What is Small Business Saturday?
Small Business Saturday UK is a grassroots, non-commercial campaign, which highlights small business success and encourages people to support small businesses in their communities.
This year it takes place on 3rd December. On Small Business Saturday, people across the country support all types of small businesses, online, in offices and in stores. Many take part by hosting events and offering promotions.
To celebrate Small Business Saturday this year, and showcase the best of small businesses across Kent, Sharp Thinking has teamed up with a series of local businesses, all of which can provide professional service support to small business owners.
The finance experts
The first business I’ve teamed up with is Maidstone-based accountancy firm Jameco Group.
Founded in 2017 Jameco Group began as a specialist tax consultancy but this year the business expanded its operations to form a fully integrated accountancy practice.
Jameco Group provides clients with year-end accounts preparation, VAT, personal tax, business tax, taxation advice, and bookkeeping and work with many start-up businesses.
Recently I caught up with James Wheeler, Managing Director of Jameco Group Accountants & Business Advisors to find out his top tips for start-ups operating in this tough economic climate.
Accounting tips for start up businesses
The last 3 years have been an eventful journey for start-ups and SMEs. The pandemic, initially seen as a threat to many small businesses, unleashed a wave of aspiring entrepreneurs. Business owners became creative, industries adapted and many flourished. In fact, half a million new UK businesses registered in 2020 despite COVID-19.
Those previously sitting on the fence decided to take the leap. Freedom, and working from home played a big part in this. A combination of government support, furlough, and time enabled side hustles to scale and flourish into full-time small businesses.
Almost 2 years on despite the economic slowdown, there's no stopping those wanting to start their entrepreneurial journey. Those wishing to succeed, however, need to navigate some common mistakes to ensure their business thrives.
For those individuals that have side hustles and are thinking of taking the plunge full-time, would you recommend they proceed in the current climate?
If you’re able to scale your customer base on weekends/evenings etc then it’s crazy to quit the day job instantly. It takes away the financial pressures of starting a business and you’re still on a salary either employed or freelance.
Any money you make from the side hustle you can put aside and when you've saved enough to cover 6-12 months' bills then you could consider going full-time. Also, you’ve already run the side hustle for a while so you’re not starting from scratch, building a network and word of mouth takes time!
What’s your number one tip you’d give a start-up beginning its journey?
Know your ‘Why’ when starting a business. One of my favourite quotes “Take the hill, but first answer the question. What is my Hill?”
Money? Freedom? Impact? Flexibility? Scalability?
If you’re scrolling social media and you see the property guru entrepreneur posing with his Porsche and this is your reason for starting a business, you’re going to be very disappointed.
There are no shortcuts, no ‘get rich’ quick schemes.
Start a business doing something you are passionate about, you'll be doing it 12+ hours a day, to begin with. If you hate it, you'll probably quit when you realise it's not easy.
Create a business plan, and stay focussed on your journey, nobody else’s. Most importantly, do not give up. These things take time, persistence is key.
What’s your advice on cash flow for SMEs?
Cash flow is a real problem for small businesses. Especially for those starting out, you need to ensure you have enough funds to cover costs until your business generates enough revenue to break even. Your biggest priority in the early days will be gaining sales and providing excellent customer service, being distracted by negative cashflow isn't ideal.
You also won't want to default on supplier payments, the trust you build will result in longer credit terms and larger credit facilities aiding cash flow going forwards.
Charging for your services upfront is the ideal world scenario or at least a proportion. This not only minimises bad debts, but it also helps your cash flow for things such as labour and materials.
Also, avoid contracts with 60-90 day payment terms if possible. I’m aware some industries such as construction are bound by these payment terms by the larger contractors. It’s a real pain, and irrecoverable debt tends to be higher amongst these contracts.
Equally staying on top of invoicing is key. Software such as Xero enables you to send automatic payment reminders. It's also so easy to raise sales invoices promptly. Invoice as soon as possible, have payment reminders set up, and an easy payment method. Register with GoCardless or Stripe, you can include the payment link on the invoice, this increases the chances of successful payments.
Businesses often see the VAT threshold as a barrier, what would you say to anyone concerned about registering for VAT?
This is common for B2C rather than B2B. Most businesses are VAT registered so they can reclaim the VAT you charge, nothing changes.
Consumers aren’t VAT registered, resulting in your price being inflated by 20%. This understandably concerns many small businesses when registering for VAT.
A problem exists where the economy is outpacing government allowances/thresholds. Let’s hypothetically say the £85,000 threshold doesn’t change for the next 4 years, it forms a ceiling over your business.
I try to encourage business owners to use the VAT price increase as a 'client cleanser'. Most consumers understand VAT is out of your control, if they're happy with the service they would rather pay that extra 20% than go elsewhere.
From my experience, the least profitable clients are also the hardest work, the ones that pay late, and squabble on price. Set them free, allowing you to focus your energy on expanding your ideal client base.
A big thing for small businesses seems to be offsetting equipment and vehicles against their taxes. Is it worth business owners speaking with their accountant?
Of course, a business is going to incur expenses whilst running their day-to-day operation and I’m a big fan of reinvesting profits. The key word here is investing, if you are planning on purchasing new equipment just to reduce a corporation tax bill it’s counterproductive.
Example: If you purchase a van for £30,000 and save around £5,700 corporation tax, that’s great, providing the van has a positive ROI.
If you didn’t really need the van, and now it's sitting in the carpark, you should’ve paid the corporation tax and your cash flow would’ve been £24,300 better off.
By all means, discuss future investments with your accountant, but make sure the asset will generate a return on investment.
We’ve all seen the TV ads for QuickBooks and Xero. How important is the accountant’s role alongside AI technology and automation?
Cloud-based software/automation is a fantastic tool for accountants and business owners. But it is exactly that, a tool. It needs a skilled professional to utilise its exhaustive list of features.
Some prospects have fallen victim to software sales teams “Buy this software it replaces the accountant” etc.
If you’d like to minimise accountancy fees, I would say it's handy for those wishing to complete their own bookkeeping. From the client's perspective, it’s weighing up whether their time is better spent on operational tasks.
It allows us to give clients real-time information on their business. Any issues can be flagged immediately, and preventive action can be made before serious issues arise. Gone are the days of a mountain of receipts until year-end. It's too late to make any change as it’s already past tense.
Should a start-up register as a sole trader or limited company. What would you recommend?
Well, in short, there's no right or wrong. Many different perspectives are considered regarding company structure.
A sole trader is so simple, just keep up to date on basic bookkeeping software, and file a tax return at year-end. You can either complete this yourself or contact an accountant. But it’s important to remember you are responsible for the trading debts as a sole trader, your personal assets can be ceased.
Limited companies are more complex, a separate legal entity. All assets and liabilities belong to the company, not you as the director. This is great from a limited liability standpoint. If your business enters financial difficulty, your personal assets (mortgage, cars, savings) are protected from creditors.
Limited companies are also required to register with Companies House. This increases your business's professional reputation as annual accounts must be filed. This allows potential stakeholders to establish if the business is legit, along with a correspondence address and a copy of their accounts.
Although the gap has closed in recent years, limited companies are more tax efficient too. This is achieved across multiple strategies including taking the optimum ratio of salary to dividends alongside careful tax planning. You will need an accountant though, company accounts are much more complex than a self-assessment tax return.