How to value your small business

Value concept

Find out how to value your small business with the help of our small business accountants.

There are many reasons why a small business owner may wish to know the true monetary value of their business. Among them, putting a business up for sale, attracting investors and valuing shares for tax purposes are the three most common reasons.

In London, opportunities abound when it comes to selling or buying small businesses. Accordingly, many small business owners want to know how to value their business so they can set a maximum selling price accordingly. On the other hand, many entrepreneurs who are ready to capitalise on an established business also want to know the true value of a business to make sure they do not overpay.

At Tax Agility, our small business accountants are fortunate to work with parties from both sides in various transactions and experience the dynamics first-hand. We assist small business owners who want to sell, while in other cases we also advise entrepreneurs who want to buy a business and expand. In this article, we will focus on business valuation, in particular:

  • What information is used in a business valuable
  • Different valuation methods

What information is used in a business valuable

A client once told us that he had been advised that the most cost-effective way to value a business is to get an accountant to review the financial figures and then place a price on the business. Essentially, he was told to avoid formal valuables as they are expensive and buyers would likely make their own assessment anyway.

He was mostly right in the sense that accountants and financial figures are key when it comes to valuing a business, but the most important part is actually getting a qualified accountant who can take time to understand your small business and the full breadth of its operations. In other words, you need an accountant who can spend time to understand your management policy, the industry and the competitive landscape, along with financial statements. Ideally, the accountant should also help you to improve the value of your business before placing a price that truly reflects the worthiness of your business.

To give you an idea, here are the seven essential aspects a good accountant should take into consideration when valuing your business:

  1. Financial information – present and historical financial statements will be required to address a host of concerns. Profitability and cash flow, liabilities and assets, stock value and book value are among the many items which will be examined in great detail.
  2. Intangible assets – intellectual property, copyrights, brand recognition, and other non-physical assets will also be reviewed carefully.
  3. Management – finding out if the business has a dedicated team and is not over-dependent on key staff.
  4. Legal information – anything from compliance to any present legal proceedings against the company or the company is pursuing.
  5. Competition – market share, competitors, barriers to entry, other similar businesses on the market and other economic factors which can impact the business will be analysed.
  6. Future outlook – as business landscape evolves, the company’s short-term and long-term outlook will be scrutinised.
  7. Circumstances surrounding the valuation – if you are looking for a quick exit due to changes in life goals, then the perceived value is likely to be reduced.

Different valuation methods

When it comes to valuation a business, private companies aren’t listed on a public stock exchange and therefore, finding the value requires some work. Here are some of the common valuation methods used in London and the UK.

1. Earnings multiples

Earnings multiples determine a business’s ability to generate profits and use the figure to set the selling price. This formula is largely based on an industry-based average. For example, if your business makes post-tax profits of £200,000 and the industry-based average ratio is 3, then your selling price could be £200,000 x 3 = £600,000.

It must be said that there is no ‘fixed’ average ratio. It depends on the industry you are in (some industries have a higher average ratio than others) and the complexity of your products and services. Having said that, this method is common for valuing a small business that has been around and making profits for a number of years.

2. Discounted cash flow

Discounted cash flow looks at the estimated profits a business will generate and the likely value of the business at the end of as assessment.

The concept of discounted cash flow assumes that money is worth less in the future and it is today, after interest and inflation rates. To make this formula work, usually data from your past financial statements will be used to predict the future income.

This method is most appropriate for a mature business with a strong client base. It also works well for a business launching a new product with excellent future prospects.

3. Asset-based valuation

Asset-based valuation refers to the value of assets after subtracting business liabilities, without taking into account your business’s future earnings.

This method is most appropriate for a business with substantial tangible assets like property and machinery, as well as intangible but valuable assets like patents, goodwill, copyright, intellectual property, brand recognition and customer lists.

Apart from goodwill which is generally based on the calculation of a residual value, intangible assets are hard to value and a good accountant should use a number of established formulas which may include:

  • relief from royalty
  • excess earnings
  • incremental income
  • comparable transactions
  • replacement cost

4. Entry cost

Entry cost is the estimated cost a buyer would have to invest to set-up a similar business. This formula tends to include:

  • Employee recruitment and training
  • Upfront asset costs and continued maintenance
  • Product development (research and development)
  • The cost of establishing a business’s reputation and its customer base

Which method you should use depends on your circumstances. Most small business owners offload this valuable process to a capable small business accountant.

Tax Agility can help to value your business

At Tax Agility, we look after our clients who are small business owners in London, Putney and Richmond. While we assist clients with the day-to-day tax and accounting work, our ultimate goal is to increase the value of your business by identifying its growth prospects. This way, when you are ready to value and sell your business, you will be cashing in on your reputable business and its success.

If you’d like, our small business consultants can work closely with you to take your business to the next level. We do this by reviewing:

  • Annual business plans, forecasts, and projections
  • Management accounting complete with regular overview information
  • Review of credit control and cash flow
  • Attend important business meetings
  • Strategic plans for business acquisitions and disposals
  • Advice pertaining to capital structure and business valuations

Call 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting with our small business accountants or our small business consultants today.

If you liked this article, you might also like:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

 


Incorporating a limited company

Incorporating a limited company

Incorporating a limited company

Choosing to set-up a limited company is a popular choice in the UK. This post explains what is a limited company and shares how it can maximise your take-home pay, along with other advantages and disadvantages.

If the time has come and you are considering setting up a business, chances are, you have been made aware of the different types of company structure in the UK. It is even possible that your friends and associates are encouraging you to set up a limited company. Among the many reasons you hear pertaining to a limited company, these three main points are likely to stand out:

  • Your liability as a shareholder is limited.
  • Taxation rates can be more favourable.
  • You can be tax-efficient by taking a low salary and using dividends to make up your income.

But a limited company is not without its disadvantages and we must emphasise that your approach to tax must also be right and lawful, as HMRC can and do challenge company directors. It is with this in mind that our small business accountants want to share the ins and outs of incorporating a limited company so you have an idea if this is the right business structure for you.

What is a limited company?

Governed by the Companies Act 2006 and its own articles of association, a limited company is a legal entity with its own legal rights and obligations, a distinct advantage that is welcomed by most business owners.

Essentially, what it means is that the company can enter into contracts, receive income, own property, pay tax, employ people, sue and be sued. The rights and obligations of the company are separate from its shareholders, directors and employees. In the event that the company is insolvent, the directors are only liable for the amount they have invested in the company and are not held responsible for the company debts incurred in the ordinary course of business. The only exception is when the directors fail to meet their legal obligations and they do look out for the interests of the company, but that does not happen often as most directors do exercise a duty of care.

A limited company can be large with multiple employees or set-up with just one individual as the sole director of the company. A large number of contractors and small business owners prefer to set-up a limited company of their own as it probably is the most efficient method to maximise your take-home pay. The approach is to channel income through your limited company and paid out to you (and/or any other shareholders) in a combination of salary and dividends. This can result in tax savings, as dividends are treated differently to salaries in terms of tax.

Having said that, we advise contractors to have a chat with one of our contractor accountants to determine if you fall within or outside the IR35 rules.

Now let’s use some examples to illustrate how incorporating a limited company can boost your take-home pay.

Scenario 1: You are the sole director and your salary is £40k a year

In this scenario, you are the director and also the employee. You receive an income of £40,000 a year. In the tax year 2019/20, this means your take-home pay is about £30,736 as any salary calculator website can quickly tell you.

Scenario 2: You are the sole director. Your salary is £10k a year and you declare a dividend of £30k.

In this scenario, you are the director and also the employee. You receive a low salary of just £10,000 a year. To make up your income, at the end of the year after your company has paid company tax on the revenues, you declare a dividend of £30,000. As you are the sole director, you receive the full sum of the dividend. In the tax year 2019/20, this means your take-home pay is £37,923; this is £7,187 more than the previous example.

The above examples are simplified for discussion only. In reality, how much tax you pay depends on your circumstances. Nonetheless, it does illustrate to you why contractors and small business owners prefer to set-up a limited liability company. If you would like to know more about dividends, this post “Understanding dividends” is packed with information.

Other benefits of having a limited company

  • You can easily transfer ownership by selling shares to another party, this is particularly useful if you have an exit strategy in mind.
  • Shareholders (often couples or family members) can be employed by the company and reduce the overall family tax obligations.
  • A limited company looks more professional than a sole trader and if you are looking for funding, investors are more likely to invest in a limited company than a sole trader too.
  • It can fund pensions as a legitimate business expense.
  • Once you have registered your company, no one else can use the same name as your company.

Now the disadvantages of having a limited company

Everything has two sides and before you rush to incorporate a limited company, it pays to take a second to understand the disadvantages.

  • It can be expensive to establish and maintain a limited company.
  • The reporting requirements are complex and best handled by an experienced small business accountant. This will free up your time to focus on your business.
  • The company pays tax on the profits.
  • When the company declares dividends, you and your shareholders are responsible for pay tax on them, despite dividends have lower tax rates than salary.
  • The financial information of the company is made public by Companies House.
  • If any of the directors fail to meet their legal obligations, they may be held liable for the company’s debts.

Tax Agility can help you to incorporate a limited company

Before making a decision on how you should go about incorporating your company, it is best speaking to a qualified and independent small business accountant like our team here at Tax Agility. The reason is simple – there will be areas like VAT, tax incentives/ relief (such as the Annual Investment Allowance), cash flow management, and general financial control that we can assist you with and give you and your business the best chance to succeed.

At Tax Agility, we have been championing small businesses across Putney, Richmond and Central London for many years now. As everyone has a unique situation and aspiration, our personalised package starts from £105 per month + VAT. This means you can engage our service and use us as your financial controller without paying big money.

So let’s kick-start the conversation today. We are available on 020 8108 0090 or you can contact us online to arrange for a complimentary no-obligation meeting.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Use of technology

Small Business: Use technology to your advantage

Small businesses in London can certainly use technologies to build stronger capabilities and seize growth opportunities.

Use of technology
In October 2019, when high street chains Karen Millen and Coast went into administrations and announced closures, the online fashion chain Boohoo acted swiftly to snap up the two brands following their collapse. But Boohoo is not keeping the stores open, instead they choose to relaunch them as online-only retailers.

If you have been following this piece of news and the closures of other high street stores, you can see that technologies have changed the way businesses operate and how goods and services are being delivered and consumed. In fact, it is said that consumers now spend one in every five pounds online; this means that traditional brick and mortar stores are seeing 20% fewer sales than before but they still need to maintain overhead (business rates, rents and wages) that increases every year.

Needless to say, to compete in the digital era, SMEs must develop digital capabilities and competencies. It is with this in mind that our accountants for London’s small businesses look to discuss how small businesses in London can utilise technology to help them streamline operations, improve their brand awareness, enhance customer service, bolster fiscal health and gain an edge over competitors.

How should my small business be using technology?

Using technology to streamline operations

In many small businesses, the owners and the employees tend to wear multiple hats. For instance, the sales person is likely to be the person who manages accounts and even chases unpaid invoices. The marketing staff may also take on the roles of web design, social media, or even photography. To help ease workflow, small business owners and their employees can turn to technology.

For instance, apps for project management, note taking, inventory tracking and document signing are inexpensive and brilliant in increasing efficiency. Cloud computing is another obvious choice. By storing your data in the cloud, you are essentially empowering your team members to literally work from anywhere as long as they have an internet connection.

Cloud computer does not limit to just servers and data storage though; cloud-based software is also a real money saver. In the UK, many small businesses have chosen to use Xero, a powerful cloud-based accounting software that is built for small business owners. If you would like to know more, check out this page about Xero and how it can help you to organise your business account and finance.

Using technology to improve your brand awareness and sales

In this digital age, having a web presence is a given and being visible in social media (Facebook, Twitter, LinkedIn, etc.) is also expected. But small business owners know that it can be a challenge to manage a company’s online presence. For a start, it takes time and efforts to make a landing page rank high on search engine results pages and more importantly, complaints rather than compliments tend to crowd your social media profiles.

While there are no silver bullets that can remove all digital challenges, small business owners can certainly use the following tactics to increase their brand awareness and sales online:

  • Launch targeted advertisement campaigns like Pay-Per-Click.
  • Give consumers a reason to visit your page, entice them with discounts or freebies.
  • Post fresh, engaging and relevant content regularly.
  • Partner with influencers who can help to promote your brand.
  • Seek help from a professional digital marketer and test out which digital channels are best suitable for your business.

It is important to treat your online presence like a business function – meaning you set objectives and measure the progress, and if things do not work out, change your strategy accordingly.

Using technology to enhance customer service

Once upon a time, Customer Relationship Management or CRM software was used solely by multinational corporations. Today, they are helping small businesses to capture and convert new leads, store customer information, automate your communication including drip sales emails, stay in touch with your customers, among other tasks.

The upshot is this – if you don’t know who is buying from you, or if you’re still relying on Excel to store the information of your customer, then it’s time to talk to one of the many CRM software experts and find a system that is best suitable for your business.

What about AI?

Artificial Intelligence or AI is undeniable a buzzword we often hear nowadays. The fact is most of us have already used AI-powered apps and devices in our daily lives and will continue to utilise AI through a piece of technology or equipment.

How should small business owners go about implementing technology?

When it comes to technology, the word relevant is key; what works for a company may not work for another. However, the process that helps you decide whether to use a piece of technology or not should be data-driven as opposed to relying on one’s gut feeling.

Let’s assume for a moment that every store in your area has installed a new digital payment but you. You believe that the new technology is too much of a hassle and you prefer to accept only cash. Whether your decision is right or wrong, only data (in this case your sales figure) can tell. If your sales remain strong despite you have chosen not to accept digital payment, then you can safely conclude that it is the right decision. However, if the absence of the new digital payment has hurt your bottom line but your gut feeling still resists it, chances are, you will lose out eventually.

In the event that you have decided to invest in a piece of technology, then it is worth measuring if the technology has indeed resulted in improvements in a certain area.

Tax Agility helps small businesses in London

Small businesses in London are rather progressive and forward-looking when it comes to embracing technology. Walking around Cavendish Square in Central London where one of our offices is located, it is relatively easy to see stores listing their website and accepting a myriad of digital payments including international options like WeChat Pay.

For small business owners considering bigger investment in technology, it is always worth looking at some numbers and calculate the return of investment first. If you need independent and honest advice pertaining to your accounts, you can give one of our small business accountants a call.

At Tax Agility, our small business accountants take on the accounting and bookkeeping duties for entrepreneurs in and around London, affording you more time to focus on your business.

The services we provide for London’s small businesses include:

Call us on 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Business planning

Planning the future of your business

Business planning

Your small business can flourish through business planning, continuous improvement and strategic advice.

Turning a business vision into reality requires entrepreneurs to navigate through a river called planning that is full of twists and turns, with rapids as well as areas of calm-moving water. Before launching a business, most entrepreneurs need to analyse their business idea and their appetite first, asking tough questions such as:

  • Are you ready to take on the challenges of being an entrepreneur?
  • Do you have the skills needed to run your business successfully?
  • Is your business idea viable?
  • Is there a market for your services or the products you intend to sell?
  • Is it worth investing your time and money into it?

After the analysis, it is time to put your thoughts down into a very important piece of paper called the business plan. Do not dismiss this step because a business plan sets you up for success when you first start, and it goes on to help you adapt as your business grows. Yes, you read that right – a business plan is not just for fresh-faced entrepreneurs who are eager to launch a business, it is also for seasoned small business owners who want to expand and grow. In this article, our small business accountants at Tax Agility put together what we have learned from working with small business owners throughout London over the years into tips that can help you plan for your business.

We cover:

  • What is a business plan and why is it vital to both start-ups and also established businesses looking to grow?
  • Business growth planning
  • Exit strategy planning
  • Business debt planning
  • How our small business consultants can help in each of the above situations

Let’s talk about business plan

In our line of work, it is common to meet entrepreneurs who trust their gut feeling more than a business plan. There is nothing wrong with it if you know how to translate your gut feeling into a series of actionable items and manage to assemble a team and sell your vision based on your gut feeling alone. In most cases though, gut feeling isn’t enough and this is where a business plan can help:

  • It helps to prioritise – By defining your business objectives, your business plan gives your business direction, maps out strategies to achieve your goals and helps you to manage possible challenges along the way. If you are already in business, use your business plan to recalibrate your objectives and set out plans to adapt to the changing market.
  • It gives you control over your business – Your business plan requires you to study the business landscape and know your competitors and other factors that may affect your success. If you are already in business, it is time to take a step back and review because your business plan should evolve based on your experiences – both successes and failures. A good rule of thumb is to review your business plan once in every six months.
  • It gets you funding – It is highly common for entrepreneurs to use their personal savings, liquidate their assets or even max out their credit cards to launch a business. But to sustain and grow the business, additional funding may be required and in this instance, your business plan is a tool that will help to convince investors why they should invest in your business. If you would like to know more about funding, “The complete guide to business funding” may make a good read.

What goes into your business plan?

A good business plan typically covers the following points:

  • Your business objectives, both short and long-term objectives
  • The products or services it will provide
  • What is your pricing strategy?
  • What is your budget?
  • What are your risks?
  • Who are your customers?
  • How do you reach out to potential customers so they are aware of you and your business?
  • Who are your competitors?
  • What sets you apart from your competitors? In other words, why should your customers buy from you and not them?

It can further expand to cover:

  • If your ideas or products are innovative, how do you protect them?
  • How do you keep up with technology?
  • At what point can you take on staff?
  • What is your exit strategy?

As you can see, you can make it as comprehensive as possible. The most important lesson here is not to write it and put it aside because you are busy managing the day-to-day. Use it, review it, improve it – because your business plan will empower you to think, plan and stay ahead of the game.

Let’s plan for your future together

It is worth noting that having a robust business plan is one of the many steps required to launch or to improve a business if you have already set-up your company. Other types of knowledge needed to make your business successful include cash flow, compliances, debt, gross profit margin, net profit margin, to name but a few. As not everyone is an accounting expert who understands numbers and how they can affect your business, it is time to reign in small business consultants like us who can help you do number crunching and maximise your business success.

We do this by:

  • Understanding your business and your objectives
  • Focusing on your interests
  • Analysing your numbers
  • Reviewing the key trends in your business
  • Forming tailored solutions for your needs
  • Offering cost-effective services
  • Providing honest and expert advice

At the end of the day, our small business consultants produce:

  • Annual business plans, forecasts, and projections
  • Management accounting complete with regular overview information
  • Review of credit control and cash flow
  • Attend important business meetings
  • Strategic plans for business acquisitions and disposals
  • Advice pertaining to capital structure and business valuations

If you would like to know how we can assist, give us a call on 020 8108 0090 today. In the next section, we will discuss specific planning pertaining to common issues faced by many small business owners today:

  • Business growth
  • Exit strategy
  • Debt reduction

Business growth planning

Businesses exist to make money and grow either organically or inorganically.

Organic growth refers to utilising your current business structure to increase output and boost sales, thereby driving growth. The process takes time and effort, but it is sustainable, less risky, and most importantly, it adds value to your company.

On the other hand, inorganic growth means you gain instant market share and revenues boost by acquiring or merging with another company. While it is risky, the benefits of having a larger market share are indeed attractive.

Most small business owners prefer to grow organically but some prefer the acquisition route, particular those in the high-tech industry. The thing is, there isn’t a standard business growth recipe that can be applied systematically to every business. Growing your company relies on your business model, your general management, and above all, your financial numbers. If you are planning to grow your business this year, either organically or through acquisition, contact one of our small business consultants and we would be happy to review your numbers and help you formulate a realistic growth plan.

Exit strategy planning

At some point you may be thinking of selling your business to a third party or finding an internal succession, and this process of withdrawing yourself from the business you have created should ideally be a smooth transition.

As small business accountants in London, we often hear from various business owners about their plan to sell up and in most instances, turning this concept into reality requires thoughtful planning. For instance:

  • How fast do you want to sell?
  • What is the valuation process?
  • Should you restructure the business to optimise the sale value?
  • How to ensure that all relevant tax issues are managed?
  • What is the due diligence process?
  • How to identify and evaluate potential buyers?
  • How to create a competitive bidding environment?
  • How to negotiate?
  • What are the strategies you can use to maximise the sale of the business?

The list goes on and touches on various elements, from addressing accounting and tax queries to a mountain of documents that spell out everything from confidentiality to terms of sale. If your plan is to exit the business, contact our small business consultants at Tax Agility today so we can help to kick-start the process and set the strategy in motion.

Business debt planning

Assuming you are in control of your cash flow, chances are, you should not need to borrow. Cash flow is really one of the biggest issues for small business owners and many people do not understand why they are suddenly short of cash when everything seems well. This is where our small business consultants can help – we are here to analyse your numbers and provide cash flow forecasts, as well as helping you to plan for multiple scenarios that will have an impact on your business.

In the event that your business is short of cash and you need to borrow, then these tips may be helpful to you:

  • Know your ability to pay it back before you borrow
  • Have a sensible repairmen plan, this will allow you to pay back the money and still have money to fund the operation
  • Know when you can be debt free
  • Plan how you can create extra income to pay off debt
  • Review how you can cut expenses and save, as a pound saved is a pound earned

Cash flow is a subject that many small business owners find it fascinating and if you are interested to know more, this post “Five ways to improve your company’s cash flow” highlights practical steps you can use to control your cash flow.

Tax Agility is your trusted small business consultants

Every business owner needs some forms of help – it can be someone helping you to figure out what’s next, someone providing a valuable second opinion, someone introducing new clients to you, and someone working with you to improve profitability.

At Tax Agility, our dedicated small business consultants work cohesively with you to help build your business and take it to the next level. We use numbers and data to recommend changes, mitigate risk and improve profitability.

Give our small business consultants a call on 020 8108 0090 today because your business deserves the best opportunity to succeed.

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Team of office workers congratulating employee

Small Business: Motivating your employees

Motivated employees are productive and good for your business.

The performance of your employees has an impact on your bottom line and here are 11 useful tips that can help.

Numerous studies have suggested that highly engaged employees are more likely to exceed performance targets and achieve success. As not every employee shares the same personality type and not everyone is motived by the same incentive, how you should go about motivating your employees is an interesting subject worth discussing.

Why do employees work?

Before you start providing incentives to your employees with an aim to motivate them, it is worth asking the question – why do they work and most specifically, why do they choose to work for you at this point in time?

Undeniably, the need for financial security plays a big part but it is not the whole picture. Factors that lead employees to show up for work may include:

  • This is a place where they belong
  • The job may be a reflection of their self-worth
  • The work may be fulfilling and rewarding
  • They may enjoy exerting control
  • They may like to be challenged

If you are interested in delving deeper, both Maslow and Herzberg have theories of motivation and the internet is flooded with articles about these two scholars which can help you to understand human needs.

The idea is that once you have profiled each person and their traits, you can then start to personalised motivation.

11 effective methods of staff motivation

Individualised motivation

Individualised motivation is a scientific step that can help to motivate individuals to the maximum of their abilities. To do that, you must first understand their individual needs.

Create a safe working environment

Under the health and safety law, business owners must provide a working environment with little or no risks to the health and safety of their employees. That aside, most people tend to prefer working in an office that is quiet (particularly in an open-plan office), tidy, well-lit, has adequate ventilation, has access to clean drinking water and toilets, as well as has sufficient work areas where they can perform the work comfortably. If your office environment ticks all the points above and they are important to an employee, then you will have a happy and engaged employee.

Create a positive office culture

Creating a morale-boosting office culture does not always mean providing free doughnuts and coffee. In this instance, we are talking about projects that have an impact on the wellbeing of your employees, their relatives or even strangers. For instance, having a scheme that allows extra holidays if an employee needs to care for a sick relative or a project that involves your staff to help out those less fortunate in your community.

Listen to your employees

No one likes to be ignored. Be an active listener to your employees and allow them to share ideas, ask questions, or discuss anything that is important to them. When they speak, give them your full attention and maintain eye contact. If they are giving you an idea that will help your business, let them know accordingly.

Have a dialogue

The other side of listening is sharing. Talk to your staff frequently, involve them in your company vision and tackle any potential issues that may lead to disengagement.

Set meaningful goals

Believe it or not, most people actually love a challenge so using goals to motivate employees are not new. The crux of the matter is the goals must be meaningful – while they can be challenging, the goals should be attainable if one puts in the appropriate time and effort.

Timely recognition

When a job is done well, a sincere thank you, positive feedback or a token of appreciation often will make the employee feel positive and appreciated, though it must be done soon following the task rather than a few months later.

Social recognition

More and more companies are using social media to give a shout out to their star performers.

Encourage learning

We live in a world that is constantly changing, primarily shaped by the evolution of technology, globalisation of commerce, social and political landscape, among other factors. To help make your business more agile and competitive, encourage your employees to keep learning and challenge themselves.

Promote from within

Most employees like to progress as an individual and as an employee. When there are new opportunities, consider to promote from within and create a smooth transition.

Build trusting relationships

Relationships often outlast companies so it is wise to invest time and effort to build strong relationships with your staff.

Tax Agility supports small businesses in London

Every small business owner knows the importance of having motivated employees. At Tax Agility. While our small business accountants may not be able to help motivate your staff specifically, we can help you tackle your accounts, bookkeeping and tax issues, giving you peace of mind so you can concentrate on running your business and providing motivators that matter to each individual staff.

We provide the following services:

Call us today on 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting.

Other useful articles pertaining to small businesses that may interest you are:

This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Small Business: Reducing the risks associated with temp staff

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Are your temporary employees fraudsters in disguise? In this article, we help you to understand and reduce the risks of temporary hires.

Whether it is hiring more baristas, cashiers, or security personal, SMEs often require extra pairs of hands at certain times of the year, such as during the summer months and during the festive season in November and December.

The four weeks leading to Christmas are particularly intense for retailers and eCommerce site owners. Constant streams of sale hunters and shoppers fuel sales and get the cash register ringing, to cope with increased demand, business owners often turn to temporary or seasonal employees. However, doing so brings potential risks that small businesses must be aware of.

What are the risks of hiring temporary staff?

Poor loyalty and performance – Often tied to a fixed-date employment contract, temps may lack the loyalty and dedication of permanent employees. With a leave date in a few weeks’ time, temps are less likely to take pride in their work and may perform poorly. As a result, they can become a liability.

Undertrained staff – Temps require training in order to fulfil their job function. Incomplete or poor training leaves temps unable to meet the required standards and therefore, reflects poorly on your company.

Illegal workers – Never rush the hiring process. With the influx of illegal immigrants in the news, businesses in London must ensure that they only employ those with a right to work in the UK to prevent company losses and bad press. Businesses can be charged up to £20,000 per illegal worker under their employment, which can be devastating and hurt your bottom line.

Internal fraud – Small business owners must understand the danger of internal fraud. Fraudsters can pose as temporary employees in order to steal your inventory or to access business data for their own financial gain.

Those seeking to infiltrate businesses in the disguise of a temporary employee pose a serious risk to all businesses looking to hire. According to Action Fraud, internal fraud cost UK businesses £88 million between 2017-18, double the figure for the year before.

Why are small businesses particularly vulnerable to internal fraud?

Often lacking resolute accounting controls, effective anti-fraud measures, suitable technology and enough staff to split financial duties evenly, SMEs present a natural target for fraudsters to make a quick buck by deceiving the owners and employees. Their tricks include:

  • Tricking the company into paying them a large sum of money by using fake invoices or a fraudulent identity.
  • Stealing stocks. They may after high-value items or items that are small and easy to conceal.
  • Stealing sensitive data and sell them on the black market.
  • Taking control of the system remotely and ask for ransom.

When it comes to accounting fraud, business owners also need to keep a lookout for:

  • Billing fraud – creating false payments to oneself.
  • Cash theft – pocketing the money instead of registering cash transactions.
  • Expense reimbursement fraud – claiming embellished or false expenses.
  • Bribes and kickbacks – paying others for company information or favours.

How to reduce the risks of temporary hires

As a small business owner, you can take steps to reduce the risk of hiring temporary staff and keep your business safe.

1. Pre-employment background screening

Screening potential employees reduces the chance of hiring criminals or fraudsters. Don’t cut corners – it’s crucial that employers screen temps as if they are applying for a full-time position. We recommend you:

  • Run a DBS check to check for criminal records. Go to the gov.uk website for more information on these.
  • Obtain references from previous employment.
  • Interview each candidate thoroughly.
  • Use a DISC (Dominance, Influence, Steadiness and Compliance) personality test which can help to reveal typical behaviour.

2. Hire from current employee referrals

Hiring temps recommended by current employees can minimise the risk of hiring fraudsters or incompetent workers. However, this can only work if your existing employees are trustworthy. Another option is to re-hire former reliable temps.

3. Provide complete training

Training temps well reduces the risk of incompetent workers in your business and enables them to perform as required, helping your business survive the seasonal demand.

4. Withhold access to important company information

Restrict access to data and stocks. Temporary employees should not be given access to the same sensitive business data as senior executives, only what they need to fulfil their job function.

5. Use Anti-Fraud measures

Small business owners must proactively look to prevent fraud and have a series of anti-fraud measures in place including:

  • Employee training on how to stop fraud.
  • A company handbook on fraud.
  • A warning against fraud in temporary employment contracts, containing details of company expectations, as well as details of ‘fraud’, ‘theft’ and ‘bribery’ and the consequences of violating your terms.
  • Reward whistleblowers who keep a lookout and report any internal fraud.

Tax Agility is here to help small businesses in London

Small businesses in London really feel the pressure during busy periods when business transactions are higher than normal. While our small business accountants may not be able to recruit temp staff for you, we can certainly relieve you from bookkeeping and accounting duties, giving you more time to focus on your business.

Give us a call on 020 8108 0090 if you need a helping hand on:

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This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Small businesses

Small Business Saturday (7 December)

Small businesses

Supporting Small Business Saturday on 7 December 2019

With empty shops stand at a record high on our high street and in our neighbourhood, supporting the Small Business Saturday campaign has never been more critical. This year, we are doing our part to persuade small businesses across the UK to sign up for Small Business Saturday taking place on 7 December 2019. We are also encouraging residents to spend locally in independent shops.

Calling small business owners

If you run a small business, visit the smallbusinesssaturdayuk.com website to register and get listed on the Small Business Finder free of charge. You can also download the logo and marketing pack. If you have a plan for the day, share it with the organiser and they will announce it on their social media.

Calling shoppers

Use the Small Business Finder to find local shops near you and post photos of yourself supporting your local shops with #SmallBizSatUk. The smallbusinesssaturdayuk.com website also has a cook book which you can download.

Let us make a difference to support our local shops.


One hand holding a glass light bulb; several other hands holding money

Everything you need to know about crowdfunding

Glass light bulb and money in hand

Crowdfunding platforms connect businesses and investors, allowing ideas to develop and companies to flourish, but is it for you? Read on to find out.

The internet has changed many of the ways we do business and live our daily lives and unsurprisingly, it has also opened up new avenues in which we acquire fund or invest in things that interest us.

In the UK, crowdfunding is undoubtedly popular with hundreds of millions raised within just a few years. Businesses have used crowdfunding to launch new products and expand, while individual investors can now support ideas and hope that they can make more than what they have put in. It isn’t just for business too – artists, writers, filmmakers, as well as those in need can also use crowdfunding sites to raise fund.

In this article, we aim to discuss:

  • What is crowdfunding?
  • The four common types of crowdfunding
  • The risks of crowdfunding
  • Can investors get tax relief?
  • EIS and SEIS
  • Should you list your business on crowdfunding?

What is crowdfunding?

Crowdfunding refers to a method of raising finance by asking a large number of people each for a small amount of money. In most cases, crowdfunding takes place on an online platform where a business or an individual can create a campaign to raise funds.

If it is a business project, the company usually includes an overview of the business plan, details of the management, and the amount that they hope to raise. If you invest, you may get a reward (the finished product, for example) and/or some shares in the company. In some instances, you may also get your money back plus interest – this is also known as peer-to-peer lending. While there are investors who just want to support an idea (especially an innovative one), most investors do hope to make a good return on investment.

As crowdfunding allows anyone to present an idea to a large group of people, savvy business people also use the process to test out their ideas and gather insight.

Crowdfunding is also not restricted to new ideas or products – there are plenty of companies conducting a second or third round of funding to spur growth.

Then there is the humanitarian side – GoFundMe is the largest platform for this and it has helped organisers raise over US$5 billion to help someone in need.

The four common types of crowdfunding

1. Equity-based

In essence, you invest in a company and receive shares of the company in return. There are usually two types of shares on offer – with and without voting or pre-emption rights. If the company does well, your shares will increase in value and you make a good return when you sell them. However, if the company fails, you will lose your investment. Also, it must be said that the company involved may not issue shares directly to you, but to a nominee company (usually a company set-up by the platform).

2. Reward-based

A highly popular model, this will see you invest a small amount of money and receive a reward at a later stage. The size of the reward often corresponds to the amount contributed. For example, you may get an ‘e-hug’ for a £10 contribution or a finished product for a £200 contribution.

3. Donation-based

This model sees you donating money to a person, charity, community or cause without expecting any reward in return, except in knowing that your donation can help to make a difference.

4. Loan-based or peer-to-peer (P2P) lending

In this model, you lend a business some money and expect to receive the money back plus interest.

The risks of crowdfunding

  • The target amount may not reach
    Every project sets a target amount and if the project cannot attract enough investors before the deadline, then those who have already invested will get their money back, but the project will not be able to move forward.
  • The business may fail
    Investment is inherently risky, more so when young companies are involved. It is said that 30% of new businesses fail in the first two years of operating, so there is a good chance that you may lose your money.
  • Investors may not be able to sell the shares
    If the company remains unlisted, it is not easy to find another buyer to purchase the shares.
  • Dividends are unlikely
    If the company becomes profitable, it may distribute the profits to its investors in the form of dividends. However, most companies listed on crowdfunding platforms are in the early stages and they tend not to make enough to pay dividends.
  • The platform may fail
    In the UK, several notable platforms have gone bust, leaving both companies and investors frustrated.
  • Ideas may get stolen
    As companies get much attention on crowdfunding sites, it is highly possible that others may take the opportunity to copy and improve upon the original ideas.
  • Learning curve
    In most instances, companies involved do not issue shares directly to the investors but to a nominee company (usually a company set-up by the platform). Both companies and investors not familiar with this arrangement will need to educate themselves quickly.

Can investors get tax relief?

In the UK, the government has rolled out four types of schemes to help companies raise funds and they are:

  • The Enterprise Investment Scheme (EIS)
  • The Seed Enterprise Investment Scheme (SEIS)
  • Social Investment Tax Relief (SITR)
  • Venture Capital Trust (VCT)

Among them, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are specially designed for small companies with a higher risk to raise fund. How it works is that investors who purchase new shares in these companies can claim tax relief. If you are interested in this, keep a lookout for companies listed on crowdfunding sites with the words EIS or SEIS-approved.

Enterprise Investment Scheme (EIS)

Under this scheme, you (the investor) make an investment that is locked for a minimum of three years to qualify for the benefit. The scheme allows you to claim up to 30% income tax relief on investments up to £1 million per tax year, and you do not have to pay Capital Gains Tax if you sell them after three years. Here is a simplified example:

  • You invest £10,000 in a company and you can claim back £3,000 (30%) in income tax relief. You must submit the claim as part of your self-assessment tax return.
  • After three years, if you sell your shares for £20,000, you do not have to pay Capital Gains Tax.
  • In the event that the company goes bust, you can offset the losses against income.

EIS can get very complicated in practice, so it is best to call us up on 020 8108 0090 and discuss any questions you may have pertaining to EIS.

Seed Enterprise Investment Scheme (SEIS)

Similar to EIS, SEIS allows small businesses to raise fund easily by offering investors tax relief. But unlike EIS where qualified companies tend to be bigger (with less than £15 million in gross assets and less than 250 employees), SEIS is used solely by start-ups that are less than two years old, have less 25 employees and less than £200,000 in gross assets. The maximum amount a company can raise under SEIS is also limited to £150,000.

Under this scheme, the investment made is also locked for a minimum of three years. Here is a simplified example:

  • You invest £1,000 in a company and you can claim back £500 (50%) in income tax relief. You must have received an SEIS3 form from the company which you have invested before you can claim tax relief through your self-assessment tax return.
  • After three years, if you sell your shares for £2,000, you do not have to pay Capital Gains Tax.
  • If the company goes bust, you will receive some loss relief (which is a certain percentage of your investment multiple by your tax rate).

SEIS can also become complicated quickly, so give us a call on 020 8108 0090 and let us understand your situation first before recommending how you should go about claiming your tax relief and/or loss relief.

Should you list your business on crowdfunding?

If you have tried raising fund from banks and angel investors but without much success, then it is worth getting your business listed on one of the crowdfunding sites. But before you do that, it is best to answer the obvious question – why did your application get rejected in the first place? The people who will back your business on a crowdfunding platform are investors – meaning they are more likely to part with their money if they can see a good return on investment. So perhaps it is wise to spend some time to improve your product or service and make it more appealing before you list your business. Also, rewrite your business case if necessary.

Having said that, you must consider carefully what you can offer to your investors realistically. Will it be equity-based or reward-based? Perhaps a combination of both? If it is equity-based, do you want to have two categories of shares (with and without voting or pre-emption rights)? Do you need a nominee company?

Most importantly, the temptation to offer generous perks for larger investments is ever-present, so how do you know that you have inadvertently over promised your investors? These hard questions deserve clear answers from independent small business accountants at Tax Agility, and one of our small business specialists will be delighted to help you run through some figures and answer any questions pertaining to share structure.

If you would like to know more about funding options, this article The complete guide to business funding makes a good read.

Get advice from Tax Agility

Though it has a fair share of risks, crowdfunding has connected many investors and companies. It has helped companies turn their ideas into realities and facilitate growth. It has also given individuals like you and I a chance to invest and receive tax relief.

If you are a company director who needs help with numbers before listing your business on a crowdfunding site, or if you are an investor wanting to understand how EIS and SEIS can work for you, call your local London accountants on 020 8108 0090 use our Online Enquiry Form.

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This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


image of man jumping over a hole in the ground with a briefcase in hand

10 things to avoid when starting a business

image of man jumping over a hole in the ground with a briefcase in hand

According to the Office for National Statistics, just 41.4% of UK businesses survive after five years (Statistical bulletin: Business demography, UK, 2015). There are many reasons why companies fail, from running out of cash to inappropriate partnerships.

Entrepreneurs know that there are many factors contributing to the success of a business, from having a secured financial foundation to exceeding market expectations.

Whether you are a developer working on the next photo app, a solicitor championing the rights of individuals or a hipster opening a new café in the heart of London, chances are you will learn something new almost every day about your business, especially in the early stage.

At Tax Agility, our small business accountants have years of experience working with entrepreneurs across London, helping them to launch and grow their business with our extensive financial knowledge. It is through this process that we see our clients encountering common pitfalls that most start-ups face, so in this article, we aim to discuss the top 10 things you should avoid when starting a business.

The 10 common start-up pitfalls

1. Failing to choose the right legal structure for your business

Before you start trading, take a moment to select and implement the right legal structure for your business. This decision can determine the success of your business and should be made with the assistance and guidance of a professional advisor like our chartered accountants here at Tax Agility or someone with equal qualifications.

The reason is obvious: if you have set-up as a sole trader and the business has experienced some difficulties, creditors can come after you directly and take your personal assets. This is because as a sole trader, you have unlimited liability for business debts, given that there is no legal distinction between private and business assets.

Another thing to consider is that not all legal structures are taxed the same. Limited companies are widely considered to be more tax-efficient in comparison to sole trading and partnerships. This is because a limited company has a lower tax rate than personal tax. The corporate tax rate is 19% for tax year 2019/20 and 17% for tax year 2020/21. In comparison, the personal tax is 20% for basic rate and it quickly goes up to 40% and 45% depending on how much you earn.

As a director of a limited company, you can also draw a low salary and choose to use dividends to form part of your income, because dividends have a lower tax than salaries and they aren’t subject to National Insurance contributions, meaning your tax obligation is reduced.

2. Ignoring flat rate VAT

Flat rate VAT is welcomed by many start-ups who have an annual turnover of less than £150,000 in the first year because it simplifies your VAT accounting process and with less work on bookkeeping, you can concentrate on growth.

Essentially, this scheme allows you to pay a fixed VAT rate to HMRC and you keep the difference between what you charge your customers versus the VAT you pay to HMRC. You can’t claim VAT on purchases, however, except for selected capital assets over £2,000. To find out more about how this scheme works, you can read our article 'Understanding the VAT Flat Rate Scheme'.

3. Failing to take advantage of tax incentives/relief such as the Annual Investment Allowance

The Annual Investment Allowance (AIA) is a form of tax relief for UK businesses, and it allows you to deduct the full value of a piece of qualifying business equipment from your profits before tax.

It is possible to claim AIA on most machinery (see this Gov.uk page for the complete list). The AIA amount has been temporarily increased to £1 million between 1 January 2019 and 31 December 2020. The aim is to help small businesses get a footing in the business world. If you would like to know more about AIA, follow this link to “Annual Investment Allowance explained: Tax relief for small businesses”.

4. Failing to factor in all costs

You may have heard of stories from entrepreneurs who hastily left a permanent role to launch a business, only to realise that they cannot sustain the operation. In the UK, it is said that most start-ups spend over £22,000 in their first year on costs to get started – this amount excludes costs that are associated with business-specific activities like marketing and fulfilment. Because costs have a direct impact on company profitability, business owners must find ways to control them.

If you would like to understand different types of cost and learn the seven useful tips that can help you to manage costs, this article “Small Business: managing rising costs” makes a good read.

5. Failing to keep on top of cash flow

The moment you start to trade, the flow of cash coming in and going out of your business becomes a natural cycle that keeps your company going. Cash flow is an indication of your company’s health, and the beauty of it is that you can plan in advance to ensure that you always have cash in hand to meet any financial obligations. This plan, widely known as cash flow forecast, looks at projected expenses and income for the next 12 months and can include various ‘what-if’ scenarios.

In this article “Five ways to improve your company’s cash flow”, we explain what cash flow is and share five useful tips that business owners can use to manage cash flow. Follow the link to have a read, especially if cash flow is keeping you awake at night.

6. Failing to use the full potential of employees

In this day and age, both new start-ups and established small companies need employees who can adapt to the ever-changing market needs and are willing to take initiatives to see things through. The problem is not many employees possess that quality. At the same time, most start-ups and business owners do not have the time to review every employee constantly, leading to a greater disparity between company goals and those who are supposed to work toward achieving the goals.

Three common ways which you can use to help employees stepping-up to the challenge are:

  • Developing their decision-making abilities
  • Creating a supportive work culture
  • Training

Having said that, we are also realistic and must point out that not every employee can reach his or her full potential in this particular point of their career journey. If the weaker employees are causing stronger employees issues and if you are not doing something about it, chances are, the stronger employees will leave. So keep a watchful eye and make sure that your strong employees are supported and can continue to contribute positively.

7. Being wasteful

Most start-up owners would like to think that their operation is optimised, but in reality, waste and inefficiency are common in every business.

If you have bought a fleet of new vans ready to deliver goods or have splurged £200,000 on an e-Commerce site with all the latest bells and whistles before making a sale, then it is time to examine what the business can afford and create realistic growth targets.

8. Failing to outsource when the need arises

Outsourcing is one of the best ways to achieve higher efficiency without a significant commitment. Most small business owners outsource the IT and accounting functions as soon as they start trading, allowing the business to utilise experts in these areas without having to hire full-time staff.

At Tax Agility, we help entrepreneurs across London with accounting and tax-related services, so you can concentrate on running and growing your company. The areas we cover include accounting and bookkeeping, payroll, tax planning, VAT, and management consultancy. We provide these services without any hidden costs and in most instances, you only pay an affordable monthly fee.

9. Failing to network

“Opportunity knocks through relationship building.” A client told us this phrase and we love it. Networking, at its core, is not about making a temporary connection for the sake of making a sale. Instead, the focus is on building relationships. In London, there are thousands of networking groups which readily welcome new members. Start by visiting a few and seeing which one is best suitable for you. Additionally, attend trade shows and conferences to make new contacts.

Networking can be extended to online too. LinkedIn is ideal for entrepreneurs who want to create more connections. For more about networking, take a look at this article “How to grow your business: Networking”.

Bear in mind that reciprocity is key in networking. When you make a new contact, there is a potential for you to reach out to all the friends and business associates that the individual has made. Equally, you must be prepared to introduce your contacts to the individual too.

10. Not having a business mentor

Building a business from scratch is no easy task, and many entrepreneurs stay so focus that they develop tunnel vision. At this point, having a business mentor available to discuss various issues with you is highly beneficial. This mentor can be anyone who has years of experience running various companies – it could be a serial entrepreneur, a professional business coach, a turnaround specialist, or even a chartered accountant like us. This mentor should provide independent and objective advice, even though the advice may not be something that you would like to hear.

Areas that you may consider getting advice also vary and may include:

  • How to take your business to the next step?
  • What can you do to improve productivity and skills?
  • How to access additional funding?
  • What should you consider when developing a new product?
  • How to expand your business overseas?

Tax Agility’s accountants for small businesses

Launching a business is taking a big step toward realising your dream. At Tax Agility, we can support you and your business in many ways that can facilitate the process of building your business.

From establishing a limited liability company, preparing your accounts, answering tax planning questions, sorting out payrolls to controlling costs, our team of expert small business accountants is with you every step along the way.

We believe that your success is also our success, which is why we take the time to understand your business first. And with us working beside you, you can focus on other elements of your business endeavour. Contact us today on 020 8108 0090 or get in touch via our Contact Page.

This article was updated on 02/10/19.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Two hands shaking; people signing documents

The complete guide to buying a small business

Buying a small business can be a great opportunity or first step into the world of business without starting from scratch, but there are a few things you need to know before you seal the deal.

Small businesses

Every day in the UK, there are small business owners who are ready to retire or want to change focus, giving aspiring individuals a chance to buy an established business with an existing customer base.

Buying an existing small business is a serious investment. It comes with many benefits but it is not without risk. To prepare you for the journey, the small business accountants at Tax Agility aim to discuss the following issues in this article:

  • Advantages of buying a small business
  • Disadvantages of buying a small business
  • Assessing your strengths and requirements
  • Finding a business for sale
  • Valuing a business
  • Conducting due diligence
  • Making an offer
  • Signing a contract

Advantages of buying a small business

Buying an existing small business has many benefits, particularly if it has been well-managed. In general, the benefits include:

  • It is easier to secure finance when buying an established small business as lenders see less risk in existing businesses which have already generated income versus start-ups.
  • An existing business tends to have a healthy customer base and strong relationships with suppliers, along with equipment, stock, a working website and even intellectual property.
  • It is highly likely the existing business has staff with experience that they can share them with the new owner.
  • As the business is not starting from scratch, it also means it has cash flow.

Disadvantages of buying a small business

  • You will need to invest a significant sum of money to purchase an existing profitable small business. You will also need to spend on professional services including due diligence experts, lawyers and accountants.
  • You will inherit any issues the business has, anything from old equipment or an outdated website to quality problems. You are likely to invest a lot more to fix these issues.
  • The business situation may change, e.g the original owner might have purchased products from his family members at a discount and this situation is likely to change once you take over.

Assessing your strengths and requirements

Before you decide to buy a business, it is worth taking some time to assess your strengths and know what the business is likely to require of you. Ask yourself these questions:

  • How much money are you ready to invest?
  • Where will you get the money from? Our post titled "The complete guide to business funding" may make a good read.
  • What are your goals?
  • Do you have a preferred industry?
  • Do you have a preferred business model?
  • Are you mentally and physically prepared to work long hours to make the business succeed?

Finding a business for sale

Once you know that you are ready to purchase an existing small business, the next step is to visit a business broker and see what is available. Small business accountants like us may also help, as we work with businesses across London and our clients tend to let us know if they are planning to sell their business. Alternatively, you can find out from real estate agency listings, trade journals or even newspapers.

Research is key when you are looking to buy a small business. Our advice to aspiring individuals is not to take the seller’s word on everything that they say, but do your own research. Find out who their competitors are, talk to their customers and look through online reviews, talk to suppliers, research market trends, or even try out the business’s products or services.

Valuing a business

Nobody wants to overpay for a business, so it is important to find out what you are actually getting as part of the sale.

Generally, business experts value how much a business is worth based on its net worth (meaning the difference between its assets and liabilities), plus its potential to generate future earnings. In this day and age, factors such as a business’ social media reach may also be considered.

Conducting due diligence

In our opinion, due diligence is perhaps the most important process when you are ready to acquire an existing small business. Due diligence helps to give a true value of a business and identifies the associated risks.

Due diligence means you (the buyer) will investigate, test and verify the various claims made by the seller. Due diligence is done to protect the business interests of the investigating party, to ensure that claims are genuine, and to assess financial matters of the other party (such as assets, financial performances and pre-existing debts). To put it simply, due diligence is a way of ensuring that there are no nasty surprises waiting for you following the transaction.

Due diligence covers every business aspect including financial, taxes, intellectual property, licenses and permits, employees, employee benefits, environmental issues, material contracts, customer information, insurance, litigation, among others. Financial due diligence is best performed by chartered accountants, as it can cover anything from income statements, credit history, stock, to payment records.

Making an offer

If you are happy with the business and everything you have seen and reviewed thus far, it is time to make an offer. Unless the seller is desperate due to ill health or other factors, this negotiation process is likely to take a while so be patient.

Your offer should almost always be lower than the asking amount, then expect the seller to provide you with a counter-offer. Eventually, after many rounds of negotiation, you will either make an agreement by meeting at a middle ground, or either you or seller will decide not to go through with the purchase. One word of advice is, you should not get pulled past the value you can afford to pay.

Signing a contract

By now, you should have a solicitor working with you to draft up a purchase contract. It is increasingly common to include contingencies in the contract. For example, the purchase is subject to finance approval by a bank, or the contract bans the seller from opening a competing business in the same area for a period of time.

Tax Agility helps businesses get up and running in no time at all

At Tax Agility, our chartered accountants are small business specialists. We work with many small businesses in and around the London area to provide them with the expert advice they need to make good business decisions, along with accounting and tax services to keep their finances in check.

We work with small businesses at different stages of maturity from start-ups to long-established companies, including small businesses that have brand new owners in place. We provide vital consultancy services to potential buyers of small businesses – from business valuation to careful examination of financial records - to uncover any potential red flags buyers should know about before agreeing to a transaction.

After the deal is done, Tax Agility’s specialists can prepare annual business plans, provide forecasts, deliver projections and perform vital account management. We will also help sort out your tax situation, provide payroll services and offer VAT advice.

Our comprehensive service is tailored to suit the bespoke accountancy and financial needs of small business owners. To find out more about how we can help you as you look to take over a pre-existing small business, simply call us on 020 8108 0090 or use our online form to get in touch today.

This article was updated on 25/09/19.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.