To loan or not to loan: when to borrow for your business
For most start-ups, the biggest obstacle is lack of money. Whether it's initial start-up capital or regular cash flow, funding is a constant thought on many entrepreneurs' minds. And for good reason too: a lack of funding is one of the most frequently cited reasons for start-up failure.
As a result, many start-up owners are turning to loans to make ends meet. These can help keep a business afloat in the short-term, but may lead to more problems such as debt further down the line. So should you seek out a loan as a start-up? And, if so, how do you secure such a loan?
Questions before you apply
Firstly, before applying for a loan, it's a good idea to ask yourself some pertinent questions. If you're unsure of the answers, then discuss them with a small business accountant:
How much do you really need?
A month-to-month cash-flow projection can help to work this figure out. Venture towards over-estimating rather than under-estimating, as the latter can cause problems down the line.
Will you qualify?
Knowing if you will qualify beforehand is important, as multiple failed applications will lower your credit score and affect your future prospects.
Do you have the cash flow to repay the loan?
Don’t go to a bank without a clear plan of how the money will be used and when you can expect to repay it. If you are able to reasonably demonstrate how you will return the funding, it will boost your chances of securing a loan.
Is the loan going to help your start-up to grow?
Use the money wisely and focus on growth. If you plan to throw good money after bad, then it's time to examine your circumstances and see if you're in what an economist would call the 'sunk cost fallacy' - where you continue to push on hoping to recover your losses, despite it being unlikely that you will.
Are your personal finances and documentation in order?
Incorrect or missing paperwork can often prevent a loan from going through in the first place. Before and during the process, make sure all your papers are in order and presentable. If it’s proving difficult, then consider hiring a specialist accounting and bookkeeping service to help you get everything together.
Are start-up loans a good idea?
More and more people are starting up businesses. In 2016, nearly 700,000 businesses were created in the UK – up 50,000 from 2015. The number has been attributed to government-backed programmes such as the aforementioned Start-Up Loans scheme, as well as the wider Start-Up Britain initiative.
However, on average over 30% of business owners who secured finances through the UK government-backed Start-Up Loans scheme defaulted on their repayments. In light of this, banks are notoriously wary of start-ups, and lenders need to see evidence of capital, assets, collateral, proven capacity and an impressive credit rating before they will even entertain the thought of parting with their cash.
Before going to a lender, make sure you meet the basic criteria for a loan. You need to be clear about the purposes of the loan, demonstrate how you will repay it, and find ways to reduce risk to the lender.
When should you apply for a loan?
Those with an already existing start-up are eligible to apply for a loan from the Start-Up Loans scheme, as long as they can demonstrate the potential for growth. This can mean loans to rent new premises, purchasing new equipment, investing in marketing materials or creating a website.
The scheme can also help start-ups that are struggling to grow due to cash flow issues. They can be caused by late payments from clients or an attempt to fulfil an unexpectedly large order from a customer. In these instances, a loan can fill the gap until the normal finances catch up again.
If you have hired professional help to grow your start-up then mention it during the application, as this will also improve your chances.
Other avenues of funding
Financial support from friends and family can help get you started, and the money doesn't come with a high interest rate. However, the amount they can loan is often small, meaning this is usually only an option for new or very small businesses.
Crowdfunding has also become an important option for start-ups. Websites like Crowdcube allow investors to purchase equities in a company, and it's becoming an increasingly common source of funding. In 2017 the platform generated £130 million of investment and launched 325 businesses, and in 2018 they have encouraged a record-breaking £50.4 million of investment in Q3 alone.
Lastly, angel investors are also a good alternative for eager entrepreneurs. Popularised in the UK by the TV show Dragons' Den, it's estimated that there are close to 20,000 business angels within the UK, investing £850 million a year. These investors tend to have quite a few years of experience, and they are often a valuable source of both money and networking opportunities.
You can find out more about alternative sources of funding from our blog ‘How to acquire funds for your business’.
Turn to TaxAgility - the small business growth specialists who can help
For new start-ups, loans are an enticing way of getting a business going quickly. However, for older start-ups, they can serve a crucial role in allowing them to grow their business and helping them deal with cash flow issues.
There is no right or wrong 'catch all' answer to the question of whether a loan is the correct choice. Each business is unique, so it is up to entrepreneurs – with the help of a financial adviser or accountant – to determine whether a loan would be good or bad for their business fortunes.
You can also turn to an accountant for help. At TaxAgility, we specialise in growing small businesses and start-ups, and we can help you decide whether a loan is beneficial for you and advise you on how to secure one.
To find out more get in touch on 020 8108 0090 or use our Online Enquiry Form.
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Personal tax allowance: Exceptions
Though the personal tax allowance can give you savings on your income up to £11,850, there are many other ways of saving more money due to the numerous special circumstances and exceptions laid out by HMRC. Allow the tax experts at TaxAgility to guide you through the most important ones.
Tax on savings interest
Most people can earn some interest from their savings without paying tax. The starting rate for tax savings is £5,000 but is subject to certain conditions. The amount that you don’t have to pay tax on depends on your primary income and personal tax allowance:
- If your primary income is £16,850 or more - You’re not eligible for the starting rate for savings.
- If your primary income is less than £16,850 - Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
Remember that this applies to with a personal tax allowance of £11,850. If your personal tax allowance is higher, then the bands are calculated by adding £5,000 to your own personal tax allowance and using that value instead. Additionally, you are entitled to an extra £1000 of tax-free income if you are a basic rate taxpayer, called personal savings allowance. This is cut to £500 if you’re a higher rate taxpayer, with additional rate taxpayers getting no allowance.
Tax on dividends
You may get a dividend payment if you own shares in a company. You only have to pay tax if your dividends go above your dividend allowance in the tax year. The dividend allowance was calculated differently before 06 April 2016, but it has since been changed to a fixed amount each year. Depending on which tax band you are in you can have different rates of tax:
- Basic rate – 7.5%
- Higher rate – 32.5%
- Additional rate – 38.1%
As of 2018/19, there is an allowance of up to £2,000 for dividend income with anything above that taxed according to the above rates. The dividend income must be added to any other taxable income when calculating what you need to pay.
Tax on property and trading income
There are two aspects to tax on property and trading income, both with restrictions, but both allowing £1,000 of tax-free income if you pass. The first aspect concerns income from trading, obtained explicitly from any of the following sources:
- Self-employment
- Casual services such as babysitting or gardening
- Hiring personal equipment such as power tools
If you receive income from these sources, then £1,000 of it is tax-free. Furthermore, if your total gross annual income from trading is less than £1,000, then you don’t need to inform HMRC.
The second aspect concerns income from rented properties. Up to £1,000 of income from these properties is tax-free. However, if the property is jointly owned, then both owners get £1,000 of tax-free income on their individual shares, rather than the income of the house as a whole.
Tax relief
Tax relief occurs when you are repaid tax (or charged less tax overall) for money spent on specific things. It applies primarily to pension contributions, charity donations and maintenance payments, although, you may also use it if you are self-employed or use your own money for travel and necessary equipment for your job. You can also claim tax relief if you have income from working on a ship outside of the UK. Full details about the requirements are on the government income tax relief information page.
Marriage allowance
Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. There are several restrictions on this, and you can only benefit from it if:
- You are married or in a civil partnership
- You do not pay income tax (or your income is lower than your personal allowance)
- Your partner pays income tax at the basic rate, which usually means their income is between £11,851 and £46,350
Overall this can reduce their tax by up to £238 in the tax year. Note that you should call the HMRC if you either receive other income such as dividends or savings or if you are a Scottish taxpayer.
Making sense of tax allowances with TaxAgility
Many of the tax allowances overlap or are conditional on each other, making it a challenge to understand. At TaxAgility, our tax allowance specialists can translate the financial jargon and assist you in applying for tax allowances to get maximum savings.
To find out if you’re missing out on beneficial tax allowances that can help you to save even more money, give our Accountants a call on 020 8108 0090. Alternatively, you can use our Online Form.
Before you go, check out:
- Small Business: Tax Incentives
- Are you aware of the tax rules for corporate gifts?
- Personal tax allowance: income tax rates
How to grow your business: Taking small steps
Many business owners believe that business growth is an easy, straightforward path from small to large and often fall into the trap of trying to grow too quickly too soon. This attempt at rapid business growth usually results in problems like losing track of finances and ineffective business operations.
In reality, business growth is a series of small steps that make manageable improvements to your business.
In this post, the business growth experts at TaxAgility explains the small steps you need to take to grow your business successfully.
Put more trust in your staff / Share responsibilities with staff
When you start, it’s common to oversee everything and keep total control over your company’s actions and decisions. However, you will eventually need to share responsibility as your company grows too large for one person to oversee.
As you grow, you would have hired staff to assist in the specialist operations of your business like a salesperson or marketer. Encourage them to take the initiative and give them more responsibilities. This will allow them to generate new ideas and efficient methods of doing things. They may even feel inspired to go that extra mile for the company by helping others and doing more than what was asked of them.
Having a core team of trusted individuals will make your expansion and business operations that much smoother.
Review and refine
Most business owners understand the importance of audits, but a surprising amount of them don’t act upon the information these reports provide. It’s easy to assume your business is perfect when the numbers are going up, but don’t fall into the trap of complacency.
Improvement doesn’t happen overnight as it’s a slow process of constant refinement. A business will never have a perfect, evergreen business strategy because the market is constantly changing, and staying the same will see you quickly pushed out. Get into the habit of challenging your standards, re-evaluating what your business does and constantly asking the question “is this the best we can do?”
Don’t wait until you face a hurdle to begin reviewing your current business operations and strategies. Adapt and refine as you go, and you’ll stay one step ahead.
Don’t rush into large investments
As the saying goes, you need money to make money. Rapid growth requires a lot of initial capital and one of the best ways to get it is through investment. However, as a small business, it can be difficult to secure essential funding.
Walk before you run. Small investments may seem ineffective, but they can help to set your company on a good growth trajectory, giving your business the appeal needed to attract more substantial investments. Smaller investments allow you to assess risks and identify potential problems before proceeding to wager large amounts of money. Investors look for many things in a company, but financial safety is close to the top of their list.
You can find out more about different sources of investment in our articles How to grow your business: Investors and How to acquire funds for your business.
Review your business infrastructure
There are two aspects to this. The first is the physical side: more products require larger storage space, and extra staff requires a larger office. The other aspect is how your business is structured and how your departments communicate and split up work.
It’s not enough to review one aspect and ignore the other. You must consider how the two interact and how they can contribute to business growth effectively. Do you need to hold regular cross-departmental meetings, or can your staff use online conference calls? Do your different departments need to be close together? It’s far easier to address these problems as a small business than as a large one, so take advantage of your business size while you can.
Look to the business growth specialists
Never be afraid to seek help. At TaxAgility, our accountants have years of hands-on experience in growing businesses, and we will show you the best direction to take when expanding your operations. We provide bespoke assistance with payroll services, accounting and bookkeeping among other things to ensure that you can focus on fulfilling the potential of your business.
To find out more about business growth for startups and SMEs, get in touch on 020 8108 0090 or use our Online Form.
If you enjoyed this article, you may also like:
- How to grow your business: The benefits of risk
- How to grow your business: Long-term planning
- How to grow your business: Customer relationships
- How to grow your business: The human elements
Personal tax allowance: Income tax rates
Your personal tax allowance denotes how much you can earn without being charged income tax. Even if you go over this allowance, you will only be taxed on earnings above it. However, this amount changes each year, and it’s worth knowing what you’re paying, especially when it comes to doing tax returns. The tax accountants at TaxAgility can show you what you need to know.
How much can you save?
Before anything else is calculated, you must first figure out your personal tax allowance. As this changes each year it’s best to check the government website, but for 2018/19 the bands and payments are as follows:
- Earning under £100,000 – You are entitled to £11,850 of tax-free income
- Earning between £100,000 and £123,700 – The £11,850 allowance decreases by £1 for every £2 you earn, until it reaches £0
- Earning more than £123,700 – You are not entitled to any tax-free income
Note that if you are blind, then you are entitled to an extra £2,390 of tax-free income on top of any that you already have.
Constantly changing
If you’ve visited the HMRC website, you may notice that every year is listed as having different tax rates. The tax year begins on 06 April, and any changes are made on that date. Consequently, the tax bands are re-evaluated each year and the Chancellor of the Exchequer’s budget is taken into consideration when calculating the new rates. This is why it’s advisable to hire professional tax accountants like us, as each year the optimal way of paying tax must be recalculated.
The tax bands
If you have a personal allowance, there are specific tax bands that you fall into, separate from the normal ones. They are:
- Personal Allowance – This band concerns you if you earn up to £11,850. You pay no tax if you fall into this band.
- Basic rate – If you earn between £11,851 and £34,500, then you fall into this band. You pay a tax of 20%.
- Higher rate – If you earn between £34,501 and £150,000, then you fall into this band. You pay a tax of 40%.
- Additional rate – If you earn over £150,000, you fall into this band. You pay a tax of 45%.
There are several exceptions to these, such as Income Tax Relief and Marriage Allowance, but otherwise, this is the main thing that you need to know. Note that these rates only apply if your personal tax allowance is exactly £11,850, and if you claim benefits such as Blind Person’s Allowance then the rates can vary. More information can be found on the government website here.
Tax is our speciality
At TaxAgility, our personal tax accountants are experienced in providing proactive personal tax services. Tax laws are complicated and change regularly, and getting someone to sort it out for you can save you a great deal of time and stress.
To find out how we can sort your tax issues out, talk to one of our personal tax accountants on 020 8108 0090 or use our Online Form.
Before you go, check out:
How to grow your business: The human elements
Most small businesses start with an idea and not much else. As an entrepreneur starting out you have to set up everything, see through every delivery and worry about where each penny is being spent. But sooner or later the business will grow too large for you to do everything yourself, and you will need some help to bring the company forward.
A successful business is built on a strong, flexible team of staff that can face the challenges with you. This week in our “How to grow your business” series, we’re focusing on how to manage your employees to ensure that you get the best out of them.
A leader first; a friend second
There's a temptation for small business owners to want to be friends with employees, particularly in an intimate setting like a start-up. However, this will only lead to problems further down the line.
By being overly friendly with employees, you will make things difficult for yourself. You will struggle with accountability and avoid conflict because you don't want to upset your friend, even if they are actively hurting your business This is no good for you, your business or your employees.
Running a small start-up is not too dis-similar from parenthood. You're at the head of the house; it can be a loving house where the 'kids' are encouraged to succeed and where their input is valued, but ultimately it's your house, and that house goes by your rules. In a business setting, you also have a responsibility to foster the development of your employees just as a parent has the responsibility for helping their child grow. It's not about being liked all the time, but it’s about setting boundaries that are good for everyone.
Don't shy away from human resources
The acronym 'HR' doesn't exactly inspire most entrepreneurs. Some view it as yet another hat that they have to wear on their already crowded head, while others roll their eyes at such 'corporate speak' that they feel will set themselves against their small team. But here's the thing: HR doesn't need to be de-personalised, nor does it need to be adversarial. In fact, good HR should be present in every start-up because it helps to set procedures and governance.
HR starts with the hiring process. If you hire smart, you can separate out the ones that want responsibility from the ones that are counting down the hours until they can go home. If you have a team who buys into what you are doing with your start-up, then there's a good chance that they can be trusted with your responsibilities. HR can help with creating a really powerful job description that will attract people who want to work for your business, not for your money.
HR can also include training to help your team develop and grow. Team-building exercises can improve their skillset and enable them to work better with each other.
Retention is important
It’s cheaper to keep hold of existing employees than to find new ones. Recruitment is rather costly across the UK – you can spend anything from £300 on advertising costs to a few thousand pounds if you rely on an employment agency. After hiring, you need to pay national insurance, pension and equipment costs, as well as absorbing the time the new staff takes to learn and get up to speed. It can be easy to underestimate the costs, especially since they tend to go up each year, while your revenue may remain the same. If you need help with allocating your budgets to manage expenses relating to your staff, come and talk to us. We have helped many small business owners across London thrive through our small business management consulting services.
Giving your staff opportunity to grow can help to retain them. Fostering a positive environment, listening to their feedback and having constructive dialogue during one-to-one performance reviews are all things you can do to keep your employee turnover down.
Build a stable dream team
The key to effectively managing the human element of your business begins with having the right profile for the position in advance. Save yourself time, money and effort by specifying the role as clearly as you can and writing down the important attributes the person must have to fulfil the role. Don’t be afraid to look at apprentice and recent graduates either, some of them are eager to learn and be successful.
There's no doubt that the process of good hiring, training and retention techniques costs money and time, neither of which are always in abundance in many start-ups. However not following this process could cost you far more in the long run.
Business growth advice from TaxAgility
At TaxAgility, we are Accountants specialising in small businesses across London. We’ve helped many entrepreneurs grow from a one-person business to a successful enterprise with dedicated teams in place. If you would like to know more about what we can do to help grow your business, get in touch on 020 8108 0090 or use our Online Enquiry Form.
If you found this blog interesting, you might also like:
- How to grow your business: Investors
- How to grow your business: The benefits of risk
- How to grow your business: Long-term planning
- How to grow your business: Customer relationships
- How to grow your business: Social media
How to grow your business: Investors
This blog is the eighth in a series of blog posts on how to grow your business, where we cover a new topic every week to help you make the most out of your small business. This week, we’re looking at how to make your small business attractive to private investors.
Attract investors
- Plan. Preparation is key when you are planning on approaching investors. You should know exactly what you are asking for, what you can offer in return and how much you are willing to negotiate on. Most of all, investors want to be sure that you have the potential to bring them returns on their investment. Being enthusiastic, passionate or talkative will not be enough to win over private investors; you need to able to prove that your business has a clear upward trajectory and that you have strong growth potential.
- Research. Once your plan is ready, it’s time to look for private investors. Using your private and professional networks is a good start, but you may also consider using platforms like Invest Europe or the Angel Investment Network. While conducting your search, you should research every name that comes up, particularly if you have no personal connection with them. Find out their background, what types of businesses they have previously invested in, and what their values are. This information will help you create a personalised pitch.
- Pitch. After you’ve chosen potential investors to approach, you need to get your pitch ready. It’s a good idea to create an ‘elevator pitch’ – a brief and catchy description of your business ideas – and practice your pitch numerous times. You want to be able to speak confidently to anyone and hopefully interest them in letting you make a full proposal.
Most importantly, make sure your business plan clearly shows what you are going to do with the money, and how this will help bring growth and returns on investment. You should have sales projections based on real numbers, and ideally, you will have conducted a market analysis already. You should be familiar with every detail of your strategy, and you should know how much you’re willing to compromise.
Don’t give up
Hopefully, your business plan will attract the right people who can back your business ideas. However, for many people, approaching investors will involve a great deal of rejection, and this can quickly put a stop to your plans. Keep in mind that some people who have funded their business ideas with investors may have given their pitch dozens or even hundreds of times. There’s no harm in returning to your pitch, refining it, and trying again. You may also get some constructive feedback if you ask for it. Although it’s essential to continue with business as usual, if you are confident that you can bring great profits in the future, you should have faith and keep trying.
Grow your business with TaxAgility
TaxAgility is the local London accountant who can help you grow your business. When constructing a business plan and a pitch, you will need to gather hard data and numbers to show you’re moving upwards. We know the ins and outs of small businesses, and with us you can create the perfect plan for the future.
To get help with investments or any other aspect of business growth, call our specialists at 020 8108 0090 or use our Online Enquiry Form.
If you found this blog interesting, you might also like:
- How to grow your business: Networking
- How to grow your business: Social media
- How to grow your business: The benefits of risk
- How to grow your business: Long-term planning
- How to grow your business: Customer Relationships
How to grow your business: Networking
Any budding entrepreneur should have an eye towards growth. From new starters to business veterans, networking will often contribute to your success if it’s done right. In this article, the seventh in our series focusing on how to grow your business, we’re going to discuss what networking is, why it is important and how it can help small business owners to build up their company.
Defining ‘Networking’
While it may seem like a toothless business buzzword, networking is actually a form of marketing. In simplistic terms, it could be defined as making use of business connections to create new opportunities and drive sales or growth. The obvious advantage of networking is it’s a relatively inexpensive approach to getting your business out there. It’s also a way of building fresh channels of communication through existing business relationships, creating new opportunities.
Where do you network?
Traditionally, networking has been performed through face-to-face conversation, either in formal gatherings such as corporate events and conferences, or in informal settings such as corporate parties and general discussions amongst peers. Even in this digital age, the tradition has endured.
According to a survey by Forbes, 84% of those surveyed stated that when it comes to making business connections, they prefer face-to-face meetings. Networking events, in particular, still play an essential role in fostering relationships with influential figures across industries.
A more direct approach is to cold call potential clients either through phone calls, emails or by visiting them for face-to-face discussions. This can still be a particularly powerful tool for growing businesses that are part of a local economy.
But despite the traditional methods of networking still being favoured, there’s no doubt that social media has changed networking.
Networking on social media
For SMEs with a negligible marketing budget, this is an area to focus on. Websites such as LinkedIn are perfect for entrepreneurs looking to grow their business and network. Social media allows you to build a profile of a potential contact before you even try and connect with them. You can see what articles they like, what topics they are engaged in and what piques their interest. This is not only helpful when building relationships via online platforms – by, for example, sharing content or directly engaging with them – but it can equip you to approach them in a face-to-face context too.
Social media and face-to-face networking events can also be combined, as the former has become a great tool for advertising and marketing the latter, and vice versa. If you’re not sure how to find networking events, jump onto social media and start following influencers in your industry. Most will be receptive to networking, and they will likely re-tweet and share events that will be of interest to your industry.
How to do face-to-face networking
Face-to-face networking can often be seen as a by-product of having an abundance of charisma or self-confidence. But even if you don’t feel like you’ve ever had the gift of the gab, there are ways to learn techniques that can mitigate the need for a big personality.
Firstly, don’t be afraid to utilise any pre-existing contacts. If you know someone at an event, then approach them about making introductions to other connections. Even if these connections aren’t the people you are looking to talk to, there’s a chance that one of them will know one of your targets.
Secondly, as tough as it may sound, going alone to a networking event can be beneficial. When you’re with people you know, such as colleagues or friends, it’s easy to slip into conversations with them at the expense of others. Not only will this inhibit you from reaching out, but your language will also likely be too informal or personal for others to join in. If you go alone, you force yourself to open up to new relationships.
Lastly, think about how you communicate. Keep your body language open and work on keeping eye contact with people. If you struggle with confidence, then prepare an elevator pitch before you attend the event. This will give you focus and allow you to explain your business to others with clarity and without hesitation.
What to avoid when networking
Despite the focus on ‘identifying’ targets and ‘using’ others, it’s important to not get too forceful or impatient with your goals. When you’re targeting someone, you should be targeting them with a relationship in mind – not as a buyer or a career stepping stone. If you make a memorable first impression, then often sales, opportunities and growth will follow naturally.
It’s also a good idea to avoid topics that could be considered inflammatory or cause ill will. You may be the most political person in the room, but that doesn’t mean you should push an agenda on others you barely know at a networking event. There’s nothing wrong with being a bit informal, but don’t get caught up in complaining about something or going into details about your personal life. Keep the conversation open, inviting and positive.
The benefits of networking
In conclusion, networking isn’t a black and white area – it’s about opening yourself up to opportunities. It can allow you to meet other like-minded entrepreneurs and business figures while building a reputation amongst your peers. These people can provide inspiration and share strategies that can help boost your business.
It’s not solely about the benefits to you either: other entrepreneurs are there with the same goal of growing their brands and businesses. By listening to others and being helpful with introductions, you can casually strengthen your own network. This may even bring benefits to your business that you previously didn’t visualise.
Finally, the most important benefit of networking is that it makes you visible. Don’t get caught up in rejection or failure: what matters is being noticed, and therefore being visible. Visibility means you’re succeeding at marketing yourself and opening yourself up to possibilities that will allow your business to grow.
Business growth advice from TaxAgility
At TaxAgility, our accountants specialise in small businesses. We've helped many of our clients grow from one idea into the companies they are today.
Get in touch on 020 8108 0090 or use our Online Enquiry Form
If you found this blog interesting, you might also like:
- How to grow your business: Social media
- How to grow your business: The benefits of risk
- How to grow your business: Long-term planning
- How to grow your business: Customer Relationships
How to grow your business: The benefits of risk
Richard Branson said one of the distinct skills that the greatest entrepreneurs share is they take calculated risks and “the luckiest people in business are those that are prepared to take the greatest risks”. So in this fifth post in the ‘How to grow your business’ series, we look at why taking risks is beneficial to your business and how to apply risk management principles before going ahead with a new idea or project.
The benefits of risk-taking
Without a doubt, taking a business risk can feel dangerous as the possibility of having a loss is real, but it’s also vital in order to make progress. Launching a new product, implementing a new marketing strategy or expanding a business function, risks are inherent in every business decision. Risks arise from uncertainties, but staying in your ‘comfort zone’ means you will continue at the same pace which may not be healthy for long-term growth. In fact, PayPal co-founder Peter Thiel once said to Facebook’s Mark Zuckerberg that "… in a world that’s changing so quickly, the biggest risk you can take is not taking any risk."
Here are three reasons why risk-taking is beneficial to you and your business.
1. Taking risks can lead to new opportunities. You should consider risks as opportunities to succeed.
2. Taking risks helps you stand out. In a competitive world, having the drive to do something new or different can put you ahead of the rest.
3. We learn from risk and failure. Not every risk leads to success, but the ones that don’t will also help you understand what works and what doesn’t. Every high-profile entrepreneur has experienced failure at some point, but they learn from their mistakes and bounce back.
Risk management
Risk management is the process of identifying risks and setting up procedures to avoid or minimise them.
Before embarking on a new project, you should create a detailed risk management plan which helps with the followings:
• Identifying risks. The first step is to identify risks by asking when, where, why and how are risks likely to happen in your business. Questions from what will happen if your design blueprint or your business idea is stolen to what will happen if one of your key suppliers go out of business help you to review procedures and establish an alternative plan.
• Analysing risks. This is all about the likelihood of any particular risk happening and the consequences it would have on your business. It is best to create two tables with one charting the likelihood and the other the consequences.
For example, it is unlikely that you will lose internet connection for a day (level 1, the lowest on the scale of likelihood). But if it happens, the consequence is severe as you cannot process any online orders and the financial loss is about £5k (level 4, the highest level on the scale of consequences because you cannot afford to lose £5k).
• Controlling risks. This stage helps you to plan your responses. Considering the example above, you now have to decide if you want to accept the risk of having no internet connection for a day and losing £5k or take action to reduce the risk (using mobile broadband as an alternative). You can also transfer the risk by switching to a different supplier.
• Reviewing and updating your risk management plan. As your business evolves, your risk management plan will follow and change too. Reviewing your risk management plan regularly helps you to identify new risks and monitor the effectiveness of your responses.
When it comes to financial risks, it is helpful to talk to a chartered accountant who understands small businesses and can provide practical advice pertaining to a wide range of areas from credit risks to operational risks.
Grow your business with TaxAgility
From the moment you first set out to become an entrepreneur, you’ve been taking risks and hopefully they’ve paid off so far. But as time goes on, you are likely to come across even bigger opportunities and you’ll need the right help. At TaxAgility we have shown many small business owners how to turn risky moves into success by having the right plans in place.
TaxAgility is the local London accountant who can help you grow your business. To get help with risk management or any other aspect of business growth, call our specialists at 020 8108 0090 or use our Online Enquiry Form.
Childcare Vouchers for Directors
If you’re a director of a Limited Company and a parent or step-parent of a child whose expense is maintained by yourself, or you have parental responsibility for a child who lives with you, you may be able to save money by way of the Childcare Voucher Scheme.
For a company director to be eligible for the Childcare Voucher Scheme you must be both an employer and an employee of your company, meaning you take a salary from your role as well as receive remuneration through company shares. The scheme is not available to self-employed individuals or contractors.
Recent changes to Childcare Vouchers
The Childcare Voucher Scheme was initially due to be phased out in April 2018 and replaced with the new Tax-Free Childcare Scheme, but the deadline for new applicants has been extended to 4 October 2018. This means that from the date of this post, you have exactly one month to sign up for childcare vouchers if you are not already using them.
If you’ve already joined the scheme, you can keep getting vouchers as a Director, as long as you do it through the same employer and you don’t take an unpaid career break of over a year. If you successfully apply for Tax-Free Childcare you can’t continue using vouchers or re-join the voucher scheme, so now is the time to consider the relative benefits of each option and work out what will be best for you and your family.
How to Implement Childcare Vouchers for Directors
Firstly, you must check that your childcare provider, au pair, or after school club (in certain circumstances) is registered with Ofsted.
Next, you must contact HMRC or an independent scheme administrator to register for the Childcare Voucher Scheme. Handing this over to a third party will result in you having to pay a commission to your scheme administrator, though you should be able to put this down as a reasonable business expense.
You must also contact your accountant to let them know of the changes.
Keep in mind that if both you and the child’s other parent live with or have parental responsibility (or both) over a child, and you’re both directors of your Limited Company, you may both claim under the Childcare Voucher Scheme, doubling your potential household savings.
As a company director, you may receive childcare vouchers under the scheme even if you don’t take a salary from your role within the company. In this case, the vouchers will be seen as a tax-free employee benefit. If you do receive a salary as an employee of your company, however, you must ensure that your salary sacrifice (see below) doesn’t reduce your salary below the National Minimum Wage (NMW).
Your Savings
Here’s the crux. As a director-employee of a company there are two ways for you to receive childcare vouchers; via your employee payroll as a salary sacrifice (whereby the value of the vouchers is taken out of your salary, meaning you’ll save through reduced tax) or by treating them as a business expense, deducting them from your company profits.
To ease the pain of making this decision the Government provides a childcare voucher calculator online to help you determine how much better off you would be under both options.
In terms of the former, employee childcare vouchers are worth the following tax and National Insurance exemptions a week (regardless of your director status):
- £55 a week (£243 a month) for basic rate taxpayers
- £28 a week (£124 a month) for higher rate taxpayers
- £22 a week (£97 a month) for additional rate taxpayers
If you’ve been in the scheme since before 6 April 2011 you should be receiving the full basic rate exemptions, even if you pay tax at a higher rate.
From your perspective as a director, not only will opening your company up to the Childcare Voucher Scheme allow you to benefit from childcare vouchers by way of beneficial tax and National Insurance exemptions, if any of your employees choose to receive vouchers in exchange for part of their salary (salary sacrifice) this lowers the National Insurance Contributions (NICs) you have to pay on their behalf due to childcare vouchers being exempt from NICs.
Experienced Support with Childcare Vouchers
To speak with a professional to discuss the use of the Childcare Voucher Scheme in your Limited Company and how to implement childcare vouchers for Directors, or to discuss other childcare schemes, contact TaxAgility today on 020 8780 2349 or use our Online Form to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
How to grow your business: Long-term planning
This is the third in a series of blog posts on how to grow your business, covering various topics in order to help you get the most out of your small business. This week, we will be focusing on the importance of planning far ahead.
Why worry about the distant future?
Long-term plans tend to promote the fastest growth. A trap that many small businesses tend to fall into is focusing solely on yearly profit and working to improve that. Focusing on the short-term profits will still promote business growth, but at a much slower rate than if you were actively working towards a long-term objective. Similarly, it can be easy to think your business is failing if your net profit is down from last year, but being able to step back and assess whether you’re still on track for your goal in five years’ time will keep you going through the tough times.
What to aim for
There is no set plan for how fast a business should grow, as each one is different. Therefore, when creating a long-term plan, it should be tailored to your business, setting out goals and realistic times to achieve them. A long-term plan could be as little as two years in the future if you are working in a volatile market such as fashion, or as many as ten if you intend to bring something new into the market.
It’s a good idea to stop once in a while and imagine yourself as a customer approaching your business 5 years later. What will it look like? How big will it be? Once you have an idea of where you want to be, you can start setting out goals in order to reach that target and then begin to get an idea of the time frame needed to make it happen. Make sure that you convert your goals into numbers, such as projected revenue in 5 years’ time, or the minimum number of branches open. Solid targets are easier to work towards than vague concepts, and it allows you to track your progress as well.
While it helps to have numerical targets, some of the most common long-term goals focus on the environment and culture within the company, such as promoting innovation and establishing a culture that thrives on hard work. Others focus on reducing carbon footprint or creating a workplace that your employees can feel more comfortable in. A plan should focus around what you as an entrepreneur want, whatever that may be.
Above all don’t think your plan will stay the same, because the market won’t. It’s vital to adapt and re-evaluate from time to time, to keep your goals relevant and achievable.
Involve everyone
As a small business, you cannot afford to waste your staff. When creating a long-term plan, it’s essential to ensure that everyone is in agreement with what you’re aiming for and what needs to be done. If there are disagreements, then discuss them rather than ignoring them; often they will be valid concerns that can add to your plan instead of detracting from it. Be open to suggestions – you have some great minds at your disposal, so use them.
What do common long-term strategies look like?
Long-term strategies are not always as complicated as you might think. A good plan is organised into stages, each with their own tasks. The highest tasks are the original aims; for example, this could be to double the company value within 4 years. Accompanying this are the tasks needed to achieve that goal, such as investing in more warehouse storage. To raise the funds for warehouse storage, you may have to increase your revenue in the short-term by advertising your services. For each task, you should estimate how long you think it should take and when you want to complete it by, converted into numbers that you can set as short-term goals. This way your initial goal changes from seemingly unapproachable to perfectly achievable and gives you a tangible guide to getting there.
These plans tend to look five years or more into the future, so do not be disheartened by the amount that needs to be done to achieve a goal: business growth is slow by nature, and planning around it will inevitably need more time than you think.
Business growth advice from TaxAgility
At TaxAgility, we know what it takes to get a small business off the ground. Our team of specialist London accountants have watched clients take their success ever higher, and been with them every step of the way. If you want advice on how to grow your business, call the business growth specialists TaxAgility at 020 8108 0090 or use our Online Enquiry Form.