November 1999 - Small Business News

SMALL BUSINESS

 

5000 New Regulations for Small Businesses

 

The Labour government is on target to have of introduced up to 5000 business regulations, with most of these relevant to small business. The latest regulations: Working Families Tax Credit, Stakeholder Pension Scheme and the Student Loan Repayment Scheme will cost small business £100m to set up and administer. The British Chamber of Commerce says that small (business) employers are paying £279 a year per employee to administer PAYE, National Insurance, Statutory Sick Pay, and Maternity Pay. 

Source: Financial Mail on Sunday

 

BUDGET

 

Hewitt - New Equal Opportunities Guide for Small Firms

 

Patricia Hewitt, Minister for Small Firms and E-commerce, last week launched a new guide aimed at helping small firms deal with equal opportunities. The leaflet, "Equal Opportunities is Your Business Too", is designed specifically for small businesses. It has been prepared by the Equal Opportunities Commission, the Commission for Racial Equality and the National Disability Council. Ms Hewitt said: "Many small businesses don't fully understand what regulations apply to them and what they must do in order to comply. They need clear and straightforward information. This guidance will help to ensure good equal opportunities practice and reinforces the message that good practice makes good business sense.". Ms Hewitt launched the leaflet at an event at the DTI Conference Centre organized by the three equality agencies. The leaflet provides guidance on general good practice which can help small firms ensure that their employment practices keep within the law and improve their businesses. The leaflet is available from the CRE Publications Centre by telephoning 0171 932 5286. 

Source: Creditman Company Information, Company Formation and Searches.

 

CONTRACTS

 

The Bride Can Now Complain

 

The following is an extract of an article from Business Credit Management UK, and is a topical subject. 

 

REFORM TO THE COMMON LAW RULE OF PRIVITY OF CONTRACT CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 

 

The Contracts (Rights of Third Parties) Bill received Royal Assent on the 11 November 1999. The following example explains the benefits of the new Act. A wedding guest goes to a shop and buys the couple to be married a three-piece suite as a wedding present. It is made clear in the contract between the guest and the furniture shop that the suite is a gift for the couple. Soon after delivery it becomes clear that the suite is not of the expected standard. Under the rule of privity of contract the couple would not have any recourse against the shop because they were not parties to the contract. Any action against the shop for breach of contract would have to have been taken by the guest who was one of the original contracting parties. The Act allows the couple who received the suite as a wedding present, and who are third party beneficiaries of the contract between the relative and the shop, to take action against the shop for any breach of that contract. The new rule is not mandatory. A third party cannot rely on the Act where the contract makes it clear that the contracting parties did not intend that he or she should be able to enforce the contract. 

Source: Creditman Company Information, Company Formation and Searches.

 

(Ed: This means the original purchaser must inform the supplier - at the time of the order - that the goods are for a third party. If you buy a present, I would request the supplier to make an entry on the invoice/receipt to the effect that the goods are for a third party and who the party is).

 

TOPIC

 

Management Accounts

 

Part of the Credit to Cash software is a form called 'Management Accounts'. This form is the key to running a small business, however, surprisingly few of the smaller small business owners use it. As a help to small businesses, we have enabled this form No.36. You can  use this form as many times as you like. The Management Accounts form will work out how much your business is worth by taking into account Debtors + Stock + Cash, less Creditors and Preferential Creditors. The full Credit to Cash version will Save and Print all documents.

 

No knowledge is required, just fill in the boxes with easily obtainable figures. The figure at the bottom 'Business Net Worth' is the overall picture of your financial position. This figure does not mean how much cash you have, but I repeat, your overall position. 

 

The following is part of the on line help provided by Credit to Cash and further explains the role of Management Accounts: 

 

Management Accounts Form No.36: Your bank or other financial institution will expect a company that applies for funding to complete monthly management accounts and maintain a fairly detailed cash flow forecast. Figures can be approximate. 

 

Management Accounts:  It is important for the business owner to concentrate on core activity: be it sales, production, marketing etc. There is a clear line between a business owner who is fully aware and in control of the company's financial position, but concentrates on core activities: and the owner who spends too much time learning, updating, and monopolizing the accounting software package, to the detriment of the company's business. 

 

'Off the shelf' software has been available for many years. Some are 'child like' simple, most need a few days to pick up. Some (usually the expensive ones) give you far more than you need, or need to ever understand. You need a package that allows you to achieve and maintain both your business goals and accounting standards. I know of many companies who assess their solvency purely on the amount of cash at their bank! It seems to work; however, I have seen very little growth from those companies. When I visit them (to give them a financial health check), and I complete a one page 'management account' form, providing them with a 'bottom line figure', their guess of how much that figure should be is usually out by as much as 30%. This means insolvency is always a possibility. I do not doubt that many business owners have a 'feel' for their own company and instinctively know when trouble is 'around the corner'. 

 

Management accounts are perceived as a time consuming task 'better left to the accountant' once a year. For most businesses this is a fallacy. Obtaining the necessary figures is more about practice than time or skill. You do not need 100% accurate figures. You get used to, and experienced at estimating some of the figures (at least twice a year you should ensure your figures are as accurate as possible). 

 

Once you start building up a database of monthly information you will start to see trends. Trends are a business owner’s early warning system. When you have established trends you can identify anomalies when they happen, and not when they take a negative effect on your cash flow, sales, etc. You can make strategic decisions such as stock levels, debtor, and creditor levels (cash to credit). You can manipulate current needs, in the knowledge of future trends. The effect of such changes can drastically increase your cash flow and thereby reduce