Godkin & Co – sad to see them go
We’ve been advised that Godkin & Co, a firm of accountants with offices in Loughborough – close to us, are going into liquidation. Godkins have been well respected in the Loughborough area for many years and have a solid reputation. In all of our dealings with them we have found them to be professional and helpful. It is a shame that the recession seems to have had such an effect on them. It’s particularly sad that fourteen members of staff have also lost their jobs. Hopefully they will all find new employment soon.
The Liquidators are taking steps to sell the client base and clients should soon find that they have a new accountant but, with all members of staff being made redundant, there will be a break in continuity and long established relationships will be broken.
Most other accountants in the area, including ourselves, will certainly try to help if asked to do so by clients. We don’t like to see clients struggling through no fault of their own.
Payroll for business
Payroll is one of those aspects of running a business which frightens many self employed and company directors. It is a pain in the proverbial – but only because of unfamiliarity. Payroll is like many things – if you know what you are doing it’s easy, but, if you don’t, it is difficult.
I have said before that I don’t know why small businesses don’t subcontract their payroll. For an organisation, such as ours, geared up to calculate payroll quickly, it is very quick and easy. We have a few clients where we actually do their payroll while they are on the phone and give them their net pay figures immediately. Compare that with the average small business where the person doing the payroll does it as an “add on” job, doesn’t understand it and because they don’t understand it, doesn’t like it.
The cost of subcontracting the work is also relatively low, probably less than the cost of paying someone who doesn’t understand or like doing it.
The VAT Trap – Disincentive for business
The VAT trap occurs when a business exceeds the VAT turnover threshold (currently £68,000 pa) but the turnover will not increase much above this level. The result is that, although sales have increased, profits actually go down – sometimes quite dramatically. The effect is worst for small businesses in service industries (hairdressers, beauticians, cleaning firms, consultants,accountants[!!] etc) because the major cost is their own labour.
Consider a small business with a turnover of £67,000 using no materials but employing one member of staff at £15,000 pa and paying rent of £10,000 with incidental costs (telephone, stationery etc) of £5,000 and selling to consumers, rather than businesses. At £67,000 the net profit is £37,000.
If the business turnover increases to £69,000, because they can’t put up prices otherwise they would cease to be competitive, this figure has to include VAT. So the VAT payable on the turnover is £9,000. They can offset VAT on the incidental costs. The maximum this could be is £652. The net profit therefore falls to £30,652.
A £2,000 increase in sales has resulted in a £6,448 fall in profit. In this particular example, turnover has to increase to nearly £80,000 before the business actually returns to the same level of profitability as it had with a turnover of £67,000.
This problem has reared its head this week with three different clients. Two are already registered for VAT but are struggling to increase sales sufficiently. One of these has decided to close their retail business for one day a week to reduce turnover and allow them to deregister. The other is cutting its least profitable clients to get back below the threshold. The third business is approaching the threshold and has decided to close an extra day per week to stay below the threshold – making a part time employee redundant in the process.
It seems ludicrous that the tax system should operate as a disincentive to businesses to expand. The argument could be that those businesses under the VAT threshold have an advantage which compensates them for the economy of scale enjoyed by larger businesses. This is probably true, but, for those businesses caught in the middle – just over the threshold, problems can be caused. I wonder how many small businesses with turnovers just over the VAT threshold go broke when compared to businesses at other turnover levels.
Business start up – Free advice
I am constantly amazed at how many people just start in business without proper consideration, consultation or discussion. There’s a lot of free information available – and many accountants, including us, will give a free initial consultation. We don’t stipulate a time limit; others might, but we feel it should take as long as necessary.
I’ve lost track of the number of times I’ve had to say, “If only you’d asked us first …..” We deal with businesses every day, and we have a pretty good idea of what is going on in our local area; we may deal with similar businesses and can point clients in the direction of supplier – or even customers. We have seen most of the problems which can occur and help you avoid them.
Never having been to an initial consultation with another accountant, I don’t know how they approach it. I know that we genuinely try to help. We listen and comment – and don’t apply any pressure to appoint us as accountants and we don’t get upset if you don’t. Sometimes the initial consultation can be spread over several visits. We do have a very high percentage of enquirers who appoint us as their accountants – but sometimes it can be many months later – and some don’t ever come back, but we don’t get upset.
If you’re thinking about starting a business, take advantage of the free advice and information available. Good preparation will help your business be successful.
Business Grants & Loans
A number of grants and special loan schemes are available for businesses. Both start-up and existing businesses can qualify for help from a variety of sources and for a range of needs. A good place to start looking is on the Business Link website. This provides a step by step process to see if you qualify for grant or loan aid.
Any grant or loan application will certainly have to include a cash flow forecast and business plan. We can help you with this. Feel free to contact us to discuss your needs.
It is somewhat surprising that, given the current economic climate, there isn’t more help available for business, particularly with schemes which help create or maintain employment. I know of several businesses which have made the difficult decision to reduce staff levels or deferred taking on new staff where a small amount of financial help would have made the difference. I don’t want to get political but the proposal to increase Employer National Insurance contributions from next year is actually a disincentive.
I have also come across several instances where banks have shown a great deal of reluctance to lend under the Enterprise Guarantee Scheme and have restricted the amount they are prepared to consider for, what appear to be arbitrary reasons, so that the proposal ceases to be viable.
Just a word of warning. There are a lot of adverts out there for people claiming to source and obtain grants. Whilst most of these are genuine, there are a lot which will just take your money and do nothing for it – other than possibly searching the Business Link website. Beware.
