Business planning tips you can tap into

Jo Tye of my own firm, Nottinghamshire-based accountants and tax advisers, Barnett & Turner offers her five top recommendations for businesses looking to capitalise on the economic upturn. As we’ve moved out of recession over the past year or two and new opportunities are now presenting themselves for many businesses, it’s a good time to take stock of how your company is shaping up. Here are some suggestions for issues you might want to address, although it’s often good to seek out the advice of your accountants and discuss your plans together:

Rate your business as it is today

An obvious starting point is to examine the strength of your balance sheet and your level of profitability.

Look at your client relationships

Are your clients ‘blue chip’ in terms of their calibre? What’s the depth of your relationship with them? Another critical point is to consider whether they are providing you with a recurring income, or whether you’re often forced to seek out new customers.

Examine your supplier relationships too

It’s worth thinking about how far you’re able to control the supply and price of any goods or services you need to conduct your business. It may not always be possible to pass price increases on to your customers.

Manage your cash flow

What is your situation in relation to cash flow and working capital? Do you have sufficient headroom? It’s very difficult to make long-term decisions if you’re struggling on a daily basis to manage cash. Make sure you don’t have too much of it tied up in debtors and stock.

Write that business plan

This is about looking ahead and thinking about where you want to be and when. Are you hoping to exit? To pave the way for a successor? Or simply to grow the business over the coming five years? This is the time to get anything unnecessary off the balance sheet and ensure that your ownership structure is appropriate to your aims. While you might be able to produce a plan yourself based on, say, your turnover, gross profit margin, net profitability and the amount of money you hold in the bank, anything more complex will need the involvement of your professional adviser.

The real skill of running a business is dealing with these issues over a sustained period – challenging yourself, where necessary, as the journey unfolds. So do schedule regular meetings with your accountant to check on progress. In the meantime, a few hours of thinking time now could prove invaluable in the years ahead.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Ringing the changes in the world of audit

The more independent your auditor, the better the service you get. This week I have a guest article from, Detlev Anderson, a partner in accountancy firm Ryecroft Glenton, who offers his perspective on an important issue for clients. Many businesses and charities value long-term relationships with auditors, seeing them as trusted and knowledgeable advisers, who are able to comment on a wide range of business topics. These professionals are also in a unique position to provide independent assurance to stakeholders.

If a firm has been working with you for ten, or even twenty years, why would you necessarily want to change? Surely their understanding and experience will be invaluable? It is, however, important to remember that this very familiarity can actually be a potential problem. After all, it might possibly threaten the auditor’s independence. In short, the relationship can get too ‘cosy’.

One solution, which you often see in major public interest entities, is the periodic replacement of audit partners. Another is the regular tendering of audit services. (We are currently seeing a spate of major PLCs effectively swapping their current Big Four auditor for another.)

These larger businesses generally have strong internal controls and are often less reliant on their audit firm to provide additional business advice, whereas smaller organisations (which usually have less stringent corporate governance requirements) may well be more dependent on their audit partner. So is it possible to maintain auditor independence without throwing the baby out with the bathwater?

In my view, the answer is yes.

Directors, trustees or governors are right to value the advice and experience of their auditors, but must also satisfy themselves as to their independence and integrity. They can do this by ensuring their auditors employ at least some of the following safeguards:

• quality assurance reviews carried out by another partner within the firm to review areas of the audit file which might have been ‘coloured’ by the other work done by the firm;
• membership of an organisation such as HCWA, which exists in part to provide member firms with training and quality assurance reviews of a sample of their work;
• use of different teams of staff, e.g. one preparing a tax computation and another carrying out the audit;
• the timely training of all partners and staff; and
• the use of regularly updated audit programmes to ensure full compliance with changing statutes and regulations.

In an environment such as a charity, it’s particularly important for trustees (who are unpaid volunteers) to be clear that the auditors are independent. Look for evidence of clear, structured procedures when it comes to reporting. Not every trustee must see the audit planning document, but they should have the opportunity to read it. Generally there is a benefit for the audit findings report to be circulated to the whole board, rather than just the Audit Committee.

Once you have addressed some of these questions and have received appropriate assurances, you can then enjoy the benefits of using trusted and knowledgeable advisers, without being concerned that their advice is not completely objective.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

There’s great value to a proper valuation

Although valuation isn’t always an exact science, writes Barnett & Turner’s Jono Wilson, it can be an essential part of your long-term business planning. In my experience, clients can have any number of reasons to look for a valuation of their business. Sometimes it can be a personal matter – they’re going through a divorce, for instance, and need help with litigation. On the other hand, they may be thinking about changing the ownership or structure. We may, of course, need to value a business after death. And then there’s perhaps the most obvious reason of all: a valuation with a view to a sale and exit from the business.

It’s possible for a valuation to be conducted on an open-market basis, but you also get valuations for fair value and fiscal valuations too. It’s also important to consider the very particular issues presented by quite different types of business.

It’s actually quite usual for businesses to be valued in a number of different ways and it may well depend on the type of business we’re talking about. If I were valuing, say, the business of an Independent Financial Adviser or looking at an accountancy practice, I’d be calculating a multiple of recurring fees. With something like a pub or nightclub, on the other hand, it’s different. There, you’d be looking at the annual turnover and applying a multiple, while also taking into account whether the client had a freehold or leasehold.

As well as trade-specific bases, there are various other options. The most common is multiples of profit, but there is also dividend yield or a calculation based on net assets. No single valuation approach will fit all businesses and the rationale for valuing a business is not always the same. Each valuation presents different factors that need to be taken into account.

Ultimately, of course, a business is only worth what someone is prepared to pay for it. Sometimes, a business might be wholly dependent on the expertise or hard work of one person and actually there’s little intrinsic value once that person is taken out of the equation. With larger businesses, there might be brand value in a name – although that can be difficult to quantify – or perhaps a stream of revenue from intellectual property.

One thing I always stress to my clients is that it’s really worth investing in the due diligence that goes with a proper valuation. If you’re planning on using the figures to pave the way for an exit strategy in, say, five years time, they need to be as accurate as you can make them.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Key Person Insurance

A player hits the floor and they’re not faking. Is your business ready for the consequences? Jono Wilson of Barnett & Turner explores the world of key person insurance. With the new football season under way, we’re bound to be treated to some spectacular dives from players claiming injury. Amazingly, most will manage to dust themselves down and be back in action within a few minutes after their temporary histrionics.

But sometimes the player isn’t faking. Career-changing injuries really do happen. Players can find themselves out of action for six months or a whole season.

The same is true in any business, of course. That’s why it’s worth thinking about whether you’re prepared for a situation in which one of your key members of staff is seriously injured or signed off sick with a long-term illness.

Key person insurance is designed to compensate your business for financial loss if an important employee dies or becomes critically ill. Of course, at a moral and ethical level, all your staff are equally important, but some may be fee-earners, providers of loan finance or have some specialist knowledge that the company needs in order to survive.

Imagine if a partner died or became too ill to work, for instance. The insurance policy might provide the money to buy out his or her share of the business, allowing the other partners to retain control. In the event of the partner’s death, the full value of his or her share would be paid to their beneficiaries.

Thinking about the next level down within the business, a policy for an identified key individual will pay out the estimated financial loss to your company. Here are a couple of the common pay-out options available in this particular insurance market:

Multiple of salary – a straightforward calculation, but does it reflect the true value of the individual to your business?

Proportion of profits – taking into account annual salary, annual profit and the amount of time it would take to replace a key individual.

It’s also worth thinking about personal guarantors of a business loan. In the event of their death – or a serious illness – the lenders might be in a position to call in a loan, so insurance can be a useful way of providing peace of mind to both you and the guarantor’s family. You may also want to consider insuring against the loss of a key shareholder, although this is a particularly technical area, so it’s important to consult your accountant or financial adviser.

Terms of the policy can vary, but are normally based on five years’ cover. There isn’t any specific legislation that covers this type of insurance, but it’s worth bearing in mind that if the premiums qualify for tax relief, any benefits will be treated as a trading receipt. If the key person has a shareholding of 5% or more, tax relief is unlikely to be granted on the premium, as the policy is partly for the assured person’s own benefit.

The best advice is always to talk to your accountant before committing to any particular type of insurance cover.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Head for figures in the cloud

No more software updates. Automatic back-ups. And instant access for your professional adviser too. No wonder David Wilson of chartered accountants and chartered tax advisers Barnett & Turner has become a convert to the ‘cloud’. We accountants are not exactly renowned for being at the cutting edge of new information technology. The stereotype is probably of a cautious or boring bunch. Certainly not people who are known for taking risks. It’s therefore something of a surprise to see accounting firms jumping on the cloud accounting bandwagon. Those who have started to use the software, however, haven’t looked back.

So what is it about cloud accounting that makes it so much more appealing to businesses?

First of all, you’ll never have to install a software upgrade again. As the program no longer sits on your local computer, all changes and updates happen behind the scenes. At the same time, all your accounting data is backed up automatically, so if your computer happened to die, you’d still be able to access the information from another device.

The ability to see your accounting data at any time and in any place is obviously a huge advantage. (This means that if you’re sad enough to want to check your business finances while on holiday, you can pop down to the local internet café and look at the figures just as easily as if you were at home or in the office.)

And the same applies to your accountant. As professionals, we’re able to access your accounting data whenever we need to, without the requirement to exchange files.

Other notable advantages of cloud accounting include:

• the absence of jargon and the fact that there’s little need to master difficult concepts, as the software has been developed with the lay businessperson in mind;

• the ability to capture documentation, invoices or receipts through your smartphone or tablet and integrate them directly into the accounting data; and

• the facility to set up automated links with your business bank accounts and PayPal, with the data being pulled straight into the software – helping to eliminate errors and save time.

If you haven’t already made the leap, it’s worth talking to your accountant to see whether they’re already using the facility with other clients and to take their advice on the best platform to use.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Think you’ve sorted auto-enrolment? Think again...

Many businesses and their employees are aware of the legislation surrounding auto-enrolment for pensions. Indeed, the ‘staging’ dates for bigger companies have already come and gone, so quite a few lessons have been picked up along the way. Perhaps your own date still lies ahead, but you’ve talked to your IFA and identified a provider? It would be easy to think you’d done the hard work. But actually, the real issues may still lie ahead. Data compliance, processing and communication are all potential headaches for businesses. After assessing your existing pension and selecting a new scheme, you need to identify your eligible employees, conduct an impact assessment and then communicate about the staging date. And when the staging comes, you’re into the business of doing the payroll deductions, physically paying the pension provider and again communicating with your staff.

Some accountancy firms provide a ‘bureau’ solution for payroll – overseeing the process on behalf of numerous businesses. If you make use of this kind of service, it certainly reduces your stress, but you need to make sure that your professional partner is geared up to the communication aspects of the new pension regime. Telling employees they are enrolled and when the money’s being deducted for instance, or compiling a remittance file and sending it to the pension provider.

Of course, you can choose to manage the process yourself, but penalties for non-compliance can be up to £10,000 a day, so even the most professional of businesses might want to look at an outsourced option. It soon becomes obvious that the pension commitment itself is only part of the cost of the new legislation. It can potentially eat up time and internal resources. And that’s before you consider the cost of purchasing specific pieces of software or signing a formal outsourcing contract.

Some of the third-party software solutions on the market can integrate seamlessly with your payroll platform, but it’s possible to create even more technologically advanced solutions. Imagine, for instance, communicating with your employees via Android, IoS or other mobile platforms. It’s relatively easy today to send P60s, payslips and pension communications, for instance, directly to employees’ phones.

The advice from experts, as you might expect, is to think ahead. If you give yourself a year to plan before your staging date, you will not only ensure that you select the right pension provider, but you’ll also have in place everything you need for practical implementation.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

To get on top of the issues, it’s important to be in touch.

Why it pays for clients and their accountants to have regular meetings and reviews. I was recently phoned by a prospective client who was looking for help in preparing his accounts. He ran a small limited company with a turnover of around £300k, which had a history of losses in the early years. The business had been kept afloat by finance introduced by the proprietor.

Although there were many issues that his current accountant might have chosen to explore with him – including business pricing, development and the repayment of personal loans – it seemed that none of this was actually happening. The professional adviser confined his work to compliance and only ever contacted the client once a year.

Unfortunately, this is all too common a scenario, as many businesses don’t really know the kind of level of service they’re entitled to expect. A little investment of time with your accountant can, however, pay huge dividends.

We try to maintain at least four critical points in the year when it’s essential to make contact with clients. The first three are straightforward and should really be fairly obvious:

Before the year-end

Two or three months before the year-end, it’s time to discuss the expected results and what will happen to this year’s profits, as well as distribution and pension planning. We start the process by letter, phone or setting up a meeting.

In advance of a personal tax return

We often end up handling the personal tax affairs of our business clients. This is another opportunity for a chat about planning, ISAs, pensions and so on.

When the accounts are prepared

There should be a formal discussion when the accounts are being completed and another chance to look at distributions and dividends.

Whilst I appreciate that “time is often money” and that some clients are more receptive than others to regular communication, I would maintain that there is always room for at least one more contact point. This needn’t be at any particular time of the year. It’s a general get-together or phone call in which you simply ask the questions, ‘How are things going?’ and ‘Is there anything else we can do to help?’

If you’re a client of a larger firm, it’s fair to say that your contact at some points in the year may be with senior managers or specific experts in tax or audit. You should still expect that a partner will take enough interest that they’ll call you periodically to check on how the company is progressing and see what your plans are for the future, without an invoice following shortly afterwards.

If that’s not the kind of service you’re currently getting, perhaps it’s time to rethink your arrangements?

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Realtime collaboration: the sky's the limit with Cloud computing

Whether we’re simply storing music and photos, checking our bank account or working on more advanced business applications, most of us will have some experience of using the ‘Cloud’. Rather than storing data on PCs in our home or office, we send it to remote servers, from which we can access it at any time. Accountancy may not have been one of the first and most obvious areas to benefit from Cloud computing, but firms and their clients are increasingly adopting this new way of working – finding it to be extremely flexible and versatile.

The main advantage is that professional advisers can access clients’ accounts in real time and provide up-to-the-minute advice and guidance, rather than relying on outdated year-end data. Bank statement information can be automatically integrated, which reduces processing time and makes accountancy more seamless and integrated. And businesses, of course, are able to free up space on their own hard drives.

A common model is to take out a software subscription which allows ongoing access to the service. It needn’t necessarily be that expensive and it means that you and your accountant are able to interrogate data whenever you please from any location. In some cases, this might even mean the use of an app that can be downloaded to a smartphone or tablet. It’s often possible to get training through seminars and webinars, although if you’re already moved beyond Excel spreadsheets and are familiar with accountancy software, there shouldn’t be too huge a leap involved.

While traditions die hard and many accountants have yet to move over to the Cloud, it’s certainly worth discussing the options. Two of the big-name players in the small-business market are Xero and KashFlow, which was acquired by IRIS in 2013. Sage is, however, also on the scene and has the advantage of being a very well-established multinational with major brand recognition. There will probably be ever-increasing choice available as the market continues to evolve.

What are the potential pitfalls? Well, security is obviously a concern for everybody, but in a world in which we quite happily bank from our smartphones and pay with our credit cards online, we’re already placing a great deal of trust in sophisticated encryption software. Is it really that much of a leap to share accountancy data too?

Another issue that frequently comes up is ownership of the information held in the Cloud. You should check terms and conditions of any contract to ensure it’s quite explicit that you retain the intellectual property to your data. At the same time, you’ll obviously be granting the supplier a licence to use and store the data for the purpose of providing their service. It’s a trade-off that most people would probably feel pretty comfortable with.

A hotter legal question is perhaps where your supplier chooses to store the data. Some accountants and clients might prefer to know that the host servers are based in the UK.

All in all, there’s no doubt that the convenience of being able to access your accounts at any time from any location. And the ability of your accountant to access the same data will increasingly mean that you can get more precise and meaningful advice exactly when you need it.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Keep it in the family: planning your business for the next generation

Business coverage in the press often focuses on large multinationals and publicly-listed companies, but the reality is that most firms are family owned. Although the failure rate for new enterprises can be high in the early days, once a family business has established itself, it can often become very long-lived. And that raises very important questions about succession planning. It’s sometimes difficult to envisage the circumstances in which you’d relinquish the reins of a company that you or your parents helped to found. After all the blood, sweat and tears that have been involved in building the company up, you may be understandably protective of what you’ve created. But an exit strategy of some kind is essential if you want to make sure the company is in safe hands when you’re no longer able to continue playing an active role.

It’s worth reviewing your options at an early stage in conjunction with your accountants. One possibility is obviously that you start to wind the business down. Another route is a straightforward trade sale. But if, like many people, you want to keep wealth and ownership within your family, there are some important questions you need to address.

Although your children are the obvious choice as successors, things may not always be clear cut. Perhaps they don’t actually show any inclination to follow in your footsteps? The ideal successor will often be a son or daughter who’s shown an active interest in the business and already played some role in its success. Can you be sure, however, that they have a broad enough perspective to help the company meet the challenges that lie ahead?

Some business owners actively encourage their children to go out into the wider world to pick up skills and experience that can ultimately be transferred back to the family firm. Gaining a qualification in law or accountancy can be very useful, for instance. Or perhaps developing an in-depth understanding of sales and marketing while spending time with a blue-chip corporation.

If you’re thinking ahead in this way, you might also want to consider other changes. Is there an argument for strengthening the management team? Or bringing in non-executive directors with relevant expertise?

Your accountant can provide an independent sounding board for this type of planning. At the same time, they’ll be able to talk you through any tax implications of a handover from one generation to another.

Generally speaking, such transfers will be exempt from inheritance tax, as we’re talking about a business asset which would be exempt and therefore effectively sit outside your estate. If you choose to sell the business and pass on the cash raised, however, that will be classed as part of your estate for inheritance tax purposes.

One option to consider is the transferring of shares well in advance of your death, perhaps over a period of time. Although Capital Gains Tax will be payable, Entrepreneur’s Relief should apply to lessen the burden.

Most accountants will have experience of addressing this type of issue alongside their clients. But their message would be that it’s never too early to start the discussion.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Commercial property transaction? Think of the pool before you jump in.

The start of 2014-15 tax year heralded a significant change which is set to have an impact on commercial property transactions. It’s always been the case that buildings will contain items classed as ‘fixtures’, on which it’s possible to claim capital allowances. Historically, however, owners of properties may not always have identified everything that can potentially be claimed. All in all, it didn’t matter too much. If you were buying, you’d employ a valuer to estimate the current replacement value of the fixtures and make a claim based on their report.

HMRC thought the system was open to abuse and a potential source of tax leakage, as it was possible that claims might be made for fixtures on which the owner had never paid tax as a disposal value. Under new rules, a ‘pool’ has to be established which contains all the items that can potentially be claimed.

As a purchaser of a property, you can only claim capital allowances for expenditure the seller has already pooled. And if you acquire a property where no pooling has taken place, no one will be able to claim a capital allowance. It will then become an ongoing issue.

Commercial property contracts will now include a clause that requires the seller to pool all relevant assets prior to the completion of the sale as standard. A buyer will then employ a specialist valuer to look for anything that may have been missed. It’s worth remembering that more items qualify for the list than ever before. Back in 2008, it was decided that capital allowances could be claimed on ‘integral’ fixtures, such as electrical, power and heating systems. Essentially, anything that is fixed within the building, and which can’t easily be removed, counts for these purposes.

A couple of points to bear in mind. The rules about pooling don’t apply if the seller has a specific tax exempt status, such as a charity, pension fund or local authority. And the new interpretation of integral features doesn’t apply retrospectively to items bought pre-2008, which are dealt with under a different procedure.

Whether you’re a buyer or a seller, it pays to be aware of the new rules. It’s also well worth having a discussion with your professional accountancy adviser about the best approach to the issue of allowances.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk