We are all guilty of leaving certain tasks at the bottom of our to-do lists. However, using any spare time now to improve your business foundations could mean that when you reach the other side of these challenging times, you will be in a much stronger position to thrive.
You could think of this as working ‘on’, rather than ‘in’, your business.
It may therefore be useful for you to review some of the most common ‘tasks for tomorrow’ that our team often note when speaking with clients. We would encourage any business owner to grasp the opportunity, and tackle some of these suggestions – which, incidentally, are our ‘Top Five’.
Tip 1 – Review your accounting record keeping system
Whether it’s an over reliance on Excel spreadsheets, too many hard copy receipts, or just a lack of overall digital processes…if this rings true then you will find it difficult to make the most of the vital business information available to you. These issues aren’t limited to just small businesses either; we have witnessed many larger companies suffering from inadequate record keeping processes.
By migrating to an accounting solution such as Xero or Sage 50, you will be able to view real-time financial information. This will help you make better business decisions, and have greater transparency over taxes and other liabilities as they fall due. You may even be able to work with your accountant, to introduce tax-saving measures.
Even if you are currently using an accounting system, now is a good time to review it. Your system could be outdated, or just simply not the best solution for your business needs today. Continual developments in this field mean that there are now numerous cloud accounting solutions to help you keep on top of your finances, save you time and provide improved reporting from the data.
Tip 2 – Get your payroll function into shape
A well-functioning payroll, with good HR interaction and wider consideration of employee welfare and incentives, can be key to a happy workforce and a successful business.
Your payroll processes must evolve to meet the growing developments in recent weeks, concerning the furloughing of staff, SSP responsibilities, and the consistent payment of staff salaries and pensions.
Therefore, undertaking a flexible review of your payroll function can help identify potential weaknesses and areas of improvement, potential exposure through non-compliance, and ensure that current demands are managed effectively.
The benefits of an external payroll review can be significant, and may lead to:
- A third-party perspective on inter-department communication
- An improved, more extensive payroll function that delivers effectively
- An unbiased assessment of software systems, with guidance on reducing the risk of errors
- Ideas for ways of improving staff engagement and staff motivation
- Reassurance and peace of mind
- Reduced exposure through non-compliance
Tip 3 – Drive your business forward with management information
Every business needs to produce an annual set of accounts. This will not only tell you what’s already happened, it also allows you to take corrective action based on accurate and up-to-date information.
The current Covid-19 outbreak has exposed an imperative for an in-depth financial view of business performance, and this is where management accounts can support your business needs during these uncertain, ever-changing times:
1) Monitor progress and take corrective action
If you know exactly what is happening in your business, you can take action to improve key metrics on a frequent basis.
You can highlight variances in business performance, and if you operate from more than one site, view which are the most profitable, in order to identify and address under-performance.
2) Securing external investment
Up-to-date management accounts also provide a level of insight and transparency that banks and external investors will appreciate.
Showing them how your business is performing now, not just in your last set of published accounts, will give them confidence that they are looking at the true underlying performance of the business.
Your management accounts will also add further credibility to any finance requirements, which is clearly more relevant now than ever before. There are numerous financial opportunities in line with recent government announcements, such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back loans, so ensuring your management accounts are as up to date as possible is of paramount importance.
3) Support long-term business strategy
If your business is embarking on a specific project that requires high levels of investment, a robust set of management accounts will help you analyse its expected rate of return, and how long it will take for your project to break even.
When considering a sale of the business, accurate and updated management accounts will help potential investors or buyers assess its true value.
Tip 4 – Review the company’s share structure
If you run a company that is owned within one or two families, and hope to sell your shares in the future for a substantial sum, we recommend a review of the share ownership. This is in light of the 2020 Budget’s changes to entrepreneurs’ relief.
Prior to 11 March 2020 (Budget day), each director (or employee) shareholder who had owned at least a 5% stake in a trading company for two years prior to the sale of their shares could qualify for the 10% tax rate to apply to their capital gain, up to a lifetime limit of £10m, with the balance taxable at 20%.
This limit was reduced substantially to £1m from Budget day. This means that where a capital gain of more than £1m is targeted on a future share sale, splitting share ownership with relatives (such as a spouse or civil partner) could result in a substantial tax saving on such a sale.
Work with the aforementioned two-year rule to complete your review. There may also be tax benefits prior to sale, for example by enabling dividend income to be shared with a lower-earning partner, instead of all being taxable in the hands of one household member.
Tip 5 – Review the whole business structure
Whether the business is run as a sole trader, a partnership, or a limited company, its structure should be kept under review to ensure it continues to be appropriate.
This review is particularly important, since often, there is not enough time to consider it properly and in detail.
For an unincorporated business, the commercial and tax pros and cons of incorporation should be assessed. For a limited company, the commercial and tax benefits and drawbacks of setting up a group structure are worthy of consideration.
A group structure may be particularly helpful if there are assets to protect a distinct part of the business which is inherently risky, and therefore needs to be separated from the rest.
Changing the structure of the business will always have tax implications that need to be considered and navigated. Review the pros and cons first, so you are able to make the most informed decision possible.
As mentioned previously, we strongly encourage you to take this enforced downtime to finally cross these ‘tomorrow’ tasks off your list, and strengthen your business.
Of course, no action should be taken without seeking professional advice relevant to your specific circumstances. At Rickard Luckin, our team of experts are happy to discuss your individual requirements. Please get in touch with your usual contact to discuss further.