Tag Archive | "SMEs"

Sage advice for start-ups and entrepreneurs

Back in March, Sage surveyed over 500+ start-up business in the US in their attempt to see what made SMEs works. The research wasn’t about finance, per se, although that did surface as an indirect effect.

No, this research would look at what made a small business a success beyond the initial capital. And, of course, its continued profit and growth.

Why a predominantly accounts-based company is interested in SMEs

Sage, as most will know, supplies some of the world’s most used accounting software. On top of their business management programs, they’re an actual service provider, too.

The thing is, bespoke sage packages don’t come cheap. Knowing the sage software inside out is a desired skill in its own right.

In that sense, there are the barriers to entry for freelancers or limited company contractors. The learning curve itself and the cost for a one-man business are prohibitive. With so many people across the globe now looking to set up shop on their own, Sage can see their market potentially shrinking.

The State of Startup: what makes a successful business model

A couple of the more interesting facts to surface from the study are:

  • women are more likely to start up their own business than men;
    • (57% v 43%)
  • 30-50 year olds are the most likely age bracket to start their own business, having:
    • earned their stripes as an employee, and
    • still being young enough to do benefit from their industry acumen
  • those approaching middle-age/retirement found it easier to start a business than millennials.

There are other striking, but expected, differences and similarities across the age ranges.

Those who’ve been brought up with social media are more likely to use it as a marketing channel. Those in their twilight are almost 2½ times less likely to use Twitter, Facebook, et al.

But there are commonalities, too, with the following elements reported as issues across the board:

  • increasing revenue beyond the startup capital (46%);
  • new customer acquisition (42%);
  • securing startup capital in the first instance (41%).

What actually works, then?

In order to segment the study group, sage grouped the startups into tiers.

In the top tier, they found that 9 out of 10 had achieved their initial goals. The key to their success, compared to only 12% of the bottom tier attaining similar results, can be found in the following common traits:

  1. Partnerships:
    • For contractors offering a bespoke service, the concept of starting a business can be narrow. 59% of successful business ventures were found to have more than one founder in the sage survey;
  2. Business Plan:
    • That old adage, “fail to plan, plan to fail” was never truer than for the startup business. Those who’d launched successfully in the top tier were 78% more likely to have planned a business map than those in the bottom tier;
  3. Use your Yoda:
    • It might be a very British thing to do to have a mentor, but most limited company contractors know the benefit of having an accountant who knows how their payment structure works.In the sage survey, the best-performing businesses leveraged the knowledge of mentors and accountants to fill in the blanks.
  4. Marketing: it’s not a dirty tactic:
    • Marketing is no longer about cold-calling, pinning leaflets to windscreen wipers or leaving a tear-off flyer in the bus stop. Invest in a blog, engage on social media and leverage the relationships in forums.Using a branded website as the hub of your online marketing strategy is crucial to success in 2015.
  5. It’s not all work, work, work:
    • At first glance, you may think this list all sounds like too much. You’ve got to find the time to sell your service or product, too. So this will surprise you.Those in the top tier of the sage study were more than half as likely to achieve a great work/life balance than those in the bottom tier. Yes, they were the most successful. But they also enjoyed the best work/life balance. If you enjoy your business and find the time to recharge your batteries, you’ll be invigorated when new opportunities present themselves.

What do the experts make of the findings?

According to those who nurture startups, 40% of new businesses fail. They either don’t:

  • consider the demand for their service with a critical enough eye;
  • borrow so much capital that they ever make enough to clear the debt;
  • have no conception of controlling the costs associated with running a business.

It’s the latter that we can identify with. In the survey, more than a third of advisors don’t trust the figures that entrepreneurs present to them.

It’s no wonder that almost 8 in 10 of those advisors suggest either buying bespoke accounting software to handle your business or appoint an accountant.

Knowing a trade is one thing. Being able to run a business another entirely.

For contractors, it’s taken you time to get to a stage where you can make good profits from your expertise. You don’t want to dilute your earning power by labouring over company accounts. Leave that to the experts in finance, while you focus on earning. It is that simple.

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How many contractor accountants went into liquidation in final quarter of 2011?

The latest company liquidation figures published by the Insolvency Service have been released.

The fourth quarter of 2011 saw a 14% increase in the number of compulsory company liquidations. 4,260 companies went into liquidation in the final quarter; 1,389 of those were compulsory. 191 companies took advantage of voluntary arrangements, 234 called in the receivers and 658 went into administration. Creditors voluntary liquidations stood at 2,871 – a quarter on quarter decrease of 5.1%, but an increase of 3.4% on the comparable quarter of 2010.

Frances Coulson, the president of R3, said time to pay arrangements from the Revenue and low interest rates have created zombie companies that are just managing to keep their heads above water. Some of these companies will eventually sink, she predicted.

She went on to say that current insolvency figures are down on previous recessions and the latest data could represent the “calm before the storm”. In order for an economic recovery to take place, some businesses must fail so that viable ones can thrive.

R3 research shows that 29% of SMEs are experiencing decreased sales volumes and will need additional support this year.

Andrew Dixon from Bibby Financial Services blamed the increase in insolvencies on the lack of available funding. Less than 33% of small business applied for funding from external sources last year, and only 4% took advantage of government run initiatives such as the Enterprise Finance Guarantee of the Business Growth Fund.

He said the latest insolvency figures show that small businesses need more effective support. Businesses are now turning to asset based funding such as invoice finance in a bid to improve their cashflow, because they do not know where else to turn.

He added that government agencies and the financial services industry should work together to develop greater awareness of the funding options available to UK businesses.

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Will contractor accountants take part in alternative disputes resolution pilot?

IT contractor accountants may be interested to learn that HMRC launched an alternative disputes resolution pilot scheme for SMEs in North Wales and the North West of England last week.

Under the pilot, disputes arising from Revenue compliance checks will go in front of independent facilitators for resolution. The idea being to reduce the cost of the dispute for both sides and avoid a lengthy tribunal hearing.

A pilot scheme aimed at diverting cases from a tax tribunal last year was successful in at least partially solving 60% of the disputes it handled.

The assistant director for local compliance at the Revenue, Jim Stevenson, explained that communication problems often exist between HMRC and the taxpayer. The facilitator will make sure both parties fully understand the facts and arguments surrounding the dispute. The aim is to get a satisfactory resolution to the problem, and if that is not possible, to solve as many issues as possible.

John Cassidy, a PKF tax partner, said there needs to be a guarantee that the facilitators are independent. SMEs will avoid the ADR unless they can be assured they will receive a fair hearing. He went on to suggest that entrepreneurs may have more faith in the scheme if the SME’s tax advisers mediated the resolution procedure rather than HMRC facilitators.

The CIOT’s Andrew Gotch believes the pilot is essential to the overall success of ADR and urged SMEs to take advantage of it if possible. He stressed that the process is voluntary and neither side will come out worse off. In fact, evidence suggest that participants emerge with either a resolution or at least a better understanding of the other side’s position.

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Will accountants for contractors use ICAEW’s new business advice service?

Contractor accountants may be interested to learn that the Institute of Chartered Accountants in England and Wales recently launched a business advice service.

The service, which is being administered by SOSCA, covers Dorset, Hampshire and south Wiltshire and was launched on the day Business Link closed down local services.

The aim of the service is to provide small businesses and start-ups with the financial and business advice they need to enable them to play a part in the economic recovery. Owners of small businesses can contact local firms on a range of issues and they will be under no obligation to use that firm in the future.

In excess of 350 ICAEW practices will offer a free initial consultation under the business advice scheme.

Henry Flint, the president of SOSCA, explained that he had a business background and a lot of companies are in desperate need of good advice at the moment. The Business Advice Service provides them with a place to obtain impartial free advice and will fill the void left by the closure of Business Link. He went on to add that he was keen to see member firms provide help to local business owners.

The deputy president of ICAEW, Mark Spofforth, said small business owners need the best advice if they are to get through the fragile recovery. BAS will provide the opportunity for SMEs to have a free consultation with a chartered accountant to discuss their concerns. ICAEW Accountants can offer advice on issues such as starting a business, financial and taxation matters and restructuring.

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SMEs display pessimism about hiring intentions this year

The results of a recent survey of SME owners on their hiring intentions for 2012 provides a disturbing outlook for 2012.

1,000 SMEs were questioned by Huddlebuy, the discount site, and two thirds of them said they are not planning to employ any new staff this year.

Job seekers in the North of England, the Midlands, Scotland and Wales will find it extremely difficult to find work as 70% of small businesses said they would be unlikely to employ new staff in 2012. In the south, 60% of SMEs are not planning to increase their headcount this year.

Economists expect unemployment to increase significantly over the coming months and could reach 2.9 million by the summer. The public sector is making redundancies twice as quickly as originally predicted and the private sector is unable to create enough jobs to absorb them.

The biggest concern amongst business leaders is the UKs youth unemployment rate, which is currently standing at 22%. This is expected to rise further as business confidence falls and the number of entry-level vacancies drops.

The deputy director-general of the CBI, Neil Bentley, said action is needed now to prevent a lost generation of youngsters. The government’s £1 billion youth contract will create apprenticeships and placements but more still needs to be done.

The MD of Pertemps recruitment, Carmen Watson, said training providers should focus on getting young people ready for work and into appropriate roles. Employers also have a role to play and they should ensure new employees receive the mentorship they need to get used to a new working environment.

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Changes to micro business reporting requirements move closer

Contractor accountants may be interested to learn that the UK’s smallest businesses may soon be exempt from certain EU accounting regulations.

A recent vote in the European Parliament resulted in the decision to let member states decide which Fourth Company Law Directive obligations to impose on their SMEs.

The ICAEW’s head of reporting faculty, Dr Nigel Sleigh-Johnson, said the vote to exempt micro-businesses from the obligation to prepare and file annual accounts under EU laws is a step in the right direction, and something some UK organisations have been fighting for for almost three years.

The coalition has already started looking at alternative ways micro businesses could report in the future, but a lot more work needs to be done to ensure the final outcome will not have any adverse affects.

One major concern about the proposals to reduce reporting requirements is that banks and suppliers will still want to see financial information and therefore micro businesses will still need to demonstrate sound financial management.

The European Council still needs to approve the proposal, but that should just be a formality.

In order to qualify for the relaxed reporting rules, firms must satisfy at least two out of three criteria. They should have no more than €0.5 million in assets, their turnover must be less than €1 million and they should employ a maximum of 10 members of staff.

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New initiative may help SMEs access finance

A new initiative between the National Association of Commercial Finance Brokers and the Institute of Certified Bookkeepers could improve access to finance for small businesses.

The scheme is currently being piloted in Derbyshire, Leicestershire, Lincolnshire and Nottinghamshire.

Garry Carter, the chief executive of the ICB, said the programme brings together bookkeepers and brokers and if the trial is successful, it will be rolled out nationwide. Members of the ICB who devise successful funding proposals for their clients or employers will be rewarded with a share of the commission on the deal.

Carter went on to explain that it has to be established who, particularly in the micro-business sector, is looking for funding. Once that has been established, the emphasis must be on making sure they have credible plans.

Before lenders will consider making funds available, they need to see that a business is properly run and this means providing up-to-date accounts, accurate projections and a SWOT analysis.

A recent study by the NACFB found that there has been a slight improvement in funding recently but it’s still not enough. Accountants and other SMEs still find it difficult to access the funds they need in order to expand.

Businesses have been looking for better ways to borrow and the number using invoice finance has increased for the fourth consecutive year. There has also been an increase of 3.5% in the number of firms using asset finance, however asset finance brokers are now struggling to find funders.

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Contractor accountants may see more of their clients’ records checked

Earlier this year, HMRC began a pilot scheme to check the business records of small businesses.

800 SMEs, in eight areas, were included in the test and the Revenue discovered that 44% had issues with record-keeping. The pilot also discovered that 12% of the businesses it visited kept seriously inadequate book-keeping records.

HMRC has now said that it intends to step up the scheme and complete as many as 12,000 checks before the end of this financial year in April 2012. In the year 2012-13, it will carry out the checks on 20,000 small businesses.

To begin with, only firms that have kept extremely poor records be fined, but over the longer term serious inadequacies could lead to penalties of up to £3,000.

Richard Summersgill, the director of local compliance at HMRC, explained that good record-keeping enables companies to pay the correct amount of tax when it becomes due and SMEs that comply will avoid interest and penalty charges.

The Revenue says the new checks are designed to support businesses and reduce the tax gap but the CIoT is seriously concerned that the programme is to be extended.

Anthony Thomas, the president of the Institute, said it was questionable whether the Revenue has the power to penalise companies before tax returns are sent in. He went on to say that there could be misunderstandings over what constitutes adequate records rather than incomplete ones.

Thomas cited as an example the Powers team at the Revenue saying that a shoebox full of receipts and invoices was adequate in-year but the compliance team saying that unless they were listed, it was a case of inadequate record-keeping.

John Cassidy from PKF said that HMRC should focus its activities on areas that bring in an immediate cash return such as PAYE. The Revenues records show that errors and underpayments of PAYE have increased and yet compliance checks have virtually stopped.

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High street banks are frightening off small businesses

A lot of small businesses and accountants for contractors are too scared to approach their bank for a loan and instead they are hoarding money that could be put to use growing their business, according to a new report from the Bank of England.

The BoE study found that small firms are worried in case their bank cuts their overdraft facility and are sitting on reserves. Entrepreneurs worry that asking for a loan will mean their existing borrowings will be reviewed and their overdraft may be withdrawn. Experts said the results show that small companies are still suffering financial nightmares more than four years after the start of the recession.

Lending is not so much of an issue for larger organisations, but start-ups and small businesses are still finding it difficult to access credit. And the study shows that if they manage to secure a loan they face elevated fees and a long drawn out application process.

Another survey, this time from Syscap, found that 75% of SMEs think the lending margins charged on loans are too high.

Only 8% of the respondents to the Syscap survey said it was now easier for them to access a bank loan. 33% said the situation had got worse over the last year and another 12% said it had worsened in the last three months.

50% of small business owners use credit cards, personal loans or savings to fund their business, rather than approaching their bank for help. Of the firms which have asked for finance from their bank in the last 12 months, more than 33% were refused first time around.

The high street banks say they accept around 80% of applications from SMEs but this figure does not take into consideration the large amount that are put off applying.

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EFG has £600 million to lend, so why isn’t it lending?

Syscap, the independent finance provider, has said that lending under the Enterprise Finance Guarantee scheme fell by 42% over a 12 month period.

In the year ending June 2011, only £433 million was lent under the EFG scheme, compared to £742 million in the year to June 2010. Between April and June this year, just £93.1 million was offered to SMEs and accountants for contractors under the scheme. In the comparable quarter of 2009, £254.9 million worth of loans were offered.

The government has allocated £600 million for additional lending in the year ending 31 March 2012 but if the current trend continues, it is unlikely to reach that target.

One problem appears to be that the EFG scheme does not fund SMEs through lease financing. Leasing is crucial to many small businesses as it allows them to maintain a healthy cash flow, spread the cost of assets and is tax deductible. However, the EFG does allow invoice financing, which is a form of asset finance.

Philip White, Syscap’s chief executive, said the EFG scheme urgently needs to increase lending if we are going to get the economy back on track and create jobs. But it looks highly unlikely that the scheme will lend all of the £600 million it has available if the first quarter lending figures are anything to go by.

Meanwhile, the FSB has welcomed the Independent Commission on Banking’s recommendations for the reform of the sector and is now calling on the government to implement the recommendations before the end of this Parliament.

The ICB has proposed that retail banking operations are ring fenced from the more risky investment banking activities. 89% of FSB members think that the UK banking system needs to be reformed. 52% believe it should happen immediately, whilst 45% say reform should take place by the end of this Parliament.

John Walker, the national chairman of the FSB, said the ICB’s recommendations could make the banking sector more secure but the government must resist the temptation to water them down.

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Many SMEs in construction sector are struggling to survive

Accountants for contractors with clients in the construction sector may be unsurprised at the news that SMEs in this sector are having difficulties recovering from the recession.

Baker Tilly has surveyed construction SMEs whose annual turnover is between £5 million and £25 million and discovered that more than 25% of them have seen sales decrease by at least 20%.

The study also found that one in six construction SMEs is at risk of failing to repay its short and medium term debts. Furthermore, nearly 33% have seen their Profit Before Tax decrease by more than 50%. Despite this, liquidity in the construction sector is stronger than it is for SMEs across all sectors.

Mark Wilson, one of Baker Tilly’s partners, explained that some construction companies may have cash reserves but a lot will find the cash starts to run out as sales and profits continue to decrease. Slashing prices to win contracts does not help the bottom line and is not a sustainable solution in the long term.

He went on to say that the impact of government spending cuts and rising costs will increase the pressure on small firms in the construction sector. The cost of raw materials is rising throughout the world and this is hitting construction companies’ profits harder than firms in other sectors.

Denis Baker, the chief executive of Company Watch, also commented on the research findings saying that as well as highlighting liquidity issues, the fall in profitability and revenues will concern contractors, clients and suppliers who should take a proactive role in minimising their exposure to possible construction company failures.

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SMEs may be forced to file their VAT returns online

Accountants for contractors may be interested to learn that HMRC has launched a consultation on the proposal to make online filing of VAT returns compulsory for firms with a turnover of under £100,000.

The Revenue wants more businesses, and individuals, to go digital and conduct their transactions online.

If approved, the VAT filing requirement will come into force next April. HMRC would also like to see all businesses use online systems for registering and deregistering for VAT and amending their company details. There are no plans to make the registration requirements mandatory yet.

The Revenue has been moving business taxation online since 2006 and online is fast becoming the default channel for business taxation. Lord Carter said in his original review of online services that legislation was necessary to combat general business inertia and that this should take place in stages.

HMRC says that processing will be both quicker and more accurate once filing is conducted online and that should appeal to companies.

However, the FPB says small businesses are paying the price of inadequate online tax systems and red tape continues to hold back SMEs ability to comply with tax regulations.

Andrew Needham, the tax advisor to the FPB, said the tax system includes complex and cumbersome online procedures. Furthermore, he said that HMRC employees received no training on dealing with VAT returns submitted electronically; a situation he found mystifying.

It now takes up to 50 days to complete VAT registration due to extended verification procedures and small businesses are suffering. Late payment of PAYE attracts penalties but small businesses are battling with the worst cash flow problems in 20 years.

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Should SMEs rethink their Internet marketing strategies?

Owners of small firms should always keep their customers in mind when they think about putting their business online, according to the founder of KKSmarts, a web promotion company.

Mike Seddon said that some firms lose sight of important things when they have a website created. The two questions they should always ask themselves are, why the website is being created and who it is being targeted to.

Well known brands will want to have the highest ranking on their brand name, whilst competitive tradesmen, such as electricians and plumbers, will want to rank highly for trade related phrases.

He went on to say that firms seem to lose sight of reality and think they will reach the whole world, rather than thinking where the customers are and how they will search for what they want on the Internet.

As well as falling down in the website design stakes, small businesses and online accountants are not leveraging the power of social media efficiently.

IFF Research’s SME Omnibus study shows that only 5% of small business decision makers use and fully exploit Facebook as a marketing tool. 18% think LinkedIn is an effective sales generating tool, but only 3% take advantage of all of its features. Twitter fares no better with figures of 17% and 4% respectively.

Mark Speed from IFF Research commenting on the findings said that social media is not necessarily the right set of tools for every business, but there seems to be a big divide between those who think it is effective for lead generation and those who actually take advantage of it.

He went on to point out that there are simple ways to engage online with customers, such as updating a company website with information that will appeal to its readers. However, the study showed that of the firms with a website, 16% update it at most once a year.

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Where do contractor accountants find finance?

Small and medium sized businesses are increasingly turning to credit cards, and asking family and friends for loans, to keep their firm afloat.

Hilton-Baird Financial Solutions conducts an SME Trends Index survey every six months and its latest research shows that 42% of respondents admitted to using credit cards to bolster their company finances.

Bank overdrafts are still the most popular way of obtaining external finance, with 44% of SMEs using this option in the last six months, whilst 20% asked family and friends for a loan to tide them over.

Asset finance was the option of choice of 25% of the survey’s respondents, and maybe surprisingly only 21% used invoice finance.

Just over a third of all respondents said January’s VAT increase will put a further strain on their cash flow, but this jumped to 45% of those who use credit cards and loans from people close to them.

Evette Orams, the MD of Hilton-Baird, said it was amazing to discover so many SMEs using high risk means of finance in order to get a quick injection of cash. People don’t look to the long-term impact of turning to family and friends or using credit cards.

Meanwhile, it appears that the high street banks are still falling short of their Project Merlin lending targets. In the first quarter, the banks should have lent £19 billion but they fell well short of that at only £16.8 billion. Early indications show that they will have lent around £37 billion in the first half year, compared to a £38 billion target.

Lloyds Banking Group has said they will beat their agreed targets and Barclays and Santander seem to be on course to meet theirs. But HSBC and RBS are failing to meet their commitments on small business lending.

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