Budget 2012

This was George Osborne's 3rd budget as Chancellor of the Exchequer.   He commenced his speech by saying that this government and budget "Unashamedly backs business”, and “reaffirmed our unwavering commitment to deal with Britain’s record debts”.    He ended his speech by saying; “This country borrowed its way into trouble, now we’re going to earn our way out”.

But what happened inbetween?

There was good news for taxpayers;  An increase in personal allowances from 6th April, 2013 to £9,205 and if you are paying personal tax at the highest rate then, this will be reduced to 45% rather than 50%.   Also instead of withdrawing child benefit for higher rate taxpayers, the Government will now only withdraw the benefit when someone in the household has an income in excess of £50,000.  In fact, they can earn up to £60,000 of income until it is withdrawn altogether.

A further announcement that he made was in reference to the self employed where, if their turnover for the tax year was less than £77,000 then they could produce their accounts for self assessment purposes using the cash basis.   It will be interesting to see how this works in practice.

Corporation tax rates for companies with taxable profits of £1,500,000 and above were reduced to 24% from April this year.

Funding of ultra-fast Broadband for 10 of the U.K.'s largest cities, extending film tax credit to video games, animation, and high end TV production industries, £100m support for new University research facilities and the creation of a U.K. centre for aerodynamics.   It seemed that all the chancellor wanted to do was to give everything away.

BUT;  there inevitably was a sting in the tail.   As expected stamp duty on residential properties worth over £2m has increased significantly - from today!

Fuel duty;  despite heavy lobbying by motorists, will not change.  It will increase by 3p in August, although no further changes are announced.   Vehicle Excise Duty will increase by inflation for motorists, but not for Road Hauliers, whose Vehicle Excise Duty is frozen.

As expected;  duty on tobacco took a hit, it will now cost smokers an extra 37p per packet of cigarettes from 6.00pm tonight, but no changes for alcohol.

There were some further measures concerning;  energy, planning regulation, helping young people with loans in order to start a business and some propsals concerning tax reform, transparency and anti-avoidance.

A good budget for business?  It would have been encouraging if the chancellor had looked at initiatives to increase sales, reduce business costs and the burden on employers, and to increase the incentive for business owners to invest in their business.

A temporary reduction in VAT would have reduced the cost to the end consumer, thus boosting sales;  the effect would have been felt all the way up the supply chain.

For private individuals and for non VAT registered businesses, this would produce savings on their personal costs and overheads.

A decrease in fuel duty would have reduced business costs as the cost of delivering products and services would have been reduced.   A reduction in employers NIC would have acted as an incentive to recruit rather than reduce employment costs.   Increasing capital allowances would have encouraged investment.

However;  as with all budgets through the years, there will be some who lose out and some who will gain.   It is just that the ones who gain can raise a glass tonight knowing that there is no increase on duty on their favourite tipple.

To Do's for 2012

The last few weeks and days of any calendar year are very often opportunities to both reflect on the past and to plan for the New Year ahead.

Learning and building from past experiences, and, planning for the future is a discipline that all business owners and managers should master and exercise regularly.   Budgets should be set and monitored on a monthly basis.   However, as we approach the end of 2011 and look forward to 2012, I have listed below a ‘to do list’ to help your business plan for, what we all hope, will be a successful year.

Marketing

Value your customers.   Without them you simply do not have a business.   For your existing customers, focus on the key areas;  quality, unique selling/buying point (USP), value, exceeding expectations.   Don’t under estimate the value of communicating with your customers;  welcome feedback, find out what your customers want from you, and tell them what you can do for them.   They just might not be aware of all the products/services that you offer.

Accept that markets change.   Explore the opportunities out there in the market place.  Understand that there are often new markets and new products/services that we can take advantage of to further add value to our businesses.   Maybe it will be helpful to you to adopt the following grid, and, together with your team, fill in the boxes as you plan for 2012 and beyond.

		Markets
		Existing	New
Products	Existing
	New

Finances

Cash is the key resource.   It is important that your business is profitable and it is just as important to ensure that the reported profit for your business turns into cash.   Setting monthly budgets and cash flow forecasts is therefore vital for short, medium and, long term business survival.

Ensure that you can accurately estimate your business fixed costs and overheads.   Ensure also that you know how much it costs to sell each unit of product or hour of service.   Know how much you need to sell and generate to break even.  Set profit targets, how much sales and mix of sales you are going to need to achieve the profit target and agree with your team exactly how the business will find these sales – This is called STRATEGY.

It is equally important to measure the actual performance of your business against your forecasts.   It is therefore important to ensure that you adopt an adequate accounting reporting system so that you can record both income and expenditure;  identify the working capital of the business and quickly ascertain the bank and cash position.

Your team

I believe that people work best when we work together.   If the team has not captured and taken ownership of your vision then the journey will be a difficult if not impossible one.  It is better to stop production for a day or two to bond together as a team;  share dreams, and fears, set objectives, build strategy together, encourage each other, agree budgets together, build confidence.   Bring forward the ones who are being trained up – your academy or bench;  use them.   For those who have been part of the main team who may not be performing or whose performance has become stale, pull them back onto the bench.   Why?  To drop or criticise them?   NO!  Only to build them up, to encourage and refresh.   It just may be what they want and need is a new challenge either within or outside of your organisation.   Help them whichever it is.

Just a few ‘to do’s’.    Whatever you do in 2012, I hope that it will prove to be a successful one in terms of health and prosperity and that it will be a happy one aswell;  don’t be afraid to celebrate and laugh as you go through the year too.

HAPPY NEW YEAR!!!

The three c's

 

An executive in their late forties sat pondering. Looking back over their career, they wondered how although they had worked so hard, that at nearly 50 years of age, they had still not quite achieved their objectives that they had dreamed of and set when they were much younger.

As they sat, an elderly gentleman slowly approached them – time had taken its toll on him but he looked so content; and smiled. He put his arm around them and said, “I have lived my life. I am happy and content what is bothering you”?

The executive explained to him that as a teenager they had this idea to build an organisation that would one day be a happy environment where they would provide gainful employment for many. That they would produce a service that would ‘blow their customers minds’. Then the day would come where they would spend more quality time with the family, that they were blessed with; they thought too, of the day when they could celebrate their own children’s success and of the grandchildren that they might one day have the fun and privilege of playing with.

The gentleman beckoned the executive to stand up and to follow him towards a large shop which was called; “Legal, Decent, Honest and Truthful Limited”. As they approached the main door, the gentleman said; "this is my shop – Go in; I can guarantee that what you need is in stock at a price you can afford".

As they walked through the main foyer the executive looked along the wall and there were photographs and letters of appreciation from grateful customers. Together, they walked up to the counter and the executive explained to their new found friend exactly what they wanted.

The executeive explained that they wanted a business that will be successful, with good cash flow and a satisfied, growing clientele. A motivated and dedicated team that were ‘proud’ to belong to such an organisation.

The man stood in silence for a minute, then his voice dropped. “I am sorry” he whispered, “we don’t sell fruit; only seeds”.

He bent beneath the counter and as he stood up he handed over a small packet. He smiled and said in a loud and confident voice, “take these, sow them carefully. Sow these seeds into land which is rich with character, water daily with competence, and always tend with chemistry. Each year you will produce fruit that will satisfy”.

He continued; “However, each year I want you to give some of that fruit away; this will provide more room for growth and for an even stronger and, even sweeter crop – It is only in giving that we receive”.

As the executive awoke, he smiled contently - and began to plan. The success of tomorrow, depends on our planning today!

A pause for thought

In the endeavour to live each day in the best way that we possibly can, and in our drive to enjoy our work and create wealth, we should never forget the value of human life and mourn its loss when tragedy occurs.

During this past week, in the close knit community of the Swansea valley, a little boy tragically lost his life as a result of an accident just outside his home.  Harry Patterson was aged only 5.

Also, during this same week, Charles Breslin (62), David Powell (50), Garry Jenkins (39), and Philip Hill (45) , all from the Swansea valley area, lost their lives when a retaining wall gave way in the coal mine where they were working.

 During the last two centuries, coal mining has been central to the communities throughout South Wales;  part of its everyday life.  Yet, hardly a decade has passed without lives being lost due to coal mining. 

As we plan our week ahead, perhaps it is good to pause, to reflect and to think.   To focus on the issues and the people who are really important to us, and to remember that we are important to them too – our families, our friends, our colleagues and our communities.

In a society where it is so easy to measure success by the wealth that we have, may I suggest that instead we measure our success by what we have given.

Problems, opportunities and mathematics

During this past week, all over the U.K., young people have been returning to school to begin a new school year, following the long Summer holiday.

After seeing my own daughter off to her school, I briefly thought back to my own High School days.   Mathematics was not a subject that I really enjoyed very much, which might be a surprise to you bearing in mind that I am now an accountant.   For me, the reason why maths was a subject to be endured rather than enjoyed was due to the teacher telling us in every lesson to; “look at your books, and solve the problems on the page in front of you!”  

Excuse me!  As a teenager, I didn’t have to look up problems;  they just seemed to come along.  It was difficult enough trying to come to terms with the fact that it was unlikely that I would ever score the winning goal in an FA cup final, captain Wales at rugby, and win the mens 100 metre Olympic final all in the same calendar year, without being presented with problems to solve from a text book.

Just as I was coming to terms with this awful realisation, my eyes were opened.   During one maths lesson the teacher told the class that if we moved a number from one side of the equals sign ( = ) to the other then the negative figure would become a positive figure.   WOW!

So if :-

(5+9-6) = 8

It would be equally true to say that:-

(5+9) = (8+6)

Just the other day, I met a business owner who was struggling with problems in his business.   As he finished relating the story of falling sales and increased competition, I thought back to my old maths teacher and his instruction as to how to solve a (maths) problem:-

1. read the question
2. analyse the data
3. solve the problem.

After hearing the story, I began to analyse the data.   We both discovered that the real problem was low profits resulting in poor, even negative, cash flow.  So, we both began to examine ways where profits could be increased, I explained that if the costs could be reduced, even if sales were to remain as they are, then the net effect would be increased profit and ultimately, improved cash flow.  After examining each expense heading, we were both able to identify significant cost savings for the business.

Next, we looked at sales.   I needed to understand whether there was still any demand for his product, and what are his customers buying habits.  I questioned whether he had carried out any customer survey.    He thought back to customers that he had lost and why they had gone elsewhere;  some had said that they were now able to buy online, others said that there were additional services that they were now offered by their new supplier and others spoke of the quicker turnaround time after placing the initial order to receiving the goods.   He has now decided to communicate with existing and past customers, to review how he sells his products and identify ways in which he can sell extra services.

Finally we looked at working capital;  stock, debtors and cash/bank.  We concluded that too much money was tied up in holding stock, and that if he purchased on-line himself then stock levels could be reduced due to shorter delivery times, and advantage could be taken of direct delivery from the supplier to the customer.   If the customer could purchase and pay on-line too then this would reduce debtors and increase cash flow.

At the end of the meeting, the owner realised that these problems now provided him with exciting opportunities.  He is now determined to turn the negatives into that which is positive.

How do you view problems in your organisation?

Advice:  Take a step back, analyse the data, see the opportunities and make a plan.  Ask your customers and other stakeholders;  there probably is an opportunity waiting just for you.

Confused? - Don't Forget

When preparing budgets, it is important to remember ALL the activity – and that includes budgeting for taxation payments.

A question that many people will ask me as they prepare to start a new business, is;  How much tax do I have to pay, and when do I pay it?   The answer is;  it depends.

It depends on what?   Well, it depends whether your business is a limited company or if you are trading as a sole trader or in a partnership.   For limited companies it is fairly straight forward.   When the company registered with the Registrar of Companies at Companies House, the Registrar would have informed H.M. Revenue and Customs and H.M. Revenue and Customs (or HMRC) would have written to the directors at the company’s registered office informing the company of its unique taxpayer reference (UTR) and asking for more details.

Once the company has commenced to trade the tax compliance process is straight forward.   The company trades for twelve months, at the end of which it prepares accounts, including the calculation of any profit, and calculates the tax provision based on the taxable profit.   The deadline for paying the corporation tax to HMRC is nine months after the accounting year end.

So, if a company’s year end is 31^st December (say;  2010) then the tax should be paid to HMRC no later than 30^th September, 2011 – That is in 30 days time!

The rate of tax will depend upon the taxable profit.  Using an accounting year end of 31^st December 2010 as an example;  for profits up to £300,000, the rate of tax for qualifying companies will be 21% of the taxable profits.   For companies where profits exceed £1,500,000 the corporate tax rate will be 28% of taxable profits.

Even though corporation tax should be paid to HMRC within nine months of the company’s accounting year end.   The deadline for submission of the corporation tax return (using IXBRL) is twelve months after the accounting date.

For sole traders and partnerships the process is not quite as simple.   Sole traders and partnerships fall within the income tax and self assessment rules.

It is important to remember that for income tax, the tax year runs from the 6^th April in one year through to the 5^th April in the next year.   Both the partnership and the individual tax return must be filed (electronically if after 31^st October), by the following 31^st January.   The individual self assessment tax return will include an individuals total taxable income from all sources, including capital gains, for the year ended 5^th April, and all allowances due to that individual.

So, for tax returns that need to be filed by 31^st January 2012, this will record all taxable income, capital gains, accounting for any allowances for the year 6^th April, 2010 to 5^th April, 2011.

What are the rates of income tax?  There is a starting rate for savings of 10%, but generally, the basic rate of income tax is 20% raising to as much as 50%.

It is the payment of income tax that many people find confusing.   Income tax falling within self assessment is paid on two dates;  on the 31^st January and six months later on the 31^st July. 

The payment on 31^st January is a payment on account of the next tax year, being 50%  of the previous years liability;  the other 50%, or the second payment on account, is made on the next 31^st July.   Where profits are rising year on year then payments on account based on the previous years liability is clearly not enough.   Therefore on the next 31^st January a balancing payment has to be made plus the first payment on account for the next tax year.

Confused?   There is no need to be.   My advice is to seek professional help from an accountant/tax advisor as soon as possible.   After all the payment dates are fast approaching and if you need to make arrangements to save up money, then it would be wise to do that now.

Young, enthusiastic, ambitious and dreaming of a bright future.

Not a headline that I have taken from a newspaper recently; nonetheless, this is a description of a typical person that I meet each week as a business advisor and mentor.

It is particularly encouraging to discover that these people already know at the outset that they will need more than just youth, ambition, and enthusiasm to ensure that their dream becomes a sustainable reality. The purpose of meeting me is simply that they want advice.

It is thirty six years ago this summer that I began my own business journey. At sixteen years of age and, just having completed my high school education, I agreed to spend the rest of the long hot summer months of 1975 working as an office junior in the accountancy practice owned by my father.

I laugh at the thought of the daily task of scheduling lists of receipts and payments, and reconciling balances finally attracting me to the accountancy profession. For me it has always been about the people. The very individuals themselves who are the business owners and team leaders.

The question that is often asked is; are people who are successful in business born to be successful or is it something that they learn? Whatever the answer, I have found over thirty six years that the owners of successful businesses all display the following characteristics.

They believe in their product or service. They know what makes it unique and how it can add value to their customer’s lives or businesses. They have a vision and from this vision they can then begin to set objectives. They are always organised and methodical. They have identified long and medium term goals and they plan each day, week and month in order to ensure that those longer term goals are achieved.

In order to ensure demand for their product, they are constantly undertaking customer and market research. After all, it is no good trying to sell somebody something that they no longer want. Not forgetting researching competitors too; discovering their strengths, weaknesses, products, (including pricing structure) and markets.

Having the ability to budget will ensure sufficient working capital and cash balances; this is also key. Knowing the average stock and debtor days will lead to the business holding efficient and optimum levels of stock and making sure that debtors stay within credit and payment terms. It is important too that relationships are built with suppliers and that they are also paid on time. Knowing the number of units or hours that need to be sold in order to break even; the weekly, monthly and annual cost of running the business is a sign that the owner is in control.

Building a motivated, skilled and adaptable team will enable the owner to manage, remain focused, stay motivated and above all enjoy their business. I will always remember the words written on a poster that I once saw in a clients office; "If you aint having fun, then you aint doing it right."

So, in conclusion, what advice do I pass on to my clients? The answer is not just the knowledge gained from an accountancy qualification. It is also the experiance, stories and. lessons learnt over thirty six years.

Finally; how do I see the future for business and the economy? From the young people that I meet, the future is bright.

Let's all raise a glass to the next thirty six years....Cheers everybody!