Archive for category Business Economy

Management and Understanding Why It Works

Micro managing has been around for decades, and with the current condition of our economy business owners should consider using this technique to keep their companies above water.

As Founder & CEO of a SUCCESSFUL company I say you must micromanage and then micromanage some more! I want to know who called and when, what they wanted, what they bought, how we helped them, how we didn’t, what they liked and what they didn’t. I wear the badge of ‘control freak’ with pride. As a business owner, you too must micromanage and then repeat. Then circle back to make sure the task is getting done, and done right. With a small business you have to know everything that’s going on at all times. It’s your business, so you have a right and a responsibility to know everything that’s going on. Don’t be afraid to ask, How much does that cost? What are you doing now?

Most problems which occur in my own firm, as well as the others I’ve worked with, trace back to one fatal characteristic: lack of leadership. You can build confidence in your workforce, and inspire them to do their jobs well, by leading them through down times and presenting yourself as tough, no-nonsense, and confident. If you’re going to delegate, be careful not to completely bypass responsibility. You have to be there. You have to let workers know you are in it with them, but they’d better work hard when you’re not around. Don’t hit the golf course for nine holes and expect all projects and tasks to be commendable when you return. It is up to YOU the manager to check the final details. Much of the time the job won’t be right or worse, it won’t get done. And in a small business you don’t have the time or money to correct bad mistakes. So if you delegate tasks, watch your employees like a hawk until you are satisfied they are doing what they are supposed to; then keep watching.

Just as importantly, your employees should have a clear understanding of accountability. Once they catch on to your ‘quality control standards’ they’ll be accountability experts in no time. And in the end they’re honing a skill which will stay with them all throughout their career. And with employees like this you’ll have the confidence you need to know that your business will overcome future economic hardships.

Review:

1. Use micro management as a form of quality control

2. Know what’s going on at all times

3. Always check the final details

4. When delegating, don’t bypass your own responsibility

5. Teach your employees accountability

 

To Be, Or Not To Be A Limited Company? That Is The Question

As of April 1st 2011, the rate of tax levied on Limited Companies (corporation tax) is the same as the basic rate of income tax – 20%.

National Insurance Contributions were increased, and the increases, mainly in Class 4 National Insurance, should prompt sole traders to review their business structures and look into how they can reduce the amount of tax that they pay.

Are You A Sole Trader? A lot of businesses start out as a Sole Trader; mainly because starting a business is hard enough, without the added paperwork forming a limited company entails.

Deciding which business structure to take in a difficult decision to make, as a ‘one size fits all’ scenario doesn’t exist in the world of business.

Both your personal, and the business’s circumstances determine which structure would best suit you, and it is up to you to decide which route to go down; do you stay as a Sole Trader, paying more tax than a Limited company (in some cases), or do you turn your business into a Limited company, and whilst paying less taxes, complete more paperwork?

In our opinion, there are two major issues you need to take into consideration when you’re deciding on the appropriate structure for your business:

Limited, or Unlimited Liability? When your business is a Sole Trader, there is no ‘line’ between you and your business; you are the business, and you are responsible for the business’s actions; both benefits, and liabilities.

If your Sole Trader business should get into debt, and the assets of the business won’t cover the debts, then your own personal assets could be used to pay the debts – including your house!

Limited companies, however, are treated as a separate legal entity to the Director – the Director is an employee of the company. If your business is a Limited company and falls into debt, unless personal guarantees have been made, your personal assets will not be used to cover the company’s debts.

So, if you don’t want to risk losing your home or any other personal assets, maybe a Limited company could be the best business structure for you.

Tax – What everyone cares about! The second reason many Sole Traders consider changing their business’s entity to a Limited company is based on the tax savings.

Sole Trader’s Tax Status As a Sole Trader, you pay tax as follows:

You pay income tax on any profits exceeding your personal allowance.

Class 2 National Insurance Contributions at £2.50 per week

Class 4 National Insurance on profits over £7,225 at 9% up to £42,475. Anything over £42,475 is paid at a rate of 2%.

If your business’s profits are below your personal allowance (£7,475 for tax year 2011-2012), then it is more than likely you are better off operating as a sole trader, but make sure you confirm this with your accountant! Or, failing that, ask us for free!

Providing your profits are still under your personal allowance, you will only pay no income tax, and a minimal amount of class 4 national insurance contributions if your profits are over £7,225.

You can apply for an exemption to class 2 national insurance contributions if your profits for the tax year are under £5,315.

Limited Company’s Tax Status A Limited company, provided the profits are below £300,000 (where the higher rate of corporation tax kicks in), will pay 20% corporation tax on its profits.

Profits can be withdrawn from the company by way of dividends for shareholders, and salary for directors – this is assuming that the directors/shareholders have no other income. Obviously, you can be both a director and shareholder of the company at the same time.

So, the question is, which is best?

Tax-wise, this can be shown in an example:

For the example, both Sole Trader 1 and Limited Company 1 have £20,000 profits from the tax year, with no other income present.

Sole Trader 1 pays tax as shown below: Income Tax (£20,000 – £7,475) at 20% = £2,505

Class 2 National Insurance (£2.50 x 52) = £130

Class 4 National Insurance (£20,000 – £7,225) at 9% = £1,149.75

So, with £20,000 profit, the total amount of tax Sole Trader 1 pays is £3,784.75

Limited Company 1 pays tax as shown below: Limited Company 1 pays a salary of £589 per month to its director, which is the maximum it can pay without the director being subject to income tax (provided the director has no other income). So, £589 x 12 (months) = £7,068.

NOTE: If you are a Limited company’s director, and are still paying yourself £476 per month, you can increase it to £589 per month as of April 2011.

The salary is an allowable expense from the profit of the company.

So, the actual profit becomes £20,000 – £7,068 = £12,932

Corporation tax on the profit is 20% (as it is below £300,000) = £2,586.40

So, the total amount of funds available after tax for Limited Company 1 is available profits + salary – corporation tax = £17,413.60

So, with profits of £20,000 you would be better off as a limited company by a massive £1,198.35 – almost 17% of the profit!

Now, a lot of people reading this will be thinking: ‘Won’t most of that tax I saved be spent using an accountant to form a limited company for me?’

Well, while we can’t speak for other accountants, it certainly wouldn’t be the case with Keepers! To set up a limited company for you, Keepers charge £250 + VAT. So, for one payment, you save year-on-year!

What’s more, if your profits are higher than the examples, you could save even more tax!

One more final thing…

It may also be possible to save even more money by selling your sole trader business to your limited company!

Unfortunately, we can’t provide an example on this, as it really does depend completely upon your circumstances.

So, we would advise speaking to your professional advisor, or us, to review your circumstances, and see if forming a limited company could be beneficial for you! The above are examples, and should not be relied upon.