Month: October 2011

Pruning Season

It’s the season where, as all good gardeners know, you need to get rid of the dead wood so that next years growth will be better and stronger.
In business it’s no different:
Take a good look at your client base and ask yourself which 20% are using up 80% of your resources and delivering so little to your bottom line?
Don’t get me wrong, this has nothing to do with whether or not they are really nice people or they add to you turnover figures – its just that they are abusing the relationship and that is not very healthy.
You need to take this time to either get them back on track or dump them over the side.
If you need to know how this can be done wait until the next installment…

Where do we want to be?

We have all heard the basic stuff about planning there are so many from quotes from Alice in Wonderland meeting the Chesire Cat through to the quippy “you don’t plan to fail you fail to plan” the problem with them all is that they are all correct!
So let’s start with the end.
You have, with a bit of luck, 10 – 20 years of self-employment and you have decide, not right now but eventually, if you want a larger company with employees or a smaller one that outsourced every non core element. It’s quite important to know where your risk profile sits and by this I mean at what point do you seriously lose sleep and eventually your sanity? To work this out we need to have dream not a fixed in one point dream but a flexible creative point which allows you to feel what success can be.

Travelling to Belgrade

Surrounded by slightly dubious opportunities to rid myself of my hard earned is always going to be a nightmare for me as I know I have a very low ability to avoid the emotional purchase.
Sitting in Terminal 4 shopping centre waiting to leave is a bit of a temptation too far.
I very nearly tried to talk myself into boondoggling my cash into Dixons for electrical goods and the duty free for booze and perfumes.
Sense has returned and I have kept the seal on my wallet intact.
I am flying off to Belgrade and was informed Monday that my flight two days later was going to be delayed and by how many hours – now that is some foresight an airline called JAT can tell me the future when others can’t even get the weather right. Now is this a Balkan type of insight given Vlad the impaler’s special skills is impressive. Let’s hope the pilot knows where we are going as well as that would be a bonus.

New Enterprise Allowance – use it or lose it the new deal-ish

A new scheme to encourage self-employmant is arriving in Jobcentres across the country on the 1st of August 2011. With little more than a week to go it’s not yet clear whether all Jobcentres will be ready. But, after earlier pilots and trials, the New Enterprise Allowance is scheduled to go live across the UK from the start of next month – making it available to qualifying unemployed job seekers.

Jobcentre Plus is in charge of the scheme because it is only open to people who have been claiming Jobseeker’s Allowance (JSA) for more than six months. NEA gives people who have been unemployed financial support for their early months of self-employment, access to a start-up loan, and advice and guidance from an expert business mentor.

That at least is the theory. But if you look in detail at what’s on offer it is hard to see much incentive to come off benefit and embark on the scheme – even if you are intent on starting a business.

What you get:

The NEA weekly allowance, worth £65 for the first 13 weeks, then payable for a further 13 weeks at £33. You can also get a start-up loan of £1,000 to help with start up costs, but this of course has to be paid back. Depending on your household circumstances, which takes into account the income of anyone you live with, you might also be able to open a claim with HMRC for working tax credit.

What you lose:

Jobseekers Allowance. You must close your claim to JSA in order to get the New Enterprise Allowance weekly payments and loan. Jobseekers Allowance is currently worth £67.50 per week, or £105.95 for a couple. This goes on indefinitely as long as you are available for work and comply with some other conditions. In fact these conditions permit you to work up to 16 hours a week on a business and keep your JSA claim open, as long as you declare your hours and earnings.

On the face of it then there doesn’t seem to be much incentive to close down a JSA claim and take the risk of going on New Enterprise Allowance. In a mere three months you could be worse off and owing money. And after six months the allowance ceases entirely.

If you expect your business to take off slowly this doesn’t look like an attractive option – remaining on JSA but keeping below the 16 hours limit would be safer financially. The New Enterprise Allowance only looks attractive to people who have a venture they are sure they can get into profit quickly. Within six months you would need to be making enough profit to allow you to take an income from the business above your current benefit level. Realistically this isn’t going to be the case for an enormous number of people.

But let’s wait for all the details to emerge and the public response before condemming the scheme. The idea of using self-employment to get people off benefit is not the problem – PRIME itself believes in it. But the money to make it a practical proposition for a whole lot more people is lacking from this scheme. The New Enterprise Allowance is unlikely to make much dent on the unemployment figures, which is what it was set up to do.

Year 5 business be damned

Okay you have promises from contacts orders are being processed and you will have the money by the end of the week phew but until then how will you live a quick glance into the wallet and we are into breaking the rules we have maxed out the overdraft which is guaranteed by the family home and now the drastic plastic is flexed. Spending only until the end of the month then it will be paid back. Then watching the local news you see the directors of your new client being escorted by the local constabulary into the back of a Black Maria they have been arrested for fraud!!
So sitting there with your head in your hands crying out that “Its just not fair” and do you know what? It isn’t!
Where does this leave you now?

This is Just a story but it explains why most small businesses fail in year five; the money has run out, the family has run out, and the orders haven’t come in. So what can you do to stop this happening to you?

80% Towards Insolvency

Year Four, don’t let the family find out!
This year it’s the kid’s college fund that takes a battering and low and behold they don’t really need a substandard degree. They can always do better if they take an apprenticeship or they could take out a Student Loan and eventually pay it off just before you retire if you can afford it. This is a delicate time if the partner finds out it could be curtains for your ambitions so best just keep at it and ignore the lack of business as it is starting to come in dribs and drabs but not enough to feed a hungry caterpillar. Kid’s money’s all gone so we’re focused onto Year 5

Year Three of the “planned” collapse…

We will be getting a bit of work in now; but for the old wage earner it seems that running a business and paying professionals to get going leaves you with less than the minimum wage. Which if you think about it, is only legal if you own and run a business.
You look back at your acquaintances who think you are having the time of your life playing golf or playing with the kids whenever you want – a real life of ease. In reality you sweat yourself awake for long periods in the cold grey night worrying if you should tell your partner that we are moving to a much much smaller place. However; on the good side those big orders promised are just around the corner, the redundancy money is a small stain left in the bank account, but then you could borrow from the savings and holiday fund as long as you put it back when that big order comes in. Who is lying to who here?
But like all things when it comes down to it that big order coming good was more hope than judgment and it you’ve just heard that it went elsewhere to someone who has a minimum of three years accounts; which you so obviously don’t.
One small mercy is that you have not earned enough to pay any tax and the accountant informs you that you should be able to carry over this years loses to next year when you will make a profit. Anyway you loaned the company your money and now you are the largest creditor so if it goes down it now takes you with it…

Taking in the air

Year 2 Survive the first year.
Survival seems likely, as the usual stage in that first year is that you survive on your redundancy payout and live a frugal life but, you have not established yourself yet, people still don’t who you are and will be missing out on business that would have been yours in normal circumstances. These are not normal circumstances. Regardless of the fact that 51% of the business registered in companies house (and these are only the limited liability ones) are SME’s and the 90% of those have a turnover less than £50K per year; starting your own business is NOT a normal thing to do in the UK, most individuals work for someone else and that matters. Now we will probably reach the end of the year and have to do a set of accounts which will mark a steady downhill slide into the Tax and red tape abyss which constrains and bleeds most small businesses to death.