So where has it all gone, and is anybody out there lending to SMEs?   Some of the investment banks have recently been declaring stunning profits.  With the departure of Lehmans and Bear Stearns last year, these banks are increasing margins, benefitting from the reduced competition in their sector.

Unfortunately, the commercial banks have not had it quite so easy.   Lloyds TSB and RBS in particular have the highest exposure to the UK property sector, owning close to half of all outstanding UK property loans.   Many of the high street banks are still making provision for further bad debts to come.  In addition to increased regulation from the Financial Services Authority, and increased capital adequacy requirements as a result of Basle 2,  availability of funds to lend is low.

Is there any hope?   Banks are still lending to people they know,  people with a ‘plan B’, provided it is low risk and short term.   It’s not coming cheap though, with 3 or 4% over base being the norm, along with 1-2% arrangement fees.    Over the next few weeks, we will be exploring some of the alternatives to bank loans and overdrafts.   

Have you got appropriate funding for all your financial needs?  If you like an objective view of your current set up,  call us today for a  quick  health-check to see if you are optimising what’s available to you.

Business owners are often reactive when it comes to selling or transitioning their ownership interest. Many are too busy dealing with the ‘here and now’ to prepare for the succession of their business. Whether the goal is to achieve a top price, or to reduce the tax impact, proactive steps, as early 3 to 5 years before the transaction, are critical.

If your ultimate plan is to sell to a third party, the aim should be to increase business worth to maximise the sale value.

However, if you are looking to transfer ownership to a family member, the aim might be to decrease the amount of gift or inheritance tax on the transfer of such ownership interests. If not structured properly, taxes can eat up 50% of the gross sales price. It is important to design and implement a wealth preservation strategy.

The average sale of a business can take up to 2 years to organise properly and only 7 % of businesses offered for sale attract a buyer, mainly due to low-level marketing and an unprofessional approach. In addition, many business owners have unrealistic expectations of the value of their business. Serious buyers are not interested if the business is basically a lifestyle, providing purely an income for the owner.

What steps can be taken now to increase the value in your business?

1. Prepare financial statements – these will add credibility and show growth trends and sustainable earnings.

2. Reduce debt – a large amount of debt increases risk of business failure and default.

3. Build a strong management team – this reduces reliance on one key person, and should improve profitability, by optimising performance of all employees.

4. Focus on increasing cash-flow – cash-generating businesses are attractive to buyers.

5. Review internal controls – strong internal controls will re-assure any potential buyer that the financial statements are reliable and the company’s assets are being utilised properly and appropriately.

6. Get a business valuation – an independent professional’s valuation will assist in justifying your asking price.

The key, as ever, is to plan ahead. If you want to know how we can help you maximise your exit ££££s, give Aileen a call on 07802 331887, or leave a message below.

1. Keep receipts to support any expenses claim.  Make notes on the paperwork/spreadsheet of any additional details.
2. File things in date,  alphabetical, or numerical order order to save time.   Be consistent in your approach.
3. Have a separate business credit card and file with the receipts.   Keep a separate business bank account and reconcile regularly.
4. Keep cash transactions to a minimum -  it’s messy and we don’t like it!
5. Use a standard accounting package – Sage or similar.  Most accountants have compatible software making integration quick and easy.  Again, when making entries,  give as much detail as possible – e.g.   July 09  rent, not just “rent”!

If you need any help with the basics,  contact Aileen or Julie, or leave a comment below.

Childcare vouchers

The first £55 per week of childcare vouchers that you give to an employee is both tax and NI-free. The employee can use the vouchers to pay for approved childcare, e.g. a registered childminder. They give the voucher to the approved child carer who then sends it back to you for the company to settle.
The £55 limit is per parent not per child so if both parents work work for you, they can receive up to £110 a week tax-free (via separate vouchers).

Suggestion Scheme

In certain circumstances employers can reward staff tax-free for ideas.  Even if you get snowed under with suggestions, you get to pick the ideas to be used or rewarded, so you can decide who gets the money.
The taxman, however, will want to know all about the tax-free amounts you are giving to your staff, so you will need to have evidence of the benefit the business has derived from the suggestion by way of an estimate of the cost savings, or extra sales revenue etc.

The maximum you can pay for suggestions not implemented is £25. The maximum for a suggestion implemented is the lower of £5000 or 50% of the expected financial benefit in the 1st year ( or 10% of the expected financial benefit over 5 years).

Gift for personal appreciation

A gift made to your employee in recognition of some personal quality but not a reward for performing duties whether past, present of future, can be made tax free.  An example might be a wedding gift.

Personal Incidental Expenses

If an employee has to stay away overnight on business, then you can pay them up to £5 per night in the UK (£10 per night overseas) tax-free, in respect of their miscellaneous personal expenses such as telephone calls home or newspapers. You need make sure you don’t accidentally reimburse the expenses twice – first as part of the hotel bill and second via the employee’s separate expense claim.

Medical Check Up

Periodical check-ups paid for by the company are not a taxable benefit. However, for the exemption to apply, the health screening or medical check-ups have to be available to all employees generally, on similar terms. ( Medical Insurance is a taxable benefit)

Employee working from home.

If your employees work at home regularly, but not full-time, they can claim the increased energy needed to heat and light the property for longer and any extra water used, if it is metered.  However, they can’t claim a proportion of their mortgage or Council Tax as these are fixed, whether or not you work from home.
The claim must also be supported by receipts, showing the increased energy, water etc. used due to you working at home. These are tedious for you to collect and expensive for your company to process.  Instead why not pay £3 per week to all of your employees who work from home on a regular basis?  This may seem trivial, but it’s still £156 a year tax-free.

Could any of these suggestions work for you?   Leave your details below, or contact us directly on accounts@fabaccounts.com.

The Average Rate for 2008-09 is 6.10%

 When an employee receives a cheap or interest free loan from their employer, this is the rate of interest used to calculate the value of the benefit provided. 

The loan interest is then detailed on the form P11D at the end of the tax year, along with any other benefits such as Car and Fuel.

Cars are a significant cost to everyone, and we’re often asked what is the best way to finance them , so I thought I’d work through the numbers to see what are the different ways of sorting out your next car.   The two options your going to see most commonly are either leasing a car or buying one.

Of course this guide is only really relevant to right here, right now as  lots of considerations can change, i.e. tax rules, interest rates, market price of cars etc.    As always if you need any help with this feel free contact us.

LEASING YOUR CARS

BUYING YOUR CARS

EXAMPLE: VW Golf 2.0 Tdi 110 SE – Cost New – Approx £16000

BUY       Loan over 36 month period – Approx £504 per month (inc interest £59.26)

LEASE  Initial up front payment – 3 months £810 + VAT – thereafter £270 + VAT per month

AVAILABLE TO OFFSET AGAINST TAXABLE PROFITS

IF YOU BUY

IF YOU LEASE

ACTUAL COST TO THE BUSINESS

IF YOU BUY

IF YOU LEASE

Although it appears to more tax efficient to buy the vehicle, in today’s economic climate flexibility is the key. Do you really want to be commit yourself to a long term loan,IF you can secure one. Also the second hand car market is unpredictable. In comparison the monthly lease payments are lower than the loan repayments, the lease can also be cancelled (with a penalty which tend to be 3 months payments which ) this can help with short term cash flow problems.   For now, I would opt for the lease.

There are lots of confusing sounding acronyms bandied about when it comes to accounting ratios – ROCE, ROI, ROA, EPS, P/E , etc.

What do they all mean, and can they give us the inside track into a company’s set of accounts or, for that matter, any insight into our own profit and loss or balance sheet?

The usual complaint about ratios is that they are based on historical data, and so may not be predictive.   They need to be calculated on a uniform basis, from uniform data, otherwise comparisons can be misleading. Also, seasonal trends may have a distorting effect, i.e.stocks may be low after Christmas, debtors may be unusually high, or margins may be particularly low following end of season sales.

Here at FAB Towers, when Julie and I analyse the monthly management accounts for our sole trader or SME clients,there are probably only a handful of key ratios we look at:-

By and large, the profitability ratios are used as a basis for assessing the performance of a company and its managers, including the efficiency of its asset usage .

The main reason for looking at the gross margin on a regular basis is to monitor it against budget.What did we expect it to be?If the gross margin is lower than expected, it could be we had to drop our price to maintain sales volumes or we had to pay more for our direct labour, or direct materials. A couple of our clients import from overseas so any wrong way currency fluctuations will directly affect this figure. Equally, any increase in the sales price will have a positive effect here.

Any increase or decrease in the gross margin will have a knock-on effect on the net margin. What we are looking for here is to see that our overheads and fixed costs were as expected with no surprises and that any variable costs are in line with the achieved turnover.

We look at liquidity ratios to see whether the company has the cash available to meet its payments as they fall due. We tend to use the quick ratio, which uses debtors and cash figures only, and not stock.This ratio tells us how much of the company’s short term debt can be met. A ratio of less than one means a company will struggle to meet its immediate obligations, whilst a value over 2.0 generally indicates no short-term trading problem. This ratio is also called the acid-test ratio.

The debtor day ratio is a key calculation, especially in today’s economic climate with business failures on the increase and people generally trying to stretch out their own cash. Any increase should be investigated to make sure there is nothing sinister happening. While it may be necessary in some instances to increase terms offered to customers, if your stated payment terms are 30 days and your debtor days are 60, it means you are not collecting you debts quickly enough.

We probably would not look at the ROCE on a monthly basis, as it is more usual to use the year end figure for capital employed when calculating this ratio. One of the criticisms of the ROCE calculation is that is uses the book value of the assets from the balance sheet, so that ROCE will increase as the assets depreciate. By the same token, if a company has just invested heavily in new assets, the ROCE will be lower as the company has yet to reap the benefit of its new investment.

Just one more thing..

And finally, one of my favourite ratios which we use generally in preparing the annual budgets or sales forecast, is the c/s ratio.This is the ratio of contribution (gross profit) to sales.

This is a nifty little ratio which can help you calculate your break-even point.

Annual Sales Forecast:£1,000,000

Less Direct Costs:£600,000

Gross Profit (contribution)£400,000

C/S Ratio:= 0.40

£1,000,000

Forecast

Fixed Costs/Overheads £325,000

£812,500 Sales t/o required to break-even

CONCLUSION

Accounting ratios can be a useful means of identifying significant relationships between different figures.However, the financial statements will only reflect those activities which can be expressed in money terms.They do not give a complete picture of the activities of a business.