is why early consideration should be given to outsourcing your bookkeeping and accounting functions because they are key management issues required by any business with a real drive for growth to think about. “To be fore warned is to be fore armed” is a phrase most appropriate here. An early adoption of an outsourced accounting model will save you time and money in the long run, as you will avoid the costly learning exercise associated with a string of temporary internal accounting assistants that you may find yourself looking over their shoulder because potential mistakes in your books could lead to VAT penalties or even an investigation by HMRC.

The typical reason why business owners initially reject this idea is simply down to cost. They believe enlisting the services of a professional accounting firm is going to be expensive and that it is cheaper to do it themselves or hiring an in-house person. This isn’t necessarily true of course, as the costs of outsourcing your accounting can be significantly less than employing a full-time bookkeeper or accounting assistant.

Ten reasons to outsource your accounting and bookkeeping

In summary, the principle benefits of outsourcing your accounting to a professional accounting firm like Berley are:

  1. Consistency and reliability
  2. Time saved and no mistakes
  3. Up-to-date tax and VAT advice
  4. Your accounts are fully managed and maintained
  5. Full visibility of your accounts online (with Xero)
  6. Your VAT and Corporation Tax calculated and filled for you
  7. PAYE and pensions managed for you
  8. Business growth and cash flow management advice
  9. Tax-efficient planning
  10. Peace of mind and free weekends

Perhaps the biggest single benefit of outsourcing your accounting to a professional accounting firm like Berley is that you will have a professional working for you, somebody who is impartial and experienced, an expert who takes time to understand your business and your goals, and is prepared to give advice based on a solid understanding of your business and the experience they have in working with many companies like yours. Give us a call today on 020 7636 9094.

We’re also Silver Champion Partners of Xero, one of the biggest online accounting software companies around. This means we know the ins and outs of Xero and freely share them with our clients to ensure you can get the most out of your online accounting software.

Berley’s one-stop outsourced accounting services

At Berley, we offer efficient and convenient accounting services including:

Outsourced accounting

  • Bookkeeping
  • Compilation of management accounts
  • Accounts payable
  • Accounts receivable
  • Cash flow reporting
  • Sales reporting
  • Expenses and receipts management

Tax compliance

  • VAT returns
  • EC sales lists
  • Corporate tax returns and advice

Payroll

  • PAYE registration
  • Payroll administration
  • Pension processing
  • Benefits processing

Company secretarial services

  • Annual compliance with Companies House
  • Maintenance of statutory books

Call us today on 020 7636 9094.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances. 


Café owners working behind the counter

How to generate more sales for your small business

Café owners working behind the counter

Every business needs sales and there are tactics which you can use to generate more sales for your brick-and-mortar shop and/or online site.

With 8.9 million people living in London, there are plenty of opportunities for small businesses to sell products and render services to the populace. From craft breweries to art galleries, brick-and-mortar shops are varied and numerous in London. Online eCommerce sites are equally prevalent. Entrepreneurs continue to set up sites and launch apps that aim to provide something that consumers need or want.

While the business scene is thriving, it is worth bearing in mind that not every business will be successful. There are numerous factors contributing to the success of a business, including but not limited to:

  • Failing to connect with the target audience
  • Failing to control cost
  • Failing to generate sales
  • Failing to stay on top of tax and financial affairs
  • Hiring the wrong people
  • Lack of a robust price structure
  • Lack of proper guidance
  • Bad time management

In this article, we will only look at sales. Conventional wisdom dictates that without a constant stream of sales, there is little chance for your business to survive and thrive. So how do you go about getting more sales for your small business? As this is a question worth discussing, our small business accountants and business growth specialists put together tips which we gather from working with entrepreneurs across London over the years. Hopefully these useful tips will make a difference to your business.

Do you have a sales strategy?

In the movie Field of Dreams, the character played by Kevin Costner heard a voice telling him, “If you build it, he will come”. The phrase was later modified slightly to “If you build it, they will come” by tech pioneers who seized the opportunities at the dawn of the internet when the competition was scarce. At that point, it became a phrase associating with building a website and customers would flock to it.

Today, many small business owners and online entrepreneurs know that “if you build it, they will come” does not happen naturally. No matter what business you are in, launching a company without knowing how you are going to get your customers is as useful as a chocolate teapot.

Needless to say, having a sales strategy is vital to the success of your small business, so let’s discuss what goes into a meaningful sales strategy.

What goes into a sales strategy?

Ideally, your sales strategy should include:

1. Profile of your target market

Who are your customers? Where are they based? What kind of lifestyle do they lead? What are their buying patterns? Questions like these will help you to focus on the next few points.

2. Know your competitors

Understand your competitors and know what they offer. You can divide your competitors into two groups – online and those who are near your business geographically.

3. Your unique selling proposition

Your unique selling proposition or USP in short, states the reasons why your customers would buy from you and not from your competitors.

4. Your goals

Set realistic goals that you want to achieve.

5. Create a marketing plan

This is about how you intend to reach your target audience so they are aware of you and your business.

Having a sound sales strategy is the first step, now we need to translate that into a series of actions. At this point, it makes sense to separate small business owners into two camps – those with a brick-and-mortar shop and those who trade online – as there are points relevant to one camp but not the other. After that, we will share seven tips that are applicable to both sides.

Generate more sales for your brick-and-mortar small business

We have a client who runs a transport service and he builds his business from a single car to running a fleet of vehicles catering to different groups. The three secret ingredients that are key to his success are being local, building relationships, and giving back.

Being local means you advertise locally, you network locally, and you set your sales target based on your customers in the local area. When it comes to your website, you have it optimised for the geographical area you are in and you also set your social media campaign to target the local market.

Being local does not mean that you lack the aspiration to go beyond a geographical area. Far from it – it is about building a strong foundation in your local area first, before venturing out to other regions.

Relationships create loyalty. Businesses thrive when they have good relationships with vendors, associates, and most importantly, the clients. Going the extra mile for your clients will ensure your company stand out and increase the chances of them refer you to other people.

Relationships aren’t just about warmth and happiness all the time, sometimes they can turn negative when your customers are unsatisfied about a certain aspect of the products or services. The best way to handle a negative relationship is to listen, then seek to improve.

Giving back to your community is a step further than just having positive relationships with your customers. It is about doing good deeds for all, including strangers whom you don’t know. Giving back comes in many forms, from sponsoring a local event to participating in a community program. When you give back selflessly, chances are, your action will indirectly help to raise your profile and your brand’s visibility, which in turn will help to attract new businesses.

Generate more sales for your online small business

If you are an eCommerce site owner, you have probably heard of the words ‘sales funnel’ many times. Essentially, a sales funnel refers to the process which converts prospects into paying customers, and the theory centres around website optimisation, meaning how your website can help you convert a customer who lands on one of your pages to putting products into a basket and checking out.

Theoretically, there are four common steps associating with an online sales funnel and they are awareness, interest, decision and action. How you can generate more sales online usually involves you analysing data and tweaking one of the steps. For example, if customers spend a considerable amount of time browsing a certain product, chances are, they want to know more about the product before making a purchase, so you facilitate the process by describing the product in detail, displaying customer reviews and testimonials, using a video clip to show how the product works, to name but a few.

Seven tips for generating more sales for small businesses, both brick-and-mortar and online sites

In this section, we will look at seven tips that are applicable to both brick-and-mortar shops as well as online businesses.

1. Bundle products or services

Combining several products or services into a package has several potential benefits including:

  • It helps you to shift less popular products or services.
  • It creates new categories.
  • It increases sales without higher transactional costs.
  • It appeals to more customers.
  • It makes it harder for customers to compare based on price alone.

2. Create new opportunities

If you discount creating new products or services outright, do pause and think again. The habits of consumers change and as the market evolves, new opportunities emerge. Learning to adapt means you can get ahead of the game.

Creating new opportunities does not mean you have to do it all by yourself. Work with complementary businesses to expand your market and increase sales. For example, if you design and sell yoga apparel online, work with gyms and yoga teachers. If you are a craft brewery, partner with local restaurants. There are plenty of opportunities if you seek to collaborate.

3. Think like a customer

No matter what business you are in, it pays to develop several personas and think like them. Ask questions such as what motivates them? How can you help them to solve a problem or address a need? How can your business be there before and after sales?

4. Nurture loyal customers

Routinely reach out to your customers is just part of the process, it pays to go further and incentivise them to keep coming back and buying from you. Incentives can come in many forms – giving discounts, providing after-sale follow-up, as well as offering exceptional customer service.

Having said that, do not push too hard to grow revenue from the same customers by suggesting products or services that they do not need. This will quickly drive loyal customers away.

Delivering positive customer experience is a big subject by itself, if you are interested in finding out more, this post Customer experience: a discussion worth having may make a good read.

5. Don’t ignore your less valuable customers

While retaining frequent buyers is a top priority for many small business owners, it pays to engage those who do not buy from you regularly. Keeping the conversation going is a way of showing that you value them and it may indirectly build a genuine connection. Even if they have no needs to purchase something from you, they can still refer other customers to you.

6. Have multiple felicitous campaigns ready

You have seen it – when it is raining, stores who know how to capitalise on the weather will display umbrellas and raincoats at the entrance and/or near the check-out.

Knowing how to run well-timed and well-chosen campaigns work exceptionally well online too. When the weather is wet and windy outside, a food delivery company runs real-time local ads targeting the rainy areas because it knows that people aren’t likely to go out in bad weather; they are more likely to have their food delivered instead.

Apart from weather-dependent ads, you can create other felicitous campaigns and make the most of the situations too. The trick is to plan for multiple scenarios in advance and have them ready so you can launch them as and when you need.

7. Monitor and review

There isn’t a standard recipe when it comes to increasing sales. Like all crucial business activities, regularly monitor and review your sales strategy will help you to determine whether it is working well and achieving the desired outcome.

Contact Berley if your small business needs a helping hand

It takes a lot to run and nurture a business. As a small business owner, you are probably wearing multiple hats – you are the salesperson, the marketing person, the IT guy, the negotiator, the web person, so on and so forth.

You know it is impossible to do it all, so use your resources wisely and delegate tasks that take up too much of your time. For example, leave it to our small business accountants to handle your accounts and financial affairs, so you can focus on managing and growing your business. To make it easier for you, our one-stop accounting services offer the full spectrum that seeks to ease your accounting workload, provide sound financial advice and manage regulatory risks, things that can support you grow and flourish.

One of the main advantages of working with us is that once we get a better view of your financial numbers, we can make honest recommendations that are applicable to your business. Treat us as your virtual finance director but without paying big money. If questions surrounding your financial numbers are stressing you out or you simply want an independent accountant to provide a valuable second opinion, kick start the conversation by calling us on 020 7636 9094 today or get in touch via our contact page.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances. 


Two competitors working together can actually benefit each other

Why working with competitors can benefit small business owners

Two competitors working together can actually benefit each other

In business, we are conditioned to outsmart our competitors and think of them as enemies, so can we really turn things around and work with our competitors?

It is self-evident that entrepreneurs and small business owners are the driving force behind the UK’s economy. In London, it is said that SMEs make-up 99.8% of the business ecosystem here and they help London thrive as a global metropolis.

In order for small business owners to create jobs and drive economic growth in London and the UK, they must first thrive and achieve success individually. Most business owners attain that by creating opportunities beyond the limits of local high streets. They may choose to raise their online profile, form partnerships with other like-minded entrepreneurs, join a professional institution to strengthen business connections, to name but a few. Increasingly though, we have seen quite a number of small business owners also look to work with competitors.

Calling it “competitive collaboration” by Harvard Business Review, working with competitors is actually less radical but more beneficial than one would think. In this article, our small business accountants in London will discuss the benefits of working with competitors and methods that you can try.

Why work with your competitors?

Since the dawn of commerce, we have been conditioned to think that business is a zero-sum game and when our competitors and we aim for the same market, a person’s gain will result in another person’s loss.

To a great extent, it is true that global giants do compete fiercely and those who fail to capture any market share stand to lose out. In the UK, the news is also littered with brands that ceased to operate due to keen competition. But competition is not always bad. Competitors keep you on your toes and avoid complacency, they motivate you to explore the differentiators and even encourage you to narrow your focus on a niche market.

Working with competitors, on the other hand, can also yield several unexpected benefits, particularly when you join forces with them to:

  • Enter a new market
  • Create a new product
  • Create economies of scale and cut costs
  • Share business knowledge

Most importantly, we strongly believe that people outlive companies and strong business connections outlast competitions. The moment you stop treating your competitors as enemies and start treating them as your partners, you will see areas that you and they can collaborate and thrive.

Entering a new market with your competitors

The changing shopping habits of consumers, from buying products from a brick and mortar store to an online shop, are not new and yet they still catch many traditional small business owners by surprise. It is said that consumers now spend one in every five pounds online and if you have a traditional store, it means you are likely to see 20% less sales but your overhead (business rates, rents and wages) will continue to increase. Needless to say, this is not sustainable and you need to react swiftly.

To capture the online market, small business owners need a functional website with eCommerce capabilities which are not cheap to create and manage. To overcome this challenge, entrepreneurs can choose to pull their digital resources together or work with a competitor who already has an established online presence.

Creating a new product with your competitors

Toyota makes and sells cars worldwide, but that does not stop them from forming alliances with competitors to create new products. So far, they have partnered with Subaru to create the BRZ sports car, as well as BMW on the next-generation Supra.

Creating a complementary business is easier than one would think. We have seen traditional graphic designers work with web designers to combine both online and offline design into a single package, or brewers collaborate to produce a new beverage. If you are willing to try, the sky is the limit.

Creating economies of scale and cutting cost with your competitors

The theory of economies of scale is sound – when you can increase the scale of your operation, the cost per unit of output will decrease. This theory can apply to the full breadth of most business operations.

For small business owners who need to purchase raw materials for instance, it is easy to see cost-saving straight away if you can join forces with your competitors. When you combine your purchase with them, the higher volume of goods means a greater discount for you and your competitors.

Sharing business knowledge

Let’s be clear and say that we are not referring to trade secrets here, rather it is about sharing what works and what doesn’t when it comes to marketing and general business operations. Small business owners can learn a lot from their competitors and vice versa. When knowledge is shared, there is always a chance to solve each other’s problems and create opportunities to collaborate.

How can Berley help small businesses in London

Small businesses in London are important drivers of economic growth and sustainable job creation. At Berley, our small business accountants recognise that and will do whatever we can to help entrepreneurs thrive and make an impact.

One of the things we do to help small business owners is to lessen the workload pertaining to accounts, bookkeeping and payroll. Think of us as your financial controller (but without paying the big bucks), or view us as your sidekick who is always here and ready to assist. With us managing your business finances diligently, providing regular updates, and taking proactive steps to your accounting processes, you can concentrate on running your business and making it a success.

Talk to us today by calling on 020 7636 9094 or via our contact us page. We offer a transparent and honest approach to your accounting needs with no hidden charges.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances. 


Launching a new business

A new year, a new business

Launching a new business

January may a good time to start a new business venture, but it's going to take more than resolutions to ensure that your new business is a success.

For many, January is a great time to start a brand new project. Whether it is fulfilling a dream or proving to yourself that you can make it happen, entrepreneurs like to turn ideas into reality through the sheer power of inspiration and positivity. However, it is worth noting that spark of launching a new idea or a new business could soon die out without you taking the much-needed first step to making it happen. In this article, our small business accountants in London would like to share five key points that are inherent in the success of any new business.

The five keys to planning for new business success

1. Research

Behind every innovative idea, there are many right questions asked in the right way to the right people. Collectively, these questions have one single objective, which is to help you learn about your idea, your customers, your competitors and your industry, ensuring that you are approaching your new business from a far more educated and prepared position.

Proper research allows you to identify:

  • Whether or not there is a demand for your products and/or services in your target area?
  • What are the key demographics of your market?
  • Who are your customers?
  • Who are your competitors?
  • What are your competitors’ main strengths and weaknesses?
  • What are the major trends or problems within your industry?
  • What other factors that will dictate the success of your venture?

Research does not need to be cost-prohibitive either. Common research methods include:

  • Personal interviews
  • Using social media or an online survey site to conduct online surveys
  • Telephone polling
  • Running focus groups

Once you have collected the data, the next step is to organise and analyse them. If you aren’t convinced of the result, run the research again but never ignore the data. For example, if your data indicate that 85% of your potential customers will pay with a credit or debit card, and despite you aren’t fully convinced, don’t ignore this and launch your business with cash as the only payment option.

2. Create a business plan

Constructing a robust and clear business plan will help you to prioritise, gets you funding, and it will also allow you to appropriately test your financial projections and establish whether or not your business can be profitable.

While every business plan is different, there are a number of things that will help to attract investors, such as the background and work experience of the entrepreneurs involved, the aims of the business, financial summaries, logistics, among others.

Contrary to popular belief, a business plan isn't a document that is set in stone – it's a continually evolving document that should be updated and revised as a business grows from strength to strength. As it plays a vital part in your business operations, it pays to know how to craft a strong business plan. For more information on how this can be achieved, please read our previous article on how to create a robust business plan.

3. Business funding

For many new businesses, a lot of early cash comes from self-funding as well as money from friends and family (known as 'love money'). While self-funding and love money are crucial in those early days to get the business off the ground, they are finite and usually can only sustain for a short period of time. They are also risky – potentially causing irreparable damage to long-standing relationships and friendships.

So wise entrepreneurs tend to also have other funding options in place. Start-up loans, bank loans, B2B specialist lender, angel investors, crowdfunding, venture capital, P2P lending, grants are all viable options available to help entrepreneurs meet their personal living expenses while the business strives towards the goal of profitability.

For more information on the various funding options available to small businesses, as well as advice on how to best secure the much-needed funding, our article What is the right source of funding for you? may make a good read.

4. Choose the right business structure

Sole proprietorship is the most popular business structure in the UK because it is easy to set-up. All it takes is for you to register with HMRC and you are good to go, running the business and keeping all of the profits as your income. You will, however, need to pay tax and National Insurance by filling out a Self Assessment Tax Return every year.

While sole proprietorship is easy, it does have its downsides, most notably:

  • As a sole trader, you are responsible for all liabilities (including any debts that your business might accrue) and they will affect your personal finances and assets.
  • Taxation rates of sole proprietorship can be less favourable in comparison to a limited company.

There is no 'right' or 'wrong' answer when it comes to choosing a business structure – it all depends on what will suit you and your business at this point in time. So it is best speaking to an experienced small business accountant like our team at Berley before you charge headfirst into setting up a sole proprietorship or a limited company.

5. Find a qualified mentor

Most entrepreneurs see their business as an extension of their being – they invest their time and effort and they are emotionally attached to its operation. While being dedicated is admirable, beware that it may also prevent you from looking at things objectively – this is where a business mentor can help.

A business mentor is someone who can work with you and assist your business to reach its potential. Ideally, they have experienced what you are going through now and they are here to encourage you, identify issues, and discuss with you the actions you need to take. They can assist in a number of areas including business planning, financial management, staffing, to name but a few. If you are interested to know more on this subject, check out this article How business mentor can help small business owners.

Berley can help you launch your new business

One of our clients told us that looking for a small business accountant from the very start wasn’t part of his initial plan but he was glad to find us early on and got us involved from financial matters to law and compliance, giving him and his business the best opportunity to succeed.

The thing that sets us apart is we are entrepreneurs too. We've been there and done it – we know what it takes to build a successful small business and we've been around working relentlessly with many other entrepreneurs in London who also have had great success. So we pride ourselves as specialist accountants in all matters relating to small business. Working with us, you will immediately notice that we take a ‘hands-on’ approach to clients embarking on a new business venture. We support our clients and help them navigate many accountancy and financial issues. With us by your side, you can truly focus on running your business, instead of getting bogged down by the administrative side.

So start your new year off with a bang by getting in touch with Berley and our team of small business accountants today on 020 7636 9094 and find out how we can best support you in the pursuit of exciting new opportunities.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.