Tag Archive | "small businesses"

Company insolvencies reach highest level for two years

The lack of business finance is starting to take its toll on companies with 68 firms being forced into closure every day.

According to Experian, 2,112 companies became insolvent during March, the highest monthly total for two years. Almost 67% of them were small businesses that employed up to 50 staff. The list of failed businesses was dominated by four sectors; business services, building and construction, non-food retailers and leisure and hotels.

BDRC Continental has produced a report showing just how difficult it is for small businesses to get finance. The company interviewed 15,000 bosses in the largest investigation of the relationship between small firms and the banks ever conducted in the UK.

The research found that one in three firms could not access the finance they asked for last year. However, in the West Midlands 47% of business loan applicants were refused finance and in the North East, 46% were turned down by their bank. Furthermore, nearly 20% of firms that asked for an overdraft, or wanted a renewal on their existing facility, were rejected.

The banks have claimed that about 80% of applications for business finance are accepted, and the only reason business lending has declined is that small firms are not looking to borrow. BDRC’s research suggests these figures are incorrect.

The company also discovered that most small firms do not intend to grow. The only areas where business owners were optimistic about the prospects for growth were the South West and London.

MPs have now expressed concerns that the National Loan Guarantee Scheme will not help small firms access finance from the banks. Under the scheme, the government guarantees loans to small businesses at lower interest rates than they would normally have to pay.

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Are micro-businesses to be freed from some onerous red tape?

You may be relieved to learn that the European Council has agreed new requirements to reduce bureaucracy and create a less burdensome accounting and reporting system for micro-businesses.

The new regulations will cut dramatically the administrative burden on companies that meet two out of the following three criteria. Their balance sheet should not exceed £293,000, turnover should be £586,000 or less and the company should not employ more than an average 10 members of staff during the course of a financial year.

This new EU directive means that member states can exempt their micro-businesses from the burden of publishing annual accounts.

The financial reporting faculty chief at the ICAEW, Dr Nigel Sleigh-Johnson, said the move was a long-awaited step towards devising an appropriate system for small business reporting. Micro-businesses make a substantial contribution to the UK’s economy and are a key source of innovation and start-up activity. The ICAEW strongly supports any move to reduce the regulatory burden on such businesses.

However, he went on to point out that any changes to reporting requirements should not reduce access to financial information nor give out the impression that sound financial management was not important.

The UK now has a free rein to decide what rules micro-businesses should follow and now could be a good time to design a reporting regime suitable for all small businesses. This has been debated a lot in the past but there is still a lot of very important work to be done before the system can be deemed fit for purpose, he added.

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Why you should know your market before you apply for a loan

Owners of small businesses, contractors and freelancers should have in-depth knowledge of their own sector before approaching banks for investment funds, advises the British Bankers Association.

The BBA claims that SMEs will have a better chance of getting a loan if they are prepared to answer a barrage of questions about their respective industry.

Angela Knight, the BBA’s chief executive, said that it is imperative that you understand your market; what it looks like, is it a growth market? Is it vibrant? How large is your customer base?

Business owners should also compile a realistic set of forecasts showing costs and projected income. These numbers should be discussed with the bank to make sure they look right and are presented correctly.

In the financial year ending April 2010, total business angel investment activity dropped to £60.5 million, a decrease of 3.7% on the previous year, according to the Annual Report on Business Angel Activity in the UK.

Entrepreneurs have found it increasingly difficult to obtain funding for new start-ups. As a result, owners started exploring angel funding whereby wealthy individuals provide private equity and get shares in the business in return.

However, business angels were also affected by the recession and they had less money to invest in new ventures. The ARBAA report also showed that there were 4,555 registered business angels in the UK between 2009 and 2010, but only 37% of them were active and less than 10% made any investment during the period.

Despite the drop in activity, Mark Prisk, the business and enterprise minister, said the study shows the important role business angels have to play in financing new businesses. He went on to say he hoped businesses will continue to look to angels when they need business expertise and guidance as well as funding.

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Accessing finance still difficult

The Forum of Private Business has claimed that small businesses in the UK are still having difficulties accessing finance. In fact, the situation has got so bad that it’s hard for them to reach a negotiating point with the major banks.

FPB spokesman, Phil McCabe, said there is a breakdown in communication in the way lenders judge risk. In the not too distant past, decision making would be done by the local bank manager. He would normally know business customers and therefore be in an ideal position to decide where a loan was a risk worth taking.

Now that decision making has been largely centralised, the banks are less likely to know about their small customers and the local business environment. The Forum would like to see improved local decision making powers and a better local presence, he went on to say.

However, small business owners also need to up their game and produce better, more comprehensive financial information if they want the banks to say yes, he concluded.

The problem is not just in England either. The FSB has pointed out that lending in Scotland is dominated by two large banks.

The East Scotland chairman of the FSB, Michael Dixon, said there had been a huge issue over small business finance in the last three years, due mainly to the domination of RBS and the Lloyds Banking Group.

At a recent hustings event, Dixon asked party leaders what measures they would take to help firms get the finance they require to help the economy grow.

Tavish Scott, the Scottish Lib Dem leader, said his party would ensure there was a business-led, regional development bank structure across the country and although it would still be commercial lending, it would make sure finance was available.

Alex Salmond, the SNP leader was quick to criticise this proposal saying you can’t solve the problem by setting up a new bank to replace the existing ones. The answer is to make sure the banking market is competitive.

The Scottish people are voting for a new parliament this Thursday and Alex Salmond’s SNP party is currently ahead in the polls. It will be interesting to see how he makes the market competitive if he gets re-elected and will the English government follow his lead?

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Cheque guarantee cards are on their way out

A large number of us still rely on cheques but are you aware that the cheque guarantee card scheme is about to be phased out?

According to research from WorldPay, 42% of UK small businesses and start-ups use cheques for day-to-day payments and 76% of them did not realise that as from June this year the cheque guarantee card scheme will be phased out. In fact talks are under way to phase out cheques completely by 2018, a fact that 45% of small enterprises were unaware of.

62% of businesses have not yet planned how they will make payments when cheques disappear and 29% expect to continue writing cheques for the next few years.

Businesses were asked about the potential advantages of accepting card payments instead of cheques and 61% said transaction times were faster and they would save time and money by not having to manually bank cheques. 32% of business owners said a major motivation to replacing cheque payments with cards was increased safety.

Meanwhile, the Treasury Select Committee is reopening an inquiry into phasing out cheques after MPs claim to have been inundated with letters from members of the general public who routinely use them.

In 1990, around 11 million cheques were written every day. By 2009 that figure had dropped to 4 million. However, many older people are reluctant to use online banking and still write cheques to cover monthly bills.

Age UK says it is unacceptable to scrap cheques without finding a suitable replacement. People who are unable to leave the house rely on cheques as a safe and secure method of settling their liabilities. If that option is taken away, vulnerable older people might have to give their cash card and PIN to other others, which is against all the advice given by banks.

The inquiry will remain open until May 6th and written evidence can be submitted to the Treasury Committee, at 7 Millbank, House of Commons, London SW1P 3JA.

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Business Finance Taskforce appeal system set to benefit SMEs

Small businesses and accountants for contractors denied funding from one of the big 5 banks now have the opportunity to get their application reviewed by another person within the bank under the new loan appeal system launched by the Business Finance Taskforce last week.

This individual will not have taken part in the initial decision making process. The big banks also need to provide unsuccessful applicants with information on alternative ways to obtain finance, or put them in contact with a business mentor.

Professor Russel Griggs has been appointed as the external independent reviewer and he will report each year on the effectiveness of the scheme.

The FPB believes this is a welcome move and if it is implemented correctly it will help restore a measure of trust in bank lending. However, the Forum stresses that business owners must take advantage of the appeals process if they think they have been treated unfairly. Even if they think they will still be refused, lodging an appeal will create accurate data on how effective the system actually is.

Phil Orford, the FPB chief executive, pointed out that the Better Business Finance campaign has ensured that the major banks now have to spell out the standards businesses can expect to receive, and SMEs can obtain online support and access to an appeals process if they feel lenders are not living up to the standards.

Brian Mairs from the British Bankers Association explained that any company turning over up to £25 million can use the appeals process if it feels it has received unfair treatment over a loan application. The appeal must be launched within 30 days. The BBA also pointed out that the initiative is not designed to increase the amount of money lent to small businesses, rather to ensure that lending decisions are correct.

The FSB has given a cautious welcome to the new system. Any measures that increase transparency and fairness have to be a good thing, a spokesman for the FSB commented. However, the Federation is disappointed that the system is not open to all businesses regardless of size or number of staff employed.

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VAT increase was a sensible move, say SMEs

Nearly half of the UK’s SMEs have agreed that the government made the right decision to increase VAT.

Intuit, the producer of QuickBooks financial software, conducted a survey of small business owners and found that 44% support the VAT increase as a means of tackling the fiscal deficit. 13% believe that increasing income tax would have been a more effective alternative.

It also appears that, at least so far, the VAT increase has not had a serious impact on the majority of small businesses. 67% of the survey’s respondents said the rise had not impacted their business.

39% of SMEs decided to absorb the full VAT rise rather than increase prices to their customers. According to nearly 70% of the surveyed businesses, the increase cost them less than £350 to implement and slightly less than 50% claimed to have spent less than 5 hours on its implementation.

However, business confidence is still fragile and cashflow is starting to show signs of strain. The increase in fuel duty is a further concern for businesses, points out the FSB’s national chairman, John Walker.

Meanwhile, experts believe that we are unlikely to see many tax concessions when George Osborne delivers the Budget in March.

The Green Budget, published by the Institute of Fiscal Studies and Barclays Wealth, claims that fiscal loosening could be counter-productive if it leads to an offsetting of financial tightening.
Michael Dicks, from Barclays Wealth, said he expects the UK economy will grow at much the same rate as the OBR has predicted, but the risks are skewed to the downside.

The Green Budget report welcomed the reduction of corporation tax but said the ‘Patent Box’ will add needless complexity to our taxation system.

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Could public sector cuts benefit small businesses?

It’s not all doom and gloom in the business sector. In fact some firms believe that they will profit from the government austerity measures.

Admittedly many businesses are going to lose public sector contracts, but the job losses could well create outsourcing opportunities. Last week, the government announced that £236bn of public sector contracts would be made more accessible to SMEs. In a bid to ensure that 25% of public sector contracts do in fact go to smaller businesses and limited company contractors, all government departments will be required to publish details of all the contracts they award, and how many go to small firms.

The coalition is also looking into a more open framework to tackle the closed procurement system which generally means contracts are awarded to preferred bidders which are usually bigger organisations.

Other good news came recently when figures were released showing the economy grew at twice the expected rate in quarter 3. Experts say a double-dip recession is less likely as data from the ONS showed the economy is growing at the fastest rate for 10 years.

However, these figures do not take into account the public spending review and the impact it will have on the country.

Nevertheless, the better than expected picture could encourage investors to start thinking about expanding their portfolios. The stock market can seem to be contradictory in times of economic crisis. In 2009, the UK was in recession and yet the stock market rose by around 30%.

Before contractor accountants rush out and pile all their money into stocks and shares, they may want to consider talking to a specialist financial advisor.

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Contractor accountants could receive more assistance

UK businesses are to receive financial assistance from a new business growth fund set up by six of the major British banks.

Companies whose average turnover is between 10 and 100 million pounds will be able to get equity support from the fund in one of a number of initiatives announced by the bank taskforce last week. Qualifying businesses could receive equity of £2m to £10 from the scheme.

Over the next few years, the taskforce, which comprises Barclays, Standard Chartered, HSBC, Santander, Lloyds and the Royal Bank of Scotland plan to build up a 1.5 billion pound investment portfolio.

However, Bibby Financial Services thinks that small businesses and freelancers have been overlooked by the proposals. Bibby’s chief executive, Edward Rimmer, points out that many small businesses will not have the high turnover figure necessary to qualify for this financial aid and the banks do not appear to have proposed any measures to help them.

He also questions whether businesses that do qualify will in reality want to hand over ownership of their company to the taskforce at a time when trust in the banks is low.

SMEs are the lifeblood of the UK economy and the government appears to be missing the point and targeting the upper end of the spectrum instead of helping the newer, smaller businesses, he added.

Another expert, Michael Baxter, the editor of the online magazine Investment and Business News, agrees that the principle behind the idea is a good but he thinks that the fund might not be big enough. He would like to see the Bank of England put some of the money it has earmarked for the quantitative easing programme into a similar scheme.

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Will contractor accountants soon be helping more start ups?

The work and pensions secretary, Iain Duncan Smith, plans to help Britons long-term unemployed start up their own business.

Smith told the Conservative Party conference that financial backing and support would be available to people who have been out of work for over 6 months.

Up to £2,000 in financial support would be made available through the New Enterprise Allowance and the government would arrange mentoring to help new entrants and contractors to the business world.

The government hopes to create 10,000 new small businesses and limited companies through this initiative and is part of a radical shake up of the entire welfare system.

Included in the proposals is a move that will see benefits streamlined so that recipients receive just a single payment.

It is believed that the high street banks will shortly announce a new fund dedicated to lending to SMEs. Although details are yet to be finalised, each institution would be injecting tens of millions of pounds into the fund. And to give small businesses a better chance of having their loan approved, a mentoring programme to advise on their capital structure will also be set up.

Any move to encourage the banks to lend more will no doubt be greatly appreciated by SMEs. A new report shows that 18% of small business owners are turning to alternative funding sources in order to stay afloat. 10% of business owners have turned to family and friends, 7% are using their credit cards for business finance and 7% have turned to loan companies for help.

One third of SMEs have had to make cuts in the workplace with 47% reducing their use of utilities, 38% cutting expenditure on staff refreshments and the same percentage cutting back on travel expenses.

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Don’t forget small businesses, the FSB urges Milliband

The waiting is over and Ed Milliband just managed to win the Labour leadership battle against his brother David.

The FSB is urging Milliband not to forget that small businesses and freelancers are essential to the UK’s continued economic recovery. A survey of 4,000 of the Federation’s members found that 75% of them want to see a simplified tax system in the UK whilst 33% are concerned that the growth of their business is hindered by too much red tape.

The National Chairman of the FSB, John Walker, wants to remind Mr Milliband that SMEs are the largest employer in the UK and as such are vital if the UK is going to continue along the road to economic recovery.

One of the problems that all the party leaders have to tackle is the current crisis within our banking system. There is a lack of competition amongst the high street banks and this has led to the banks lending less. Figures from the Bank of England showed that the crisis surrounding small business lending still exists and companies that have received funding are paying high interest rates on their loans.

Last Monday, Vince Cable stressed that the banks must do more but will they listen? At the moment nearly 500 SMEs collapse every week and yet the banks do have the money to lend.

In the 12 months from July 2009, the banks received £47 billion more in loan repayments than they advanced in new loans. This shows that the larger organisations are repaying their loans but the banks are reluctant to hand out new loans. If we are to avoid a double dip recession, this trend has to change, and quickly. But is the current government strong enough to force the banks into submission?

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Contractors forced to accept new credit terms

Larger clients are forcing SMEs, contractors and freelancers to accept new credit terms, according to Touch Financial. The invoice finance broker recently surveyed more than 200 small businesses and found that more than 50% have had their credit terms amended in the past 12 months.

A massive 89% of those affected felt they had no option but to accept the changes even though most of them said they were imposed midway through a contract period. Although suppliers are within their rights to refuse to accept such changes, the majority of them are clearly worried that a refusal will lead to them losing that customer.

4 out of 10 of the firms surveyed feel that the future growth of their business is in jeopardy due to changed terms. Simon Carter from Touch Financial remarked that it cannot be right for larger entities to force changes in terms and conditions without any form of negotiation especially after a contract has been signed.

Many small businesses are still struggling to recover from the credit crunch and with cash flow tight; delaying invoice settlement for whatever reason has to be bad news. But companies actually changing terms mid-stream seem to be extremely callous.

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Will workplace parking levy affect contractor accountants?

The Forum of Private Businesses is opposed to the plans of a number of councils to introduce a tax on companies that provide parking for employees.

A workplace parking levy was given the go-ahead in Nottingham last year and at that time the FPB expressed concerns that this scheme would be introduced by other towns. It seems that this will now become a reality. A spokesman for the FPB, Chris Gorman, says the WPL is a stealth tax which small businesses and contractor accountants will struggle to pay.

If an employer has more than 10 staff parking spaces they will face an annual charge of up to £250 for each space and this could increase to £350 in two years. Companies have the option of whether or not to pass the charge to the employees.

The labour government introduced the scheme a year ago but it was hoped that the coalition would abandon it. However, councils such as Bristol, Leeds and York are now actively giving it consideration. In London, Cambridge, Milton Keynes and Oxford councils are examining the idea.

The workplace parking levy is meant to discourage motorists from driving into towns and encourage them to make use of public transport to ease city centre congestion but opponents of the scheme fear councils will simply use it as an alternative revenue making measure in the face of the government’s austerity drive.

It is thought that the WPL will be both easier and cheaper to collect than city congestion charges as it will not affect shoppers and motorists who are not driving into cities for work.

Nottingham council is still hoping to push ahead with its planned scheme, after a five day public examination which will start on October 1st, and if approved it will come into force later this year at a rate of £185 per employee parking space.

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Hector rides again

You may recall a while back that Arctic Systems was major news. A case that was taken all the way to the House of Lords where, to the great relief of many, HMRC’s assertion that a husband and wife could not share the profits of their company was comprehensively thrown out. S660a does not apply between spouses; end of. So I was more than a little surprised to read this week that HMRC had just lost another S660a case on appeal.

So just what the hell is going on?

The difference between Arctic and this later case – Pattmore vs HMRC – is to a rational mind utterly trivial. Whereas in Arctic the shares were identical, in Pattmore they were non-voting shares. In other words, they were purely a source of income for the spouse. This, it seems, warrants prosecuting the Pattmores under S660a and demanding they pay £20,000 more in taxes.

Luckily, the judge at the Tier 1 Tribunal ruled that the circumstances of the share ownership did not fulfil the criteria for an S660a settlement. Therefore Mr Pattmore was not liable for the tax HMRC said he owed on Mrs Pattmore’s dividend income. Gosh, who’d have thought it…

OK, so good news for the Pattmores, but slightly more worrying news for the rest of us small businesses. That HMRC feel they are justified in pressing this case in the face of a very solid ruling from the highest court in the land almost beggars belief.

I don’t know about you but I thought that HMRC’s duty was to collect taxes owed in line with the legislation in place. Not to chance their arm pressing a case that any sane person would have thought impossible to win, and one that would seem to be vindictive at best.

However that is not the only concern. In the last budget, Osborne raised the spectre of a General Anti-Avoidance Rule, or GAAR for short, which aims to simplify the boundary between acceptable and unacceptable avoidance. Now this might be something worth doing if it is to be applied consistently and fairly and if the boundaries are clearly defined. The bit that worries me is that phrase “applied consistently”: I really don’t have a lot of faith that an organisation that would bring the Pattmore case should be entrusted to apply what would be a largely subjective assessment. And come to that, an assessment that almost certainly would be disputed and so need a court case to establish the answer. Déjà vu, anyone?

And finally, just to confuse things even further, there are mutterings in the press about HMG relaxing their stance on avoidance in general. No idea what that means yet, but we will no doubt find out soon. If true, it would be welcome; there are far more worthy targets than UK’s 4.2 million freelance workers.

But the obvious conclusion to my mind is that Mr Osborne needs to look at the mindset of HMRC very carefully before he starts giving them something as potentially dangerous as the GAAR to play with. Hector needs to re-learn what he is there to do. Chasing un-winnable cases is not it.

Alan Watts can found at LinkedIn.
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