Quality and innovation vital for growth

Quality and innovation vital for growth

Quality and innovation vital for growth

Chris Hill, partner with Sheffield-based independent chartered accountants and business advisors Hawsons, of Glossop Road, says that his dealings with clients indicate that businesses competing on quality rather than price and showing innovation by meeting customer requirements are the ones showing most growth.

He adds: “Although the price of goods is important to customers, as we are seeing in the supermarket sector, quality and the ability to give people exactly what they want is becoming increasingly vital.”

His comments echo the findings of a report by CentreforCities, which provides independent research and policy analysis on UK city economies.

Its latest Small Business Outlook 2014 says that the firms most likely to be productive and profitable are those adopting high growth strategies and competing on quality rather than price, as well as pursuing innovation, investing in training and offering customised goods and services.

Chris Hill Senior Partner

Chris Hill acts as commercial partner for both corporate and non-corporate clients and has worked for Hawsons throughout his career. For more information or advice on anything covered in this article, please contact Chris on [email protected] or 0114 266 7141.

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5 reasons why start-ups should plan

5 reasons why start-ups should plan

Writing a business plan is one of the most important aspects in business success.

A business plan can help you set clear objectives and clarify your thinking, monitor performance, provide early warning signs and potentially be used as part of the recruitment process to attract talented employees. Importantly, a business plan can help you see where you are going wrong and spot potential opportunities for growth.

Outlined below are 5 reasons why start-ups should write a business plan.

1. Raising finance

If you need finance, no bank manager will lend you money without a considered plan. Even if you are looking to borrow money from friends and family, it is a good idea to clearly communicate your vision and business ideas.

2. Set clear objectives and clarify your thinking

A business plan is not just a resource that is used just to secure finance at the start-up phase; it is a vital aid to help you manage your business more effectively. By setting clear objectives and mapping out your business ideas, you will have a much better understanding of your business, your customers and your strategy moving forward.

Also, as the chances are that you’re working in a partnership, a business plan is a good way of ensuring that everyone has the same ideas for the company moving forward. Are you all on the same page? Is the business heading in the right direction? By doing this at the start it will clarify the thinking of all involved and make it easier to make decisions further down the line.

3. Provide early warning signs

When projecting your financial information (Profit & loss accounts; cash-flow and balance sheets) it is a good idea to include a sensitivity analysis in your financial forecasting – include the figures your business may achieve if your projected sales figures were either 10% or 20% up or down. This will not only show potential investors you understand the market but will also help you determine worst/best case scenarios.

This may highlight weaknesses in your business plan, which may need to be changed accordingly. For example, it may show that your profit margins are too low or that you may experience poor cash-flow due to only offering seasonal products. These problems are much easier to overcome when you spot them early; you have time to find a suitable solution.

A business plan will also confirm whether or not a proposed business is viable. A lot of ideas sound great, but when you consider the financials and put it down on paper, you will really see if your business has the credibility to start-up.

4. Find your USP

It is crucial that, as a business, you have a Unique Selling Point (USP). What makes you different from the rest? This may be price, quality or even down to origin – whatever it is, you need to find it and market it.

You must understand your market, understand your competitors and find out their strengths and weaknesses. Planning will help you achieve this and will help you to understand what your USP is and how effective it can be in the market.

5. Recruitment process

As well as using the business plan to attract potential investors, you can also use it to attract the best employees. If you want to hire the most gifted members of staff, it may be a good idea to show them your plan and how the business is projected to develop over the next few years. Not only will they be impressed by the company projections, but also by your knowledge and hard work.

Thinking internally, having a solid business plan will also help determine whether you have the necessary resources to take on new staff – how this may impact profits and what you can afford to pay.

Impacts on the tax efficiency of goodwill on incorporation

Impacts on the tax efficiency of goodwill on incorporation

Impacts on the efficiency of goodwill on incorporation

Two very significant changes were announced in the Autumn Statement that come into force immediately and impact upon the tax efficiency of incorporation. These measures are likely to significantly reduce the tax benefits associated with goodwill.

These need to be borne in mind when discussing incorporation and if there are any currently underway, they should be revisited.

Denying Entrepreneurs’ Relief

First, where business assets are transferred to a related company, entrepreneurs’ relief will not be available on the capital gain. This means that there is no longer the option of realising the value of goodwill and creating a loan balance to draw down on which tax has been paid at just 10%. This increases the tax payable on such a sale to the main rate of 28% (or possibly 18% to a limited degree).

Previously, this was a very tax efficient way to withdraw cash from the company, which, if drawn as salary or dividends, would have been subject to income tax. This now makes the sale a less attractive proposition.

Withdrawal of corporation tax relief on the amortisation of goodwill

Second, the acquiring company will no longer be able to obtain tax relief on the amortisation of that goodwill (unless it was previously acquired by the seller from an unconnected third party), when previously it could have if the business had commenced after April 2002.

HMRC: Capital Gains Tax: denying Entrepreneurs’ Relief for disposals of goodwill to related companies

Implications

These measures are likely to significantly reduce the tax benefits associated with goodwill. They will remove most of the initial tax advantage of incorporation and mean that alternative methods of incorporation are likely be more tax efficient.

However, annual tax saving opportunities are still obtainable via different routes.

More from our tax experts

You can find all of our latest tax articles and tax resources here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]

7 mistakes start-ups need to avoid

7 mistakes start-ups need to avoid

7 mistakes start-ups need to avoid

Starting up a new business is a challenging process. What makes it even more challenging is that many entrepreneurs do not have prior experience of the business world, keeping to budgets or marketing.

Outlined below are 7 start-up mistakes to avoid at all costs:

1) Lack of planning

Like many things in life, planning helps to achieve goals and business is no different. Business planning is a key factor in business success. If you need finance, no bank manager will lend money without a considered plan. Additionally, a business plan is also much more than just a fundraising tool and can help you set clear objectives and clarify your thinking, monitor performance, provide early warning signs and potentially be used as part of the recruitment process to attract talented employees.

Your plan should provide a thorough examination of the way in which the business will commence and develop. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.

2) Wasted marketing spend

Be careful with what you are spending on marketing. Make sure you set out a clear budget and work out what marketing communications need to be prioritised. For example, in the digital age, a company’s website is increasingly becoming the first point-of-contact for a prospective customer; it is essential you send the right message. Additionally, the use of social media platforms e.g. Twitter, Facebook, LinkedIn, Google+ etc. are a quick, easy and free way of getting your business in the public eye.

Details of your marketing activity and budget are an important aspect of any business plan.

3) Badly targeted marketing

Set out a communications plan with specific objectives that you want to achieve.

If you are spending the time and effort to set out a clear marketing budget and communications plan, ensure that you set objectives that are ‘SMART – Specific – Measurable – Achievable – Realistic – Timely’ and that your time is not wasted.

Making your marketing SMART will ensure you are targeting your specific market in a timely fashion. It will also enable you to measure your progress, which can allow you to pull out of or intensify a marketing campaign, depending on its progress and also plan more effectively for future marketing. For example, if you have seen stronger end-results from direct marketing as opposed to on social media, you may wish to concentrate more on your direct marketing communications in the future.

Google Analytics is a fantastic tool which can help you measure progress: http://www.google.com/analytics/

4) Poor recruitment

Make sure you employ the right personnel from the off-set. You must take into account that how your staff communicate and behave will have an impact on your company’s image and reputation. This is especially important for the customer service sector.

Also, when employing family and friends, it is important you consider the potential ramifications on the business and other employees. Take into account the wage a family member earns, as paying a family member what they need rather than what they are worth may lead to tension and resentment among non-family employees. Additionally, from our experience, when a family gets into relationship conflict what usually happens is that the root of the problem is ignored and instead the focus is shifted to ‘business symptoms’. Being aware of this beforehand can mitigate potential issues.

5) Inadequate research

Do not underestimate the importance of planning and research. These are pivotal tasks an entrepreneur must take in order to ensure the viability of a business idea.

Questions to ask yourself:

  • Is there genuine demand for what I am selling?
  • What price should I sell at? What price does the market demand?
  • How can I sustain a long-term competitive advantage? Do I have a USP?

To answer these questions, it is important to conduct both primary and secondary research. Primary research is fundamental; meet with your potential customers, customers of rival products and find out what the market demands – then tailor your business accordingly.

6) Overestimating

Be prudent. Be prudent with your financial forecasting and be prudent with your spending.

Firstly, when projecting your financial information (Profit & loss accounts; cash-flow and balance sheets) make sure you do not overestimate your business’ potential. If you are pitching these forecasts to potential investors, having an unrealistic outlook may put them off – it can show your inexperience of the market place. It can also cause problems down the line if you do not meet goals and hit the financial targets you projected. It is a good idea to include a sensitivity analysis in your financial forecasting – include the figures your business may achieve if your projected sales figures were either 10% or 20% up or down. This will show investors you understand the market and will help you determine worst/best case scenarios.

Secondly, in regards to cash- flow, be prudent on how much you are spending and what you are spending it on. It may be tempting to invest in stock, equipment and hire more staff than necessary, especially if you have had a cash injection from an investor. Keep money aside as a contingency plan; you never know when you may need to replace a piece of equipment or you have a cash-flow problem.

7) Inflexibility

Writing a business plan can have many benefits, but please bear in mind that things do not always go as planned. You need to be flexible with your approach. This may mean bringing out a new product, changing a marketing campaign or something more drastic, like changing your entire company’s direction.

Did you know that Lucozade was first sold as a medical drink and not a sports drink or that Nokia, the telecommunications giant used to make rubber boots?

These companies saw an opportunity in the market and changed their direction.

Do not change for the sake of change, but if there is a viable opportunity, it may pay to take it. This doesn’t have to be on the same level as Lucozade and Nokia, not at all – the market is much more competitive now. However, as an example: if you are a clothing retailer and it starts raining, why not place your umbrellas by the door or near the till or if you offer data protection software and there is a recent breach in the market, why not intensify your communications?

Ian Bryan

Ian Bryan heads up the firm's Business Services Department, which is dedicated to helping the smaller business. Ian acts for a wide range of sole traders, partnerships, and limited companies providing accounting and tax advice and practical business solutions. For more details and advice, please contact Ian on [email protected] or 0114 266 7141.

R&D tax relief – Are you missing out?

R&D tax relief – Are you missing out?

More companies than ever are claiming R&D tax relief – but are you missing out?

Research & Development (R&D) tax reliefs are HMRC incentives created to encourage innovation and technological advances in the UK. R&D tax relief is a widely available, but often overlooked tax relief.

Broadly speaking, the relief applies to companies undertaking projects which aim to seek an advance in science or technology. Guidelines set out by HMRC state that qualifying projects must constitute an advance in the overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.

Initially, when the relief was announced in 2000, R&D tax credits were only available for SMEs. Two years later, a similar regime for larger companies was introduced; followed by the optional ‘Above The Line’ (ATL) R&D tax relief for larger companies in 2013. However, the definition of SME for this purpose is quite high so many companies will qualify for the more generous relief available to SMEs.

R&D relief may allow companies to reduce their corporation tax bills. For SMEs, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HMRC.

Since the introduction of R&D tax credits the rates of relief have increased significantly and the qualifying conditions relaxed. Subsequently, more companies than ever are claiming R&D tax relief on projects. Figures released by HMRC in 2014 found that since the relief was launched over 100,000 claims have been made and £9.5bn in tax relief claimed. However, it is still believed that many companies who have qualifying projects are not claiming.

The two main reasons for a company not claiming R&D tax relief are:

  • They do not understand the tax legislation and claim process
  • They do not realise that they have qualifying R&D projects
Understanding qualifying R&D

It is important to understand the broader range of qualifying activities for R&D to ensure that less obvious tax relief opportunities are not missed. It is often the case that many companies are unaware of which activities qualify as R&D; subsequently leading to many lost opportunities.

For some projects it is easy to determine whether a project meets the qualifying criteria. However, because of the subjective nature of conditions, the basis on which a project qualifies relies on a number of factors and this can make it difficult to review the eligibility of many projects.

For example, some of the following key questions should be considered:

  • What were the scientific or technological advances sought?
  • How were the uncertainties overcome?
  • Did the project have a clear purpose form the outset?
  • Did the project achieve scientific and technological advances in the marketplace?
  • Why was the knowledge being sought not readily deducible by a competent professional?
  • When were the uncertainties actually overcome?

It is recommended that you seek professional advice from someone who has experience in dealing with HMRC and fully understands qualifying criteria for R&D tax relief.

After an initial assessment of the eligibility of the project, we can then submit the claim to HMRC.

Seek professional advice from Hawsons

Claiming R&D tax relief can be a complex and detailed process.

It is important the person submitting the claim has experience of the R&D tax relief claiming process and negotiating with HMRC. This will undoubtedly reduce the number of mistakes made during the claiming process and ensure that all qualifying R&D projects have successful claims.

If you would like to discuss any of the topics covered in this article or you wish to seek advice on claiming R&D tax relief for your business, please contact our specialist tax advisors at Hawsons. We offer all new customers a free initial, no-obligation consultation.

For more information, please visit our R&D Tax page.

Stephen Charles partner

Stephen Charles is a tax partner at the firm, specialising in corporate and business taxation. For more details and advice, please contact Stephen on [email protected] or 0114 266 7141.[/author_info]