A good video to watch if you are considering starting or buying a business or if you have a business and you are looking for some inspiration.

The BBC’s TV series Dragons Den has found and inspired many successful business owners and in this first video the focus is on Duncan Bannatyne – Success stories in business.

If you are looking into how to start a small business this article is designed to give you some pointers of what you should be looking at in the Start-up stage of a business – at this stage in the life cycle of a business the considerations and planning needed fall into the following categories:

- Decide on whether to should I buy a business or set up a business from scratch or even buy a franchise business. There are relative merits of each route, as discuss in the article link here. A franchise is a good route to take where you are seeking banking finance, as banks like franchises.

- Decide on a name for the business - if you are starting from scratch, you must then consider protecting your name and of course your idea if it is an invention by using the patent protection process. Be very careful with this, as you cannot protect an invention via a patent if the idea is within the “Public Domain”, so don’t go telling people down the pub about your idea until it has been protected, this that would be deemed in the public domain.

- Decide on business bankers – I always suggest that you begin this with meeting up with your personal bankers, as you have a track record with them, which can help in the process here. However, always check around for the best deals on free banking for new businesses.

- Start-up finance required and do your business plans and cash flow forecasts. Whether or not you are looking for start-up finance you should prepare business plans for your business together with some cash flow forecasts. However, if you are looking to seek finance from a bank then a well written business plan is important which must be accompanied by properly prepared cash flow forecasts.

- Choose your business location – depending upon the type of business you are setting up the location may or may not be crucial or you may even be able to start it from your living room at home. However, if you are going into retail the location is one of the most critical decisions you make to get the necessary foot-fall.

- Decide upon a business structure – there are various trading structures for a business ranging from a sole trader to a limited company and the best route to take is discussed in types of businesses and setting up in business.

- Equipment for the business – even the smallest of small businesses requires some equipment and you need to decide how you buy or lease this. If you are looking at some major capital acquisitions you might need to lease or finance these to help with business cash flow. There are tax implications with how you acquire assets and you might want to take these into consideration, but never let the tax tail wag the commercial dog – in other words make your decisions based upon the commerciality of the idea and not the tax implication, but consider it within the overall commerciality of what you are doing. For example, governments sometimes encourage business to buy assets by giving away what is called first year allowances of up to 100% of the capital cost. This means that you would get 100% tax relief in this example for the purchase, whereas if you lease the item you would only get tax relief on the lease payments paid in the year.

- Get Licenses and Permits – certain businesses require licences and some need to have a permit before trading commences. For example if you are about to set up a pub or restaurant with a drinks licence (or buy one) then you will need to obtain a drinks licence.

- You might want to find a Mentor – A business mentor is invaluable and to have someone as a sounding board is a great asset to have. Never under-estimate the learning curve when first starting out on the “Going into business route” and to have someone to talk to is always a bonus. I used to spend many hours talking with my clients in my accounting practice about business “Problems” and how best to expand or how to finance assets or whether to move premises etc. Running a business on your own can be a lonely experience, so any support you can get from fellow businesses owners should be taken up.

The falling gold price was halted this week and saw a shift in the up-ward direction again closing at $914.10 per ounce which is up by 5% on the week.

One of the biggest currency movements this week was with the Japanese Yen with Sterling weakening by 3% against the Yen closing at 141.956 and the US Dollar dropped by 2.4% in the same week.

End of the week saw:
Stock exchanges:
FTSE 100: 4,156
DOW: 8,076
S&P: 866.23
Nikkei: 8,708

Currencies
UK Sterling £ to US Dollar $ 1.46677
UK Sterling £ to Euro € 1.10805
UK Sterling £ to Japanese Yen 141.956
UK Sterling £ to Aus $ 2.03524
US Dollar $ to Euro € 0.755327
US Dollar $ to Japanese Yen 96.7912
US Dollar $ to Aus $ 1.38694

Commodities
Nymex Crude oil – $51.55
Gold – $914.10

Getting the money for starting a business is a stumbling block that many budding entrepreneurs face at the out set.

The first question to answer is should I buy a business or set up a business from scratch with each route having its own complications from a fund raising perspective. If you are starting out from scratch you have the added problem that you have no track-record in business and the business itself will have not trading history.

However, if you are looking to buy a business or perhaps set up a franchise then this is a slightly different proposition in that and existing business will have a trading history and franchise are liked by banks because they are a know quantity. You do still have the slight problem that you have no business track record, but this can be overcome with a sound business proposal.

There are many ways to find finance using No Money Down principles and in addition to this there is also the Enterprise Finance Guarantee (EFG) (Formerly the Government Small Firms Loan Guarantee Scheme, SFLG) to secure any loans, where you don’t have any of your own security. However, the proposal must be robust that would get a loan from a bank except for the lack of security. The EFG is for small businesses with a turnover of less than £25 million in the last 12 months and can be for existing businesses as well as start up ones, so long as they start to trade in the near future.

For a list of the banks that lend using the EFG you can visit the BERR – The Governments Department for Business Enterprise & Regulatory Reform.

The EFG will guarantee loans of between £1,000 and £1,000,000 and will only provide security for 75% of the loan and comes with a 2% premium payable to the BERR on the balance of the loan on a reducing balance basis. However, this premium has been reduced to 1.5% of the loan outstanding for 2009. EFG loans can be used to replace existing overdraft facilities or provide new finance for working capital, equipment and business expansion, with a minimum term of three months and a maximum of ten years.

Click here for a list of EFG restrictions

If you run a business or if you are looking to buy a business then it is not only important to understand the Profit and Loss Statement, but also to understand the Balance Sheet. This post is about understanding the basics of a balance sheet.

So whether you are in the UK or America, which have differing ways of representing a balance sheet, it does not matter really, but what does matter is the figures on the report and what they mean.

Essentially a Balance Sheet is made up on three elements – Assets, Liabilities and the Capital and Reserves – each of which I will explain further.

Balance Sheet Assets

Assets can be broken down into two sections and on a balance sheet these are termed – Fixed Assets and Current Assets. Fixed assets tend to be long-term assets and would include such things as freehold property and long-term leases (normally a lease of over 50-years). Other fixed assets include the assets needed to run the business, like plant and machinery, vehicles and office furniture, fixtures and fittings.

Essentially, Fixed Assets are those assets that cannot be converted into cash too easily or are termed illiquid – we all recognise that to convert a property into cash may take several months and especially with commercial property. Smaller assets, like motor vehicles are a bit easier to convert to cash, but it may still take some time to do so.

Current Assets are those assets that are more readily converted into cash and are term “Liquid Assets” and of course does include cash itself, which is either in the bank or cash in hand in the petty cash tin. Other current assets include “Trade Debtors”, which is the amount owed by the businesses customers and stock.

Balance sheet liabilities

Liabilities or creditors are those amounts that are owed by the business to a third party and are normally broken down into two types – Amounts Falling Due within One Year and Amounts Falling Due After One Year.

Amounts falling due within one year or short-term liabilities would include amounts owed to the businesses suppliers or “Trade Creditors”, as these are usually paid within weeks or months or when the liability is incurred so are deemed to be short-term. Other short-term liabilities would include payroll liabilities, short-term loans, the amounts of hire purchase agreements contracts falling due within the next 12-months and so on.

Amounts falling due after one year would include, longer-term loans and the amounts due on hire purchase agreements due after one year, plus any other liabilities that do not fall due until after 12-months.

Balance sheet capital and reserves

The reserves on the balance sheet would mostly include the cumulative profit and loss that the business has made to date and the capital is represented by in the case of a limited company the share capital or the amount put into the business in the first place when it is set up.

An example balance sheet is shown below:

XYZ Company Balance Sheet as at 30 April 2009
	£	£
Fixed Assets		75,000
Current assets
Debtors	25,000
Stock	12,000
Cash at bank and in hand	45,000
	________
	82,000
Creditors:
Amounts falling due within one year	38,000
	_______
Net current assets		44,000
		______
Total assets less current liabilities		119,000
Creditors:
Amounts falling due after more than one year		25,000
		_______
		94,000
		======
Capital and reserves
Share capital		100
Profit and loss account		93,900
		_______
Shareholders funds		94,000
		======

Understanding a balance sheet

In the above example balance sheet there are a few things to explain and understand, as follows:

This particular company has fixed assets of £75,000 and if you were looking at this business with a view to buy it you will need to get a breakdown of these fixed assets and what they are and are they in fact worth the amount shown on the balance sheet.

The next important figure and one that is pivotal to a business and its balance sheet is the “Net Current Assets” figure, which in the above example balance sheet is £44,000. This is the difference between the businesses total current assets and total short-term liabilities (or those falling due within one year) and defines whether or not the business is solvent or not.

You would need to be worried if the current liabilities exceed the current assets – i.e. Net Current Liabilities and would imply that the business is in real difficulty and should all the short-term liabilities be called in the business would not be able to meet these and might then fold or be forced into liquidation. The term “Liquidation” is referring to the converting of assets in to cash – as noted above it was discussed about either illiquid or liquid assets and in general termed “Liquidity“, which itself refers to the ease at which an asset can be turned into cash.

You would also need to be a bit concerned if the net current assets figure was very low, as this might be an indication of a business starting to get into trouble. I would suggest that in our example XYZ company has not only got a comparatively high level of net current assets in relation to the short-term liabilities, but the cash balance of £45,000 is good.

The other relationship to pay attention to is the difference between Total Assets (Fixed assets added to current assets) and Total Liabilities (liabilities dues in less than one year added to liabilities due in more than one year) and in the above example this is £94,000 and is equal to the total capital and reserves. It is essential for a healthy business to have its total assets exceeding its total liabilities, which would normally indicate a profitable business or one whereby the owners have put in sufficient capital for the business to continue through start-up.

A profit and loss statement explained so that if you are new to business you can understand how this works.

The basics of a Profit and Loss Statement is that the report begins with “Total Sales” disclosed net of Value Added Tax (VAT). The next figure to appear on the report is Cost of Sales or in other words, the amount that it cost you directly to make the “Total Sales” in the period under review, net of VAT and net of opening and closing stock.

The resulting figure after deducting Cost of Sales from Total sales is the businesses Gross Profit and these figures are referred to as the “Top Line” – an example of the “Top Line” figures is, as follows:

 

XYZ Company Profit and Loss Statement for the period ended 30 April 2009
	£	£
Total sales		340,000
Cost of sales
Opening stock	11,000
Purchases	120,000
Closing stock	(13,500)
	_________
Cost of sales		117,500
		________
Gross profit		222,500
		======
Gross profit margin		65%

In this example XYZ Company’s gross profit is £222,500 and the Gross Profit Margin is 65%, which is calculated as £222,500/£340,000 and means that for every £100 worth of product or services sold the business makes £65.

The company’s gross profit is the profit that goes towards paying the overheads and expenses of the business, so it is crucial that a business makes a gross profit otherwise the owners might as well shut up shop and go home. This might be like stating the obvious to some people, but believe it or not, in my time of consulting with businesses I have come across businesses that are making a gross loss and they wonder why they are in so much debt!

The second part of your Profit and Loss Statement is what is known as the bottom line figures, which includes the businesses overheads or expenses. The overheads include expenses such as employee wages, rent and rates, telephone charges, marketing and advertising costs, printing and stationery costs, bank charges and loan interest and so on.

The overheads are those expenses that arise whether or not the business makes any sales – so for example, where the business rents it premises the rent will need to be paid each month regardless of whether the company makes any sales or not. This is how these costs are distinguished from the businesses cost of sales, whereby the cost of sales are only incurred as the business makes sales and except for buying the initial stock, if no sales are made then the business will not make any purchases.

A further example of a profit and loss statement which includes overheads is shown below:

XYZ Company Profit and Loss Statement for the period ended 30 April 2009
	£	£
Total sales		340,000
Cost of sales
Opening stock	11,000
Purchases	120,000
Closing stock	(13,500)
	________
Cost of sales		117,500
		________
Gross profit		222,500
Overheads*		150,000
		________
Net profit		72,500
		======
Net profit margin		21.3%

* Normally the overheads would be split out to show each expense as a list, but for simplicity in this example I have amalgamated this figure into one total.

When you deduct the overheads from the Gross Profit you get the businesses Net Profit or if the overheads are in excess of the gross profit the business would be suffering a net loss. This is okay and is normally expected with a new business for the first year or so, until the sales are to a level that produces a high enough gross profit which exceeds the overheads.

The businesses Net Profit Margin in this example is 21.3% which is calculated as £72,500/£340,000. You should really be aiming at a Net Profit Margin of upward of 10% really, especially in a small business scenario. To learn how to improve your businesses Net Profit Margin you can take a look at the Profit Increase Software.

If you are new to business and need some help then by all means email me at info@in-business.org.uk and I will try to answer any questions you might have. Alternatively, you can visit my Business Forum and post your question there and join the business discussion.

It is said that Obama is rushing to make America a dead-end Nanny State and now with this latest true “labour” budget the UK is heading down the same “Nanny State” route!

The UK Government have truly lost the plot now – what a great idea – Tax the rich and give away £1,000 for people to buy a new car, which not only goes against the “Green Idea” but props up the car companies that are running inefficiently and don’t need a government hand-out! I note that they have committed Britain to cut carbon emissions by 34% by 2020, when the present Cabinet will be long-gone.

The Budget revealed Income Tax for those earning more than £150,000 to rise to 50% from April 2010 together with tax relief on pensions to be reduced for the same high earners from April 2011.

The Chancellor has gone against Labours original pledge of “Not to increase taxes” when they came to power, but Alistair Darling has said that “during these extraordinary times, extra ordinary action needs to be taken“. What he omitted to say with his comments was that he and the rest of the Labour Government have slaughtered the UK economy, with record debt and total mis-management! Also, I missed his apology, perhaps I was not listening properly! What he is failing to recognise is that due to their excessive over spending on the public sector, they have significantly added to the present problem and instead of simply pointing blame elsewhere, they should own up and give up No. 10!

Of course some will argue that the new cars are more CO2 friend, but quite frankly this is total rubbish when you factor in the damage done to the climate through the manufacturing process to build these new cars. I would have more sympathy for this idea if the £1,000 was to go towards the new fuel efficient low carbon-emmission cars.

Why don’t the government recognise that they have truly messed up the UK economy and resign gracefully!

This was a true Labour government budget – it has taken them a few years before they went back to their basics of borrow and spend and ”Tax the Rich to Give to the Poor“, but this time it’s not just to the poor it is also to the “Rich” car manufacturers, but more importantly to pay for their blunders and negligence.

The Government are to increase public sector borrowing by a further £175 billion this year, as confirmed by the Chancellor in his budget – this is a record borrowing figure.

Do the Chancellor and the Prime Minister not realise that the guys they are taxing to the hilt are the ones that go out of their way to set up businesses and create employment. Employment creation makes an economy and provides the resource to pay the taxes through Pay as You Earn (PAYE) and in turn keeps the economy going.

The nanny state moves not only include the car give-away noted above, but also Government support for the economy to protect 500,000 jobs and extra support for people who have been out of work for 12 months through the flexible new deal, plus from January all the under-25s out of work for a year will be offered a job or training place with extra money on top of benefits for those in training. Not to mention the extra £250m funding to help people get work experience in growth industries and extra funding to create 54,000 new places in sixth form education.

And that’s not all the new scheme to guarantee mortgage-backed securities to boost lending on property together with an extension of a year on the Stamp Duty holiday for homes up to £175,000. The Chancellor has also pledged and extra £80m for shared equity mortgage scheme to help boost the housing market and a further £500m to kick-start stalled housing projects, including £100m for local authorities to build energy efficient homes.

The time limits for delivering limited company accounts to Companies House has been reduced by one month at the same time penalties for late delivery have been increased.

For private Limited Companies and Limited Liability Companies (LLPs) with accounting periods that begin on or after 6 April 2008 will have to file accounts with Companies House within 9 months, instead of the prior 10-months. For public companies with the same accounting period start date the filing deadline has been reduced to 6 months instead of the previous 7.

Late filing penalties from 1 February 2009 have been changed to:

How late are the accounts delivered	Private Limited Companies and LLPs	Public Companies
No more that one month	£150	£750
More than one month but not more than 3 months	£375	£1,500
More than 3 months but not more than 6 months	£750	£3,000
More than 6 months	£1,500	£7,500

Double penalties

Where companies with an account period that began after 6 April 2008 or LLPs after 1 October 2008 failed to comply with the filing requirements in the previous financial year the above penalties will be double that shown in the table.

The most notable change happening right now is the fall in the gold price and for the fourth week in a row the price has fallen and fell a further 1.5% this week to end the week at $869.80.

Since our week-end report of 21 March 2009 when the gold price was $954.20, it has fallen by 8.8%.

All the share indexes were in positive territory this week too, with all our reported indices closing up on the week.

End of the week saw:
Stock exchanges:
FTSE 100: 4,093
DOW: 8,131
S&P: 869.60
Nikkei: 8,908

Currencies
UK Sterling £ to US Dollar $ 1.47845
UK Sterling £ to Euro € 1.13395
UK Sterling £ to Japanese Yen 146.744
UK Sterling £ to Aus $ 2.05083
US Dollar $ to Euro € 0.767224
US Dollar $ to Japanese Yen 99.2556
US Dollar $ to Aus $ 1.38715

Commodities
Nymex Crude oil – $50.19
Gold – $869.80

Key Performance Indicators (KPI) are financial and non-financial measures used to help a business define and evaluate how successful it is and are used to monitor how the organisation is doing.

Another term for KPIs is Key Success Indicators (KSI) and any business that uses KPIs is one that certainly has an advantage over businesses that don’t. What you measure you can manage and each business needs to choose which KPIs are key to the performance of the business and those performance indicators that will have a major impact on the business if they are improved upon.

So what exactly is a KPI – the best way to answer this is by way of an example:

Client Conversion KPI

A KPI that is key to any business is it’s conversion of enquiries into actual clients, so for example if you are currently getting say 30 enquiries per month and you convert 10 of those enquiries into clients, then your KPI is 10 divided by 30, which equals 33.33%.

By having this percentage you now have a target to beat, but more importantly, by acknowledging your conversion rate as being 33.33% you can take steps to look at why it is this low and take action to make improvements.

A first step might be to make contact with the 20 out of 30 enquirers that do not become clients and ask them why this is. By asking your potential clients you will find out what it is you can do to improve upon this KPI. By taking action you will get more clients from those that enquire about your products or services and improve your Client Conversion KPI.

Average Revenue per Client KPI

Another example and also one that is both relevant and key to all businesses is the Average Revenue per Client KPI. Let us assume that you presently have an annual turnover of £550,000 and on average you had say 2,500 clients in the same year. Your Average Client Sale is £550,000 divided by 2,500, which equals £220, which represents your Average Revenue Per Customer KPI.

As with the first example, once you know what the average spend of your clients is you are able to address ways in which you can increase their spend, thereby Increase Business Profits.

There are KPI’s that are non-revenue related, for example:

Employee Retention KPI

If a business has a high employee-turnover this will be very costly to the organisation. Therefore, if you can keep your employees for longer periods and thereby reduced employee-turnover you will drive down costs and save time, by avoiding unnecessary interview and training time involved in replacing every new employee.

To get your Employee Retention KPI you take the number of employees that you lost over a given period (lets say you lost 5 employees over a 12-month period) and divide this by your total employees over the same period (let’s say that this was 20) therefore, your KPI in this instance would be 25%.

Once you have your Employee Retention KPI you can take the necessary steps to change this and make improvements and one such step would be to carry out Employee Exit Interviews and ask them for reasons why they are leaving your organisation. By performing Employee Exit Interviews you will discover a lot about why your staff are leaving you and then take steps to reduce this KPI and save the company money in the process.

So to begin on the road of business success you need to start Developing key performance indicators.