Archive for April, 2010
Forming a Limited Company for your new business- what are some of the costs and potential problems.
There are many compelling reasons as to why you may consider setting up a limited company for your new or old business. However, there are some important costs and other issues that you will need to take into account before you choose to opt for this particular trading structure. In this article I will look at a few of these costs and issues.
Firstly, when you form a limited company there will be administrative and legal costs associated with the set up. The company will need to be registered with Companies House and shareholders and directors will need to be elected, among other things. If you are transferring your existing business to a limited company, you need to prepare new stationery, register for corporation tax and apply for a new VAT registration number etc… You will probably also need to set up a payroll scheme for any salaries that the directors or employees are entitled to.
Secondly, you will need to prepare annual accounts for the company each year and these will have to comply with company law and the Companies Act 2006. Many people need to employ the services of an accountant to complete these statutory accounts as they are very detailed. As a sole trader or standard partnership you do not have to comply with the above legislation.
The abbreviated accounts (short version) and other directors/shareholders information as detailed on an Annual Return, are publicly viewable for anyone who wishes to see them. Therefore, competitors may be able to get a slight insight into the assets and liabilities of your company by looking at the abbreviated balance sheet. A sole trader and standard partnership can keep all of their accounts information private.
If your company has a turnover of more than £6.5 million then it will require an audit and this will need to be carried out by a qualified auditor or accountant. This additional charge can be expensive and divert money away from other business areas where you could use it.
Funds withdrawn from a company normally give rise to tax liabilities. However, as a sole trader or partnership you can introduce and take money out of the business with no tax consequence; tax is only payable on the profits for these businesses. Due to the increase in legal compliance, a director is more liable to civil or criminal action being taken against them if they do not comply with company law.
Lastly, individuals have greater freedom in how they can offset any losses they make in their businesses.
Like all business decisions, deciding to form a limited company or transfer your existing business to a company structure should be made with full information in front of you. It is likely that due to the extra legal and compliance issues you will need the help of a good accountant if you decide it is the best route to take. Contact Accountants in Birmingham for information and advice.
Small Business Cash Flow Top Tips
Cash flow is king in the world of the small business and unless you are particularly keen on using expensive forms of credit it is probably a good idea to adopt good working practices right from the start to keep cash flowing.
- Be aware and forewarned. Only by keeping completely on top of your cash flow situation will you be able to deal with any potential problems before they get out of hand. You will probably have included a cash flow forecast in your original business plan, don’t waste this, update it weekly and don’t ignore systems that can make this process easier; look at accounting software that incorporates a reporting tool as this will allow you to access the relevant figures at the touch of a button. It is however pointless having instant access to great information if you fail to respond to what it tells you. Look for looming cash flow issues and address them early.
- Market Effectively. One potential reason for poor cash flow could be stagnating sales. Go back to your original marketing plan and revise your strategy. If you don’t reach your customers, existing and new, things are likely to grind to a halt.
- Easy Payment. Once you have reached the customers and convinced them to order, make it as easy as possible for them to part with their cash. User-friendly systems like telephone and internet ordering are a must and if there is a way to pay accept it; card payments, direct debit, standing order. Make things as easy as possible for people to give your business what it is owed.
- Credit Control. When customers don’t pay you will need an efficient strategy in place to recover debts as quickly as possible if you don’t want to end-up in a cash flow crisis, but one of the best ways to avoid the situation of bad debtors is to run credit checks before extending credit to anyone.
- Supplier Management. Use suppliers with whom you’ve negotiated advantageous payment terms where possible and ensure prompt delivery, if every link in the cash flow chain is not working smoothly problems can and will arise.
- Production Efficiency. Even if your customers all pay on time and your supplier is happy to wait for payment for months, cash flow issues will surface if you don’t get paid at all because you haven’t delivered. Assess the quality of your product regularly and maintain stock quantities sufficiently.
So, king or not, cash flow is something that can easily be managed and certainly doesn’t have to be a worry. If you take care to put the right measures in place early there is no reason at all that your small business can’t have great cash flow. Ask Accountants in Birmingham for financial business advice.
Top 5 Tips for Small Business Start-ups
Although you’ll no doubt have done a lot of solid preparation before going into business and no one with any sense starts a new venture lightly, there are one or two very obvious points that so often get forgotten as to have become clichés; one would think then that there would be little need to point them out, but disturbingly small business start-ups are still leaving the sensible side of their brains at home when they launch into the business world: with this in mind here are probably the five most often forgotten essentials to remember right from the start.
1. Call in the professionals. An accountant should not be an afterthought for your business. Certainly in the first few years of trading they’ll not only take action to save money later, but an accountant for a small business should be one of its main business advisors. The help and advice given now could save you a lot of money long term.
2. Plan for success. When the banks and other investors asked you for that business plan, you probably lost sleep over getting it just right, so, although looking at it now seems a horrible reminder of all that stress, why waste it. You worked hard on its content so use it. Update it regularly and often and it will act as a guide to keep you moving in the right direction.
3. This little business went to market. Marketing isn’t always the first thing on the list of ‘must dos’ when a small business starts up, but it certainly should be. Even the basics often get neglected. Competitor analysis for instance, do you know who your competitors are and what they are doing to compete with you? Will they respond to your appearance on the scene? What about your customers, what do you understand about their habits? Budgeting for marketing and starting before you open your doors is the only way a small business will survive.
4. Profit from the rest. New businesses run-up bills even before they start trading and when they do start to trade it is important to remember that your turnover it totally different from your profit, far too many new businesses confuse the money coming in with the money that’s left once the very many bills and overheads have been settled . If you do need to put money into the business it should always be to increase your profit rather than the turnover and knowing the difference between the two is so much more than a lesson in semantics.
5. Get technical. If a website was not the first thing you started to plan once the business looked set to begin then it should have been the second. There is absolutely no way that a small business in the 21st century can expect to survive without a web presence, but it is not enough to simply have a website, any business looking to succeed needs a competitively placed site that is visible to its customers. If SEO is something that you’ll need to Google then get an internet marketing firm on board to help.
Is it better to run a limited company? – A brief discussion of the main advantages
When you start out in business there are a few options that you have available as to how you can trade. The business can trade as a sole trader, partnership, limited liability partnership or a limited company. They all have their pros and cons.
In this article I will just look at the main advantages of trading as a limited company or Ltd as it is also known.
There are many compelling reasons as to why one should choose to set up their business activities through a limited company structure:
- The shareholders of a limited company have limited liability for the debts of the company. Therefore, if the business fails they can only lose their investment. Indeed, if you trade as a sole trader or a standard partnership, the owners of those businesses can be pursued personally for additional amounts owed if the business fails.
- As a limited company is seen as a separate legal entity to that of its owners you can continue to trade despite the death or resignation of certain shareholders.
- It is far easier to give part ownership of the business if it trades as a limited company, through the issue or transfer of shares to other individuals. For instance, you may wish to reward an employee for their service and give them shares as an incentive.
- Suppliers and customers generally perceive that a limited company has more credibility than the other trading structures. This impression of increased respectability could lead to a competitive advantage.
- Limited companies sometimes have more flexibility on the amount and types of tax they and their owners pay, depending on how money is taken out of the business. For example, if it is a one man limited company, where the main shareholder is also a working director for the company, they can take money out of the business as a salary or a dividend; the tax consequences of these two methods are different and thus this flexibility gives the director some control over what taxes he and the company pay.
Companies have greater borrowing potential than a sole trader or partnership. Indeed, they can create a floating charge on their current assets to raise funds. However, in this economic climate any borrowing by limited companies is likely to require personal guarantees by the directors.