Archive for the ‘home-article’ Category
April 1st, 2008
Staying on top of your company cash flow
Small companies will have to cope with late paying customers as well as high interest rates, declining orders and an economic slowdown. But there are ways you can improve your company’s cashflow
Almost half of small companies struggle to get customers to pay on time and over a quarter regularly ask to extend credit terms, according to research.
The study, conducted by business finance firm Hilton-Baird on behalf of the Asset-Based Finance Association, concluded that cashflow problems are likely to increase as the impact of the credit crunch, high interest rates and soaring energy prices hits the UK economy.
“This is likely to result in many UK small companies having to tighten their belts, particularly with customers continuing to pay late,” said Alex Hilton-Baird, founder and managing director of Hilton-Baird Financial Solutions. “If they haven’t already done so, companies should review the way in which they currently finance themselves.”
Hilton-Baird offers the following tips on how to make the most of your cashflow:
Get on top of credit control
Make sure that your terms and conditions are reviewed on a regular basis and that invoices are raised on time. The sooner you raise an invoice, the sooner you are likely to be paid. Make sure signed delivery notes are collected. That way you reduce risk of disputes, delayed payments and the debt not being paid
Put effort into overdue balances
The cost of financing outstanding balances can be substantial as the longer a balance is outstanding, the higher the risk of it becoming a bad debt. Make sure you invest time and resource to reduce your risk. It is worth bearing in mind that there are funding facilities which can release the cash tied-up in your ledger and help your cashflow
Motivating the sales team
Consider incentivising your sales teams to sell to customers that will ultimately pay. While increasing turnover is important it shouldn’t be at the expense of profitability
“This is likely to result in many UK small companies having to tighten their belts, particularly with customers continuing to pay late,” said Alex Hilton-Baird, founder and managing director of Hilton-Baird Financial Solutions. “If they haven’t already done so, companies should review the way in which they currently finance themselves.”
Credit checks
Develop a habit of credit-checking customers before making the sale as it pays in the long run. Also put key customers and suppliers on constant review. This will alert you to any material changes to their business, such as the late filling of accounts, change in directorships, downgrading of credit ratings, change of address or change of advisers, which are all initial indicators of instability
Share information
Don’t be afraid to talk to your competitors about their experience of selling to customers, particularly ones that you may share. Are they experiencing problems collecting money? If so, you may wish to consider your stance on supplying that particular customer. What are they doing to address the situation?
Review funding arrangements
Ensure you review existing finance agreements with your funders. Make time for a detailed check of loan agreements to see what facility terms are and what security has been pledged
Shop around
Benchmark your existing funding facilities to see if you are getting the best deal. You might be surprised at what deals are available
Correct funding
Make sure that you are funding the correct assets with the correct finance facility. You’d be amazed how often this is not the case. Also, ensure that your chosen funding facility is sufficient to meet your current as well as future needs
It pays to talk
Funding providers don’t like surprises. So keep them abreast of good or bad news. They will appreciate your honesty and you will build trust, allowing you time to work through the options
Take advice
If you are unsure about your next step in the wake of the fallout from the recent credit crunch, then seeking independent advice is recommended
March 18th, 2008
The ACCA guide to surviving the slowdown
With the UK economy taking a downturn there is never a more important time to ensure proper financial planning . ACCA (The Association of Chartered Certified Accountants) gives best accounting advice through their 20 top tips to prepare your business for a slowdown
The global credit crunch has hit the UK economy hard, meaning it’s a worrying time for business owners and directors throughout the country.
“Small businesses need to keep a tight rein on cashflow, make sure they can pay and be paid on time and keep a dialogue open with their bank,” says Allen Blewitt, Chief Executive of ACCA. “While it’s tempting to worry about the global situation, a level and sensible approach is needed during these difficult times.”
But while there’s not much you can do about customers spending less than they did last year, there is still plenty you can be doing to ensure that your own business is in as good financial health as possible.
ACCA offers the following 20 best accounting advice tips to reduce the impact that the credit crunch and economic slowdown may have on your business:
Good financial planning is crucial. Don’t be scared of facing and making difficult business decisions and putting them off until tomorrow.
Start questioning early your credit facilities with UK retail banks
Maintain a regular and meaningful dialogue with your bank and also with your accountant if necessary to ensure you receive the best accounting advice.
Review your bank charges. Maybe you could switch accounts and find a better deal with a new bank? Could your current bank give you any special deals as a loyal customer?
When it comes to rolling-over banking facilities, beware of hidden charges and factor those into your financial planning
Review all your direct debit arrangements for the business and for your personal finances
Small businesses need to keep a tight rein on cashflow, make sure they can pay and be paid on time
Try to clear credit card debt. But if you use them, try to pay without incurring interest and pay off balances before charges are incurred
Chase your cashflow and if you can’t make payments, then let your creditors know why and when they can expect a payment
Pay special attention to cash flow forecasts and to monitoring cashflow. Ensure management accounts are up-to-date, and that all key financial reconciliations are done, reviewed, and outstanding items cleared
Tighten up credit control, cash collection procedures and treasury management
Look carefully at your forward sales book, and the timing of future orders
Consider carefully current and future customers and their ability to pay - do not simply rely on credit ratings
Pay particular attention to investments and major capital expenditure. Appraise rigorously and consider the extent to which such items can be rescheduled
For those businesses which import / export, consider foreign exchange hedging and where this could be relevant to your business
For December year-ends, be clear about stock and work-in-progress valuations and get early audit agreement to valuation principles. Do the same for all ‘’fair value’ items on your balance sheet
Look critically at staff requirements/recruiting strategy. Instead of taking on new staff, you could consider paying for more paid overtime
Consider, where relevant, temporary or fixed-term assignments but make sure you have weighed up the pros and cons against full-time recruitment
Be cautious in awarding pay rises and in setting up staff incentive schemes. Ensure such schemes relate as much to profitability and cash generation as much as to growth. Be alert for performance distortions related to incentivisation schemes
Critically evaluate directors own financial drawings from the business. Are they appropriate in the light of current and future profitability and cash generation? Cars? School fees? Home improvements? Holidays? Insurances?
Revisit the Risk Register as a matter of priority. Are all risks included, particularly financial/liquidity? Are risk mitigation measures still valid? Are mitigation owners being proactive in their responsibilities?
March 7th, 2008
Minimum wage to rise by 3.8%
Britain’s minimum wage is set to rise by 3.8 per cent from October 2008, in line with the increase in average earnings but below prevailing retail price inflation.
Business leaders had been worried that a rise above inflation would cost jobs in sectors such as hotels, catering and retail.
The increase means that the adult minimum wage will rise from £5.52 to £5.73 an hour.
Since its introduction in April 1999, the UK’s adult minimum wage rate has risen by 59 per cent, more than twice the increase in the retail price index over the same period, and is the third highest out of 20 EU nations.
February 27th, 2008
Asian Non-doms “set for UK exodus”
A new survey has found 42% of South Asian ‘high net worth individuals’ considered non-domicile are now preparing to leave the UK due to the changes to the non-domicile tax regime set to come into effect in April, according to leading business and financial adviser Grant Thornton.
The central feature of the new laws is that non-domiciled individuals (non-doms) who have been UK residents in at least seven of the past nine tax years will have to pay a £30,000 charge per annum to avoid paying tax on a remittance basis on their offshore income. But there are also several, less high profile changes that have created further cause for concern.
The survey, which canvassed the opinions of 50 non-UK domiciled South Asians (ie. India, Pakistan, Sri Lanka and Bangladesh), found that an overwhelming majority of these non-doms (84%) thought the annual fee was not being set at a fair rate, while 78% believed they didn’t have enough time to get their affairs in order in time to comply when the law changes on 6 April. Only 34% of those surveyed said they would pay the new £30,000 fee.
This exodus of a sizeable chunk of the South Asian non-domicile population, which is the largest non-domiciled group in the UK today, has encouraged Grant Thornton’s South Asia Group to actively lobby Government on a policy rethink through a formal submission, in view of the potential economic damage the mass departure of South Asian non-doms could create.
Anuj Chande, Partner and Head of Grant Thornton’s South Asia Group, said it was not just a case of many highly talented individuals leaving; the change in tax status was now discouraging many of the firm’s clients from bringing their skills and entrepreneurial drive to the UK in the first place.
“Historically, individuals from the South Asia Community have come to the UK to set up family businesses, contributing to the UK economy though corporation tax, PAYE and national insurance, and also through the many charity projects supported by the community as a whole.”
On 6 April there are several further changes which are also set to become a significant deterrent for the non-domiciled community. Key changes include gains made by foreign companies in the UK becoming taxable in the hands of non-dom shareholders, non-doms incurring a tax charge on UK gains made by foreign trusts, and finally a capital gains tax charge on foreign trust distributions levied irrespective of where the asset is or whether the benefit is received in the UK.
According to Chande all three will have a huge impact on the fortunes of the non-domicile community, and will need a major rethink should the Government be serious about keeping high net worth individuals in the UK long term.
“In the relentlessly competitive area of attracting talented individuals, the Government must appreciate that in 20 or 30 years it may be Singapore, Dubai or Zurich that will be home to a vast swathe of non-doms that could have been here, continuing to help our economy grow.”
February 15th, 2008
Are you missing out on research funds?
Companies should take action now if they think they could have qualified for research and development awards in the past six years, ahead of a change in the law in April 2008
Thousands of small businesses are missing out on research and development grants worth a total of £125m each year and could find themselves ineligible to backdate claims if they do not take action now.
Business advice consultants Grant Thornton suggests many small companies are simply unaware that they could claim such awards, while law firm Howard Kennedy is warning that from April 2008 companies will only be able to backdate claims by two years rather than the current six.
“Hundreds of millions of pounds in credits and interest on overpaid tax will be lost overnight by UK companies unless steps are taken now to apply for retrospective claims to which they are entitled before the 1st April 2008 deadline,” warns Justin Bryant, a tax partner at Howard Kennedy.
Since their introduction in 2001-02 an estimated £1.76bn has been given away to companies engaging in research or development through either tax breaks or cash claims. Those in the technological development sector are especially likely to benefit from such grants, Grant Thornton suggests.
Yet the percentage of research and development credits as a proportion of gross domestic product has remained relatively static, falling from 1.78% in 1997 to 1.75% in 2005. This compares unfavourably with other European countries such as Sweden (3.9%), Finland (3.4%) and Germany (2.5%), as well as the US (2.6%) and Japan (3.1%).
Hundreds of millions of pounds in credits and interest on overpaid tax will be lost overnight by UK companies unless steps are taken now to apply for retrospective claims
According to Sarika Patel, head of technology at Grant Thornton, many businesses are unaware of what counts as research and development. “Research and development is no longer the sole domain of scientists in lab coats and is potentially a facet of every business,” she said.
“Anything that adds value to a product or process is potentially entitled to tax relief, but in our experience businesses are not actively looking out for this.
“Tax credits apply to a wider range of sectors than some might imagine and can include work undertaken in manufacturing, food processing, consultancy, automotive and even construction,” she added.
Grant Thornton claims examples of businesses that have claimed research and development tax relief where previously some might have thought they did not qualify include a company that developed an electronic document management system and food producers who have developed innovative manufacturing processes.
The company is calling on the government to expand the definition of what qualifies for such credits and to make businesses more aware of how they can benefit. “It is possible that non-technological sectors, such as the financial market, could produce serious benefits for the UK if they were encouraged,” added Patel.
January 25th, 2008
Does our tax system stop enterprise growing?
Nine out of 10 small businesses believe they need an effective voice within HMRC to ensure their progress is not constrained by the bureaucracy of the UK‘s tax regime, research by PwC suggests
The UK’s over-complicated tax system is stifling companies from expanding, research from Pricewaterhouse Coopers (PwC) suggests.The survey of private enterprises revealed that only a quarter (27%) of smaller firms felt the current tax system was supportive of their needs, contrasting with 45% of larger organisations, while nine out of 10 small firms felt they needed an effective voice representing their interests within HMRC.
On average, 35% of business owners saw the UK tax regime as encouraging for enterprise, although this had increased from 21% 12 months ago.
The study also revealed that almost half (49%) of companies want the tax system to be simplified to lighten the compliance and administrative burden on private enterprises, while overall use of tax incentives remains low, at 14% compared to 11% a year ago.
There is still a negative perception of the UK tax system, and its support for enterprise, and that significant improvements are needed. This must be addressed if we are to create a true enterprise economy
“It is promising to see a more positive view coming from UK privately-owned companies,” said Kevin Nicholson, UK head of entrepreneurs and private companies at PwC.
“However, these messages must be balanced against findings that suggest there is still a negative perception of the UK tax system, and its support for enterprise, and that significant improvements are needed. This must be addressed if we are to create a true enterprise economy,” he added.
The survey also revealed that almost three-quarters (69%) of firms saw themselves as ‘mature’, suggesting there is only a limited amount of companies that are actively looking to expand.
“If the tax system is not changing behaviour or positively influencing enterprise - particularly among small business - should investment be focused on simplification instead?” asked Nicholson.
“However, it is important to recognise that this would come at a cost to some. For example, simplifying the system by eliminating some reliefs would reduce the administrative and compliance burden for many small businesses. In contrast, larger businesses could be disadvantaged because the findings suggest they are more likely to use those incentives and reliefs,” he added.
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