How Rich Countries Got Rich… and Why Poor Countries Stay Poor

The best thing about a 2 hour commute is that it allows me to catch up on my reading, which is pretty key if we are to stay on top of the thought leadership necessary to support the public sector leaders in Africa’s emerging markets that we are working with. I am reading Erik Reinhert, the Norweigian economist and winner of the prestigious 2008 Myrdal Prize’s seminal piece on “How Rich Countries Got Rich…and Why Poor Countries Stay Poor”, and it’s unashamedly scandalous – in the most refined sense of the word. Below is my review of his book.

If you endured four years of university-level economics, and unlike me emerged an uncritical brainwashed disciple of modern economic theory, then don’t read this book.

Keeping things simple has kept poor countries poor

Reinhert’s insightful review of 500 years of economic theory and practice paints a highly critical yet persuasive picture of Adam Smith, the father of modern economics and author of the influential ‘Wealth of Nations’, as a one-time Astronomer who chiselled the rough complex edges off the real world in order to neatly slot the known world into a hole, with perhaps the unintended consequence of what is observed today; ‘rich countries get richer and poor country remain poor’. Contrary to what some may conclude from my review, Reinhert didn’t go as far as calling him an asshole! Nor did he limit his criticism to Smith’s work.

According to Reinhert, Great Britain and the US, arguably the most visible and vocal evangelists of Smith’s work owe the economic development of their nations to the wise decision to ignore him.

 Emulate and innovate for your particular context

He argues that most countries, including China who have since chartered similar courses of economic development with compelling results have tended to emulate what Britain and the US did, not what they preach. His advice; research countries that have made the transition from poor to rich countries, find out exactly what they did, not necessarily what they said they did or advise you to do; learn from them and apply what fits your particular context; expect to innovate along the way as you develop what works for you.

 This is a fascinating expose on an alternative economic development route than the one I was force-fed in four years of undergraduate-level economics. For African nations, Reinhert’s thesis is like wikileaks on steroids!

Highly recommended. Read the book.

About the author: Gori Olusina Daniel is a Partner at Adams & Moore Chartered Certified Accountants.

Key elements of a successful marketing strategy

First things first, your existing and potential customers fall into particular groups, charactarised by their ‘needs’.  Identify these groups and their needs through market research, and then address those needs more successfully than your competitors.

Once you have identified the groups you want to target, you can look to create a marketing strategy that makes the most of your strengths and matches them to the needs of the customers you want to target.  For example, if a particular group of customers is looking for quality first and foremost, then any marketing activity aimed at them should draw attention to the high quality of your products or service.

Once you have created your marketing strategy, you must then decide which marketing activity or activities will ensure your target market know about the products or services you offer, and why they meet their needs.

There are many ways to achieve this – such as various forms of advertising, exhibitions, public relations initiatives, internet activity and an effective ‘point of sale’ strategy if you rely on others to actually sell your products. But try to limit your activities to those methods you think will work best, to avoid spreading your budget too thinly.

Monitoring and evaluating how effective your strategy has been is a key element, yet often overlooked. This control element not only helps you see how your strategy is performing in practice, it can also help inform your future marketing strategy. A simple approach is to ask each new customer how they heard about your business.

Once you have decided on your marketing strategy, draw up a marketing plan that sets out how you intend to execute that strategy and evaluate its success. The plan should be constantly reviewed and, if necessary, updated so you can respond quickly to changes in customer needs and attitudes in your industry and in the broader economic climate.

Define your target market

When creating your marketing strategy, you need to understand your target market – i.e. the specific group of consumers you will be aiming your products or services at. These are the customers who are most likely to buy from you, and who will make your business successful.

When trying to define your target market, you should consider who will be most likely to buy your products or services. Consider aiming your strategy at certain target markets, such as:

• females or males
• age groups
• regional areas
• education or interests
• occupations
• average incomes

You should also consider how different groups of potential customer might use your product or service. For example, older customers might have different wants and needs to younger customers. Therefore, you might have several target markets to focus on.

Understand your product or service

You can only identify your target market if you fully understand your product’s benefits and features. You should consider the following points when assessing your product:

• What is the purpose of your product – is it to solve problems, satisfy basic needs, or simply a luxury item?
• advantages your product has over other competitors’
• customer problems that your product or service can solve – if applicable

Identifying your customer

It is equally important that you establish who your product or service is aimed at. Your marketing strategy will fail if you target the wrong audience from the start, regardless of how good it is.

You need to establish whether your target group are individual consumers or other businesses. There are often two important differences between these target groups:

• individual customers – sales to this group can be unpredictable, and customers usually have smaller budgets and specific buying preferences
• businesses – sales to this group are often more predictable and stable as there is usually a greater budget available to be used on various products

It is possible to target both types of customer, though you need to be realistic about whether your product or service is relevant for them. For example, a cleaning service may apply to both consumer groups, whereas a new clothing brand will probably only interest individuals.

Researching your potential customer base

Once you know your groups of customers, you can look to conduct further research to see if there are any types of customer with more specific needs than others. For example, older customer groups may buy different types of products to younger groups.

‘Market segmentation’ can be an effective tool for this. It involves splitting your customer groups into smaller segments to find the sections of your customer base that will be most profitable to your business. You can segment customers by:

• lifestyle
• social class
• opinion
• activities and interests
• attitudes and beliefs

You should also consider the factors such as the following when deciding which marketing segments to target:

• Is the segment large enough to support your marketing goals?
• Does your business have the skills and expertise to deal with the chosen segment?
• Is there growth in the segment?

By focusing on the smaller segments, you can learn a lot about them and structure your marketing campaigns accordingly.

Conducting market research can be an effective way of understanding your customer base, and help you to decide the direction of your marketing strategy.

About the author: Gemma Petty is an assistant Client Manager at Adams & Moore Chartered Certified Accountants. For more information or to ask how we may be able to assist you, contact Gemma via email at gemma@adamsandmoore.co.uk

SWOT Analysis – What are your strengths, weaknesses, opportunities and treats???

Every business has strengths and weaknesses and your marketing strategy must take account of how they will affect your marketing.

An honest and rigorous SWOT analysis, looking at your strengths, weaknesses, opportunities and threats is a good starting point for your marketing strategy document. Also, conducting some market research on your existing customers at this point will help you to build a more honest picture of your reputation in the marketplace.

Strengths could include:

• personal and flexible customer service
• special features or benefits that your product offers
• specialist knowledge or skills

Weaknesses could include:

• limited financial resources
• lack of an established reputation
• inefficient accounting systems

Opportunities could include:

• increased demand from a particular market sector
• using the internet to reach new markets
• new technologies that allow you to improve product quality

Threats could include:

• the emergence of a new competitor
• more sophisticated, attractive or cheaper versions of your product or service
• new legislation increasing your costs
• a downturn in the economy, reducing overall demand

Having done your analysis, you can then measure the potential effects each element may have on your marketing strategy.

For example, if new regulations will increase the cost of competing in a market where you’re already weak, you might want to look for other opportunities. On the other hand, if you have a good reputation and your key competitor is struggling, the regulations might present the opportunity to push aggressively for new customers.

 Developing your promotional strategy

When you have determined your target audience you should decide what message you are trying to get across to them in your marketing. If you have more than one target market, this message could be different depending on the potential customer. It may also be necessary to focus your marketing in different ways – for more information,

Brand awareness

To create a successful promotional strategy, you need to create brand awareness amongst your customers. Brand awareness relates to how well your specific product is recognised by current and potential customers. For more information on the benefits of creating a brand,

There are a number of forms of advertising which you can use to create brand awareness within your customer groups. Methods to consider include:

• mass media advertising – e.g. business directories, magazines, newspapers, billboards, radio or TV
• public relations – e.g. press releases, launches, events or tours
• sales-based methods – e.g. coupons, competitions, discounts, gift vouchers, loyalty incentives for existing customers
• direct marketing – e.g. sales letters, email, mail order catalogues, packaging designs or point of sales displays
• telemarketing
• digital marketing through websites or mobile phone promotions, social networking or video advertising

You could also consider attending dealer or showroom events, exhibitions or trade shows to take advantage of any sales opportunities that may present themselves there or if your target audience may also be attending them.

Selling to existing customers

You may be able to increase awareness of your product or service by marketing it to your existing customers. If you understand your current customers – particularly those that deal with you often or spend highly – you should be able to develop ways to target them and increase your brand awareness.

You should also encourage existing customers to promote you to associates, as word of mouth recommendations can be very influential when developing a brand.

Whatever promotional strategies you use, you should time your activities to reach your target customers when they are most receptive. You should develop strategies that combine both long and short-term activities – e.g. special offers or competitions.

Measuring the effectiveness of your strategy is also important. This can include asking new customers how they heard about you, or using surveys before and after every marketing campaign. You could also monitor your website traffic and use individual promotional codes for specific sales or offers. These can help you determine what is and isn’t working and show you where you can improve your campaigns.

Product strategy – positioning and differentiation

In order for your product or service to be successful against the competition in the marketplace and attract customers, it is important to make sure your product or service stands out. You should consider what makes your product or service different from others that exist and how this can be displayed through an identity or marketing campaign.

Needs-based product marketing

You can use needs-based product marketing to improve on your existing products. To help position your product or service, you should focus on your existing products or services, even if you have limited cash, skills or technological resources. To do this, you should:

• define your target market
• identify the main attributes of your product or service
• collect information from customers and potential customers about how they perceive the product or service – e.g. how popular it is, and how valuable, useful or cost-effective it is, especially compared to similar products or services

Tailor your product to meet customer demands

You should continually look for ways to adapt and promote your products and services to match your customers’ requirements. Product or service development can focus on features, design and quality and so can the customer service you provide. These will help further your position and differentiate you from your competitors.

By specifically focusing on different customer segments, you can identify ways to develop your product or service to exploit new areas and increase your profitability. For example, by offering holiday insurance at those on sport-based holidays – in addition to your standard holiday insurance schemes – you can create a new market for your service and retain your existing segments.

Tips and pitfalls

Before looking at new markets, think about how you can get the most out of your existing customers – it’s usually more economical and quicker than finding new customers.

Perhaps you could sell more to your existing customers, or look at better ways to retain key customers.

Focus on the market

• Analyse the different needs of different groups of customers.
• Focus on a market niche where you can be the best.
• Aim to put most of your efforts into the 20 per cent of customers who provide 80 per cent of profits.

Don’t forget the follow-up

• Approach a third party for feedback about your strategy – they may be able to spot any gaps or weaknesses that you can’t see.
• Put your marketing strategy into effect with a marketing plan that sets out the aims, actions, dates, costs, resources and effective selling programs.
• Measure the effectiveness of what you do and be prepared to change things that aren’t working.

Pitfalls to avoid

• Making assumptions about what customers want.
• Ignoring the competition.
• Trying to compete on price alone.
• Relying on too few customers.
• Trying to grow too quickly.
• Becoming complacent about what you offer and failing to innovate.

Be sure to follow up all of your marketing and promotional strategies with a marketing plan. This sets out clear objectives and lists the actions you will take to achieve them.

About the author: Gemma Petty is an assistant Client Manager at Adams & Moore Chartered Certified Accountants. For more information or to ask how we may be able to assist you, contact Gemma via email at gemma@adamsandmoore.co.uk

 

Bribery Act 2011

The New Bribery Act gained Royal Assent on 8 April 2010 and came into force on 1 July 2011.  The Act abolishes all existing corruption laws and replaces them with an entirely new framework of four key offences:

• Bribing another person
• Accepting or receiving a bribe from another person
• Bribing a foreign official
• Failure by an entity to prevent bribery

What is a bribe? A bribe is defined in the Act as “a financial or other advantage” offered, promised or given to “induce a person to perform improperly a relevant function or activity, or to reward a person for doing so. “Advantages” in this definition includes gifts, hospitality and entertainment, political or charitable donations, sponsorship and publicity.

The first three offences can be committed by either a person or an entity if the actual offence can be attributed to a senior officer of the entity.

The fourth which is “failure by an entity to prevent bribery” is the most significant. It is a corporate only offence and is causing concern for entities not just in the UK but also overseas in that the Act means that any entity carrying on business or part of a business in the UK can be prosecuted. Furthermore employers may be prosecuted for the actions of their staff even if they are not aware of the specific offence.

How does an entity safeguard itself against such potential problems and how do you ensure that you comply with the law?

The key to avoiding liability under Section 7 of the 2010 Act lies in the term ‘adequate procedures.’ The responsibility of a commercial entity for the acts of its associated members is based not on knowledge but on action. An entity that fails to create, implement, and maintain a satisfactory set of anti-bribery policies; or even worse one that fails to even recognise and evaluate the risk of bribery will find little comfort in their ignorance of the actual act of bribery itself. This is even more so in ‘high risk’ areas such as government contracts and foreign investment, both extremely prevalent in construction.

Effectively where the entity can demonstrate that it had in place adequate procedures to prevent bribery, the entity is not thought to be culpable in the offence.

The scope of the Act outside of the UK

The scope of the Act outside of the UK is limited to UK entities acting abroad. However, any entity carrying on business with a UK entity in the UK is within the scope of the Act. That in itself does present problems in emerging markets in Asia and Africa where anecdotal evidence indicates that corruption is more prevalent.

As to how successful the implementation of the Act with foreign entities that trade with UK entities will depend on go old “common sense approach” so says Kenneth Clarke. Richard Alderman, the director of SFO has confirmed that he aims to adopt a broad interpretation of jurisdiction under the Act. He is also not afraid to pursue prosecutions against entities even when there is little more than a UK stock market flotation tying the company to the UK.

We all wait to see whether the SFO can police that aspect of the Act and on most cases it will be far too costly to do so successfully unless entities self report.

In the UK the construction industry is said to be the worst offenders of bribery. The Industry’s complex long-term contracts, the commercial significance of tendering for developments, and the protracting nature of projects coupled with the camaraderie nature of relationships built over years of association provides an incubator for the growth of a culture of bribery.

The UK Government has in the past been subject to international criticism regarding the conviction rate, or lack thereof, of foreign bribery cases. However, the ground breaking £2.25 million settlement by Balfour Beatty in relation to allegations of bribery in Egypt can be seen as a major turning point. The UK media reported that pre-2008 the UK government had failed to prosecute a single foreign bribery case, yet more recently the Serious Fraud Office (“SFO”), armed with a deluge of new powers (including the Bribery Act 2010) and a reputation to bolster, has been keen for somewhat of an image overhaul. In some ways, Beatty escaped the full force of the legislation by alerting the SFO themselves of ‘inaccurate accounting records’ relating to irregular payments made by a subsidiary involved in the Alexandra Library Construction Project.

Although the SFO have stressed that business entities can satisfy the requirements of the Act through internal measures; when one considers the extensive powers of the SFO to examine text messages, emails, mobile devices and the like, it becomes clear that business entities that suspect bribery may require the skills of an expert investigator to ensure that a satisfactory investigation has been undertaken. After the initial push, perhaps companies can indeed act more independently in effectively managing the risk of bribery. Nevertheless, it is interesting to note that in addition to the penalty, the SFO have imposed compulsory external monitoring on Balfour Beatty for the considerable future.

What remains clear is that business entities must act now. Even an SFO investigation into any entity merely suspected of bribery could have disastrous consequences, including the short term paralysis of business and the longer term damage to reputation. In the case of a positive conviction, the outlook is even more severe. The Act can impose unlimited fines and individuals may be imprisoned for up to 10 years.

Also given that bribery is a money laundering offence, companies can face confiscation of assets under the Proceeds of Crime Act 2002.

In conclusion provided entities can demonstrate that they have taken precautionary measures to prevent bribery within their organisation they will be protected by section 7 (2) of the Act.

In the event that you need any further assistance in full proofing your business entity against the full force of the bribery Act please contact the Accounts team at Adams and Moore.

Childcare – Looking for financial help?

Did you know, if you have a child between the ages of three to five, you are eligible for financial help with you childcare costs. As part of the Government’s “Free Nursery Education Scheme”, children between the ages of three to five can claim up to 15 hours of free nursery education for 38 weeks of the year starting in the term following their 3^rd birthday at participating nurseries. You do not need to make any payments for these 15 hours a week; however it is worth knowing that some private day nurseries offer this free funding, and minus it from their daily, weekly or monthly fees, therefore you will be eligible to pay the remaining difference. (Also, bearing in mind, if this is the case and the nursery is open during school holidays, you will not be funded and the full nursery fees will be payable). Check this out before you register. Your child’s nursery will be able to discuss with you the length of sessions and days they are able to offer.

Most nurseries in England are offering this scheme and many have the option for you to take up additional childcare outside of this, making it an ideal childcare option.

Your local authority will have a list of nurseries registered to provide free nursery

Childcare vouchers

Childcare vouchers are a salary sacrifice of up to £55 per week or £243 per month per parent. As the money come directly off you salary before deductions, you save on tax and national insurance contributions. A number of childcare voucher providers offer this service to companies, so why not find out if your employer has this to offer you? Some companies will give you a childcare voucher to hand to your provider whereas others will transfer the money electronically online. Ensure you are clear how the payments will be made and when so that you can inform your childcare provider.      

The amount you are eligible for, for tax credits, if you receive them, may be affected by using childcare vouchers. You can check with the free online calculator which would work by for you by visiting: www.hmrc.gov.uk/calcs/ccin.htm

Change to childcare vouchers from April 2011 – if you join your employers scheme on or after 6 April 2011, then the amount of tax you receive will be limited to the equivalent of the basic rate. Visit HMRC for more information      

Check if you qualify for tax credits

Many families do not take advantage of the financial help that is available to them for things such as the cost of childcare. Families on middle as well as low incomes may be entitled to financial support such as Child Tax Credit or Working Tax Credit.

Find out more about tax credits and fill out a short online questionnaire to see if you qualify at: www.hmrc.gov.uk/TAXCREDITS/start/who-qualifies/index.htm

The childcare element of working tax credits

The childcare element of working tax credits is available to individuals on lower incomes to help with childcare costs. The amount you are eligible for will depend on personal circumstances and income, but it could cover up to 70% of your childcare costs, when using a formal childcare provider. I.e. a nursery. The nursery must also be registered with Ofsted or the equivalent regulatory body in Scotland and Wales.

To be eligible, lone parents must work 16 hours or more per week, for couples, both partners must work 16 hours or more or one partner must work 16 hours or more per week if the other is unable to work for specific reasons.

To find out more and if you are eligible for assistance, visit   http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/children/childcare-costs.htm or call  the Tax Credit helpline on 0845 300 3900.

Help with childcare costs for teenage parents

The Care to Learn programme offers financial support to teenage parents who wish to continue their education and require help with the cost of childcare. The scheme pays up to £160 a week or £175 in London, and all payments are made directly to the childcare provider.

For more information about Care to Learn visit: http://caretolearn.ypla.gov.uk

Help with childcare costs for students

The childcare grant is aimed at students in full time education, whose children are in registered childcare, the grant could support up to 85% of the cost of childcare, dependent on various factors.

Visit the direct.gov website for more information on the Childcare Grant.

 About the author: Richard Jepson ACCA is the Tax Manager at Adams and Moore. For more information or to make an enquiry contact Richard@adamsandmoore.co.uk

Sponsorship what is and is not allowed for tax purposes.

After the announcement this week that Adams and Moore are sponsoring Ebbsfleet United football club I was approached by a client who is considering match sponsorship at a football club wanting to know if the cost were allowable for tax purposes.

Sponsorship is a way for businesses to obtain the commercial benefit of bringing their name, products or services to public attention.

Sponsorship is often a form of advertising. A business tries to obtain benefits for its products, goodwill or reputation and public image by association with a popular or successful event or person.

Although often associated with sporting or cultural events, business sponsorship is not confined to those areas. For example, there is growing expenditure on ‘product placement’ – paying to ensure that a particular product or service features prominently in a successful television series or film.

Sports clubs and cultural venues offer a range of options for potential sponsors. These include:

-corporate sponsorship packages, often advertised on the club or venue website,

-sponsoring individual productions, players or races,

-long term deals such as sponsoring a football club.

 These packages may include both advertising (for example in the event’s programme, on clothing, at the venue, through to the name of the event) and hospitality. The hospitality may simply be a certain number of tickets or it may include meals or access to hospitality boxes.

Sponsorship costs are allowable in arriving at the profits of a trade or profession except where they are:

1 Capital expenditure. For example a contribution to a permanent exhibition which provides an enduring benefit, or the sponsor buys capital assets such as racehorses or cars. In the first case of enduring benefit the expense may attract allowances as an intangible asset and in the case of buying an asset then capital allowances will be available.

2 Expenditure not made wholly and exclusively for business purposes, this means that if there is a non-business purpose to the sponsorship (even if there is also a business purpose) no allowance is due.

3 Expenditure which is specifically disallowed, such as any entertaining. Where the sponsorship costs include an element of hospitality, this is disallowable so where a single sum is paid for a package that includes both advertising and hospitality, then the sum should be apportioned between allowable and disallowable expenditure. You should look to see if the sponsored party also offers elements of the package separately as this will provide evidence as to the value of the different parts of the package.

 In assessing the allow ability of a sponsorship deal HM Revenue and Customs will look at the following areas to help them decide if the deal is allowable:

• details of negotiations, including correspondence and contracts;
• how did they become aware of that particular event/person?
• why was it decided to sponsor that particular event/person?
• what alternatives were considered and why were they rejected?
• a copy of the business plan that is usually prepared in commercial sponsorship cases;
• copies of any material prepared by the person/entity seeking sponsorship;
• details of how the sponsorship was intended to bring the name of the business or its products before the intended target audience (including how prominent are any adverts);
• how the sponsorship is exploited in terms of point of sale publicity, the local media, or other available avenues?
• the arrangements to assess and refine the effect of the sponsorship.

The above are used as a guide for the Revenue when deciding if the expenditure is allowable and is not exhaustive, for instance the Revenue will also look to see the commerciality of the sponsorship the type of evidence that may show a demonstrable lack of commerciality includes:

• sponsoring a relative or close friend,
• paying as much as the sponsored party wants without negotiation of consideration,
• not appearing to have regard to the commercial effect of the activity sponsored, for example, a small local business operating solely in the Newcastle-upon-Tyne area sponsoring an event in Plymouth,
• not considering any other option.

So as you can see sponsoring an event or team in the main is allowable for tax purposes, but care must be taken to get it right before entering any sponsorship deal.

About the author: Nigel Dack FATT is a client manager at Adams and Moore Charetered Certified Accountants.  Contact Nigel at Nigel@adamsandmoore.co.uk if you have any questions or wish to find out how we can help you.

The customer is always right, delivering exceptional client service

Everybody knows the customer is always right, yes? You would be amazed at the volume of businesses that do not stand by this very simple fact. Keeping your existing customers happy is the easiest way to grow in any business, if you have happy customers, they are more likely to buy more and refer you to their colleagues, friends and families.
Don’t ever be afraid to stand out from the crowd, potential customers are always looking for that bit extra, that exceptional service that makes you stand out from all the rest. This is probably one of the key drivers for success and can be achieved in a variety of ways but ultimately adding value to a customer is the most attractive way of being different. Remember a customer will pay a much higher price for something they want and not just what they need.
Look at what your competitors are doing and regularly scrutinise your own business, no one is perfect and we can all learn from mistakes. Involve your team, it’s these guy’s that make your business work on a day to day basis and deal with the customer first hand. Don’t be afraid to ask them what they think could be improved upon and use the criticism constructively.
Understand and focus on what the customer wants (there’s that magic word again) and it will earn you the right to do business with them again and again. If that means choosing a target customer group and allocating more resources to reach your goals, so be it.
Sadly for many a sale may mean an end of a transaction, but it should really signify the start of a new, long-term relationship. Like all successful relationships, it’s about providing lasting satisfaction, satisfaction that provides another reason why the relationship should never end.
The post-experience is probably the most important part of the customer experience cycle, where delivering an exceptional follow-up service can forge a lasting bond between your customers and you, it’s about creating incentives for customers to do business with you again and again. Don’t be afraid to ask how you performed, was there anything that could be improved upon.
Everybody loves a little attention and customers are no exception. Pay extra attention to your customers and do all you can to make them feel important, address them by their names and serve them their preferences even before they can request them. It’s the little things like remembering that they were off on holiday or that they have 2 kids, a husband and a dog. It’s this kind of attention to detail does make a difference when delivering exceptional service ensuring that your customer is more than just money in your pocket!
I have already touched on staff members and how important it is to involve them, try assigning specific customer-focused duties to them. For instance, a staff member could focus on answering phone calls while another deals with walk-in customers. Not many small businesses have the luxury of a front line staff, but if you do, this method can work to your advantage.
Making customer service an experience your customers will never forget is only half of what makes exceptional customer service. The other half is showing your customers that the experience you provide is real value for money. Customers should never feel remorse after spending money with you and delivering value for money is one of the best ways to eradicate buyers’ remorse.

A lot can be said about businesses needing a Unique Selling Proposition (USP) to stand out from their competitors, but the same should also be said about their customer service. If you’re able to create your own customer service USP, make it easy for customers to determine your point of difference from your competitors, the probability of being rated as a business with exceptional service is very much higher.
Lord Alan Sugar once said ‘‘I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well’’
US marketing guru Michael Le Boueff once said “Upset a customer and they will tell 11 other people about it!”
Imagine the possibilities if you pleased those same 11 people…….something to think about.

About the author: Gemma Petty is an assistant Client Manager at Adams & Moore Chartered Certified Accountants. For more information or to ask how we may be able to assist you, contact Gemma via email at gemma@adamsandmoore.co.uk

BUSINESS VALUATION

From time to time business entities and their owners and stewards do need to contemplate valuing their business entities. Almost entirely when a business is valued as a going concern tend to commands more in value than not.

Like all commodities their value would be dependent on whether one is looking at buying or selling the commodity. Both the buyer and the seller will very much want to know what the “middle-ground” value of the business is (the financial value). There are number of different ways to work out the financial value of an entity. For public quoted companies their value is readily available through the value of their shares in the stock market. However, for the small to medium size entities, there are four main categories of valuation methods. These are:-

• Income value method
• Market value method
• Asset value method
• Industry value method

Valuation based on income:

Value based on income focuses on looking at the future potential earning power of the business entity. Factors such as past profitability, expected future growth, owner compensation adjustments, and specific risk factors, such as customer concentration, weak management and lack of diversification are all taken into account when income based valuations are used.

Market Valuation:

This method of valuing a business is similar to the way that properties would be valued when selling it. The person valuing the entity will attempt to estimate what the market will pay for the business in question. Information such as the sale of similar businesses within the industry that the business is in is collected and compared to try and establish a fair price for the business.

Asset valuation:

This valuation procedure assumes that a business is worth the fair market value of its tangible and intangible assets plus its goodwill. To value a business that has intangibles, several methods can be used.

If the entity in question is not making profit, then the value of its goodwill will be low. In this situation, the asset valuation method is usually used when a business has capital tied up in equipment and other tangible assets and the other valuation methods come up with a price below the actual asset value, without any goodwill.

Industry valuation:

In certain industries, when businesses change hand on a regular basis, industry-wide rules of thumb are sometimes used to value a business entity. Examples of such industries include recruitment agencies, accountancy firms, etc    

With Income and Market valuations a price multiple is established. This is usually price divided by gross sales and price divided by net profit. The applicable price multiple is based on the profitability of the business entity. For example, a business entity with high profits would have a higher price multiple applied to it. A business entity with low profits would be assigned a lower price multiple. This approach allows for a more accurate value to be obtained when a smaller number of comparables are used.

The above is only a very brief overview, and the process of valuing a business entity is far more complex and there are other factors to consider.

Other factors to consider       

When calculating the value of a business, one or more of these valuation methods may be used. There are also a large number of other factors which may be taken into account – several of which are ambiguous in nature.

Current economic climate      

A buyer may be more cautious when buying a business entity during an economic downturn.

Assets owned by the entity

Quite often, such assets can be valued by using the net book value on each item. Naturally it is far more difficult where properties are involved, as property prices may have risen or fallen since the original purchase, and even after a deduction to allow for depreciation, many business assets may be of lower valuation when taken on their own away from the business entity.

Intangible assets        

Some of the most valuable parts of a business may not appear on any balance sheet – these may include trademarks, reputation, branding, key people, the size and quality of the customer base. Valuing the potential value of a business entity is hard to do, but clearly a rapidly growing business will be very attractive to buyers.

A Seller’s disposition 

If a sale is forced, any valuation methods are bound to be discounted to encourage a quick sale.     

In reality        

It may be a cliché, but a business is only worth what someone is willing to pay for it. Many small business owners grow attached to their businesses, and often value their companies at higher levels than industry conventions would dictate. So, it is worth being realistic about the true value of your company before offering it up for sale.                   

A Word of advice        

The above is only a very brief overview, and the process of valuing a business is far more complex and involved.    

You should always consult an accountant, or financial adviser, before selling your business.

About the Author: Egbert Johnson FCCA is responsible for Audit and Accounts at Adams and Moore Chartered Certified Accountants.  For further enquiries or to ask how we may be able to assist you contact Egbert at Egbert@adamsandmoore.co.uk

Are you incorporated yet?

For those of you who don’t study the HMRC ‘Rates and Allowances’ archive and compare tax rates, you may not be aware of the historical tax rates paid by companies and the self employed. In the ‘olden’ days the break even point of incorporation was probably up at around the £50,000 mark, but more recently this has now almost certainly changed…..

With the latest changes in the tax rates from the last budget now in full effect, limited companies are now paying corporation tax at 20%, which is now the same rate at which the self employed pay their income tax at the basic rate. Whereas companies have to wait till their profits reach £300,000 before their tax rates are increased, the self employed have their tax rate hiked up to 40% when their earnings reach £35,000 and then again to 50% at £150,000.

And then of course you then have to take into account the National Insurance charges for the self employed, which have now risen from 8% to 9% for basic rate tax payers and from 1% to 2% for higher rate tax payers. So whereas historically incorporation only became a ‘no brainer’ if you were a higher rate tax payer, the 9% tax differential for basic rate tax payers means even they could be thousands of pounds better off by incorporating.

All businesses should consider incorporation whatever the profit, but incorporation is not easy. So apart from saving money what are the other benefits to incorporation and what are the practical issues that a business needs to consider before taking the plunge?

Benefits

• Reduction in tax bill – basic rate tax payers at least 9% better off, higher rate tax payers much more so.
• Limited liability – before the benefit in tax reduction this was the main reason for incorporation because should a company fail the liability of the shareholder is supposedly limited to the amount unpaid on the shares (if any).
• The word ‘Limited’ may provide enhanced status.
• Different categories of shares can enable different levels of payment to be allocated; advantage being taken of the different personal tax circumstances of individual shareholders.
• Dividend waivers enable transfer of income – possibly from a higher rate tax payer to lower rate. Not possible to transfer income of self-employed unless a partnership is formed.
• IHT Planning – a company enables greater flexibility; on death the company continues to exist as a separate legal entity.
• Depending upon the type of business it might prove easier to sell shares rather than the business and business assets if not a Limited company.  
• Tax free employee benefits and incentives can be provided with the company obtaining tax relief thereon – not possible for the self-employed employer
• Where the business property is held outside of the company in the directors name the director can extract funds from the company in the form of rent – no PAYE or NIC issues. There will usually be a mortgage such that rental income will ensure immediate tax relief for interest paid. No Entrepreneurs Relief is due on the sale of the property as it will be deemed an investment property.
• Overlap relief available on cessation of self-employed trade.
• Transfer of trading loss – relieved against salary then against dividends so long as business exchanged for shares. At least 75% of the shares of company must be retained by the shareholder throughout the tax year in which the loss is relieved. (S86 ITA 2007)

 Practical issues

• Be careful to calculate best date for cessation of self-employment – choosing the wrong date may increase tax liability for the final year.
• Some companies in regulated industries may be required to apply for new licenses as the status of the business has changed.
• Consider whether it would be more beneficial for cars to be held in the director’s personal name outside of the company – calculation as to benefit in kind and Capital Allowance etc. needed. Company cars are no longer tax efficient now that they must be pooled with other plant so unless the car is of low emission the figures will probably show that it is best to keep car out of company. Will leasing the car be an alternative?
• Turnover of a company in excess of £6.5m requires audited accounts; no such requirement for self-employed.
• Care is needed where there is the prospect of the shares being transferred or disposed of within two years of incorporation (Business Property Relief)
• IR 35 ‘personal service’ legislation issues for ‘knowledge based’ businesses.
• Consideration is needed as to the method of transfer of business i.e. via use of ‘Incorporation’ relief (s162 TCGA 1992) or ‘Hold Over’ relief (s165 TCGA 1992). ‘Hold over relief’ is automatically applied by HMRC if the relevant criteria are met therefore suggest write to HMRC confirming position. If the business was set up post 1 April 2002 the cost for goodwill is allowed to be amortised in accordance with accounting practice against the company’s profits; if the goodwill was created pre 1 April 2002 no relief is allowed. The owner can claim Entrepreneurs’ relief on the sale of the business and should full relief not be possible tax is charged at the beneficial rate of 10%.
• The most difficult issue to deal with is the valuation of goodwill – best to use a specialist valuer.

  About the author: Richard Jepson ACCA is the Tax Manager at Adams and Moore. For more information or to make an enquiry contact Richard@adamsandmoore.co.uk

Use social networking to your advantage

If you are new to social networking sites, have a good look at what’s out there and pick what you feel will be the most beneficial to you and your business.  Ask yourself questions such as, who is your target audience? Who will manage this? What key points do I want to get across?

Once you have chosen what you feel will be the most beneficial site (you may want to use two!) you can begin creating your account.

The first and probably the most crucial step is to set up your profile, initially go for the basics such as name, location etc but remember to choose wisely as an error at this stage can cripple your online presence before you even get going!  The key is to ensure any profile expresses how you wish your business to be perceived, it’s ok to include some personal/neutral points regarding hobbies and interests but keep it professional.

Be a friend to find a friend. You must participate in social networking sites in order to gain any visibility, recognition or traction.  Remember the idea is to get you and your business noticed!

Create a list of messages you wish to convey. Never hard sell, however use links, conversation, short posts and help others to convey your brand or your expertise. “Hey, buy from me!” as your first post is like a used car salesman and will come across as too aggressive and hard-sell.

Blogs make excellent items to talk about. Offer advice, links, help and conversation. But don’t get mean or post anything inflammatory. Your posts remain online for a long time. Google even archives some, such as Twitter posts, so be certain you want to say what you say before posting them.

Once you’re up and running you will find that some will seem more natural and easier to use to you than others. There’s no one right or wrong site. Use what works.

But you’ve got to be out there, networking, sharing something worthwhile to get noticed!

About the author: Gemma Petty is an assistant Client Manager at Adams & Moore Chartered Certified Accountants. For more information or to ask how we may be able to assist you, contact Gemma via email at gemma@adamsandmoore.co.uk