Business Planning, Finance and Employment Law

Last Monday saw our very own Joy Daglish give us a very interesting talk on business planning and finance.  Some of you will not know that before starting Special People North Joy was in fact a qualified management accountant.  In addition we were lucky enough to benefit from Natasha Jones's experience who joins us from Cheshire Employment Law and specialises in this field. 


Business Planning:


Before starting up a business what should you be thinking about?

1. Competition – market research. Were there other organisations out there doing what I was going to do?
2. Understand the barriers to entry –
    a. growth in the for the sector;
    b. costs - registration and insurance.
3. Decision on how to set up the organisation – should it be a Limited Company or a sole trader? How do you make the decision?

Limited Company – advantages:


• Limitation of liability - the company is a separate corporate body and liability for payment of debts stops with the Company - the owners, shareholders are not personally liable.
• Perception - Forming a private limited company is an indication that a business is both serious, has a long term objective and is correctly managed.
• Funding – more likely to be provided by a bank, also business forecasts and balance sheets exclude personal influences.


Limited Company – other issues:

• Tax –flexibility of being able to determine the proportions of salary and dividends taken.
• Accounts - must use double entry book-keeping to produce the year end accounts including a balance sheet with statutory notes and statements.
• Administration/ management


A company director statutory regulations limited company accounts, statutory books and management as stated in the articles of association. The duties of a director are more formal than a sole trader.
• Renumeration- how and when get paid

 Sole Trader – issues:-
• Simplicity - inform government agencies of your intentions to go self-employed, start trading right away
• Limitation of Liability


There is no distinction between business money and personal money - all business debts are the personal responsibility of the sole trader. This also means that should the sole trader not be able to make suitable arrangements to settle any debts the personal possessions (including the house) will be fair game to the creditors.


• Tax – You must register with HMRC as self-employed even if you already send in a tax return.
• Accounts - Sole trader basic accounts can be quite simple as a formal accounting system is not required ; lists of income and expenditure supported by appropriate back-up
• Funding – personal finance included in the decision process
• Administration/ management


A sole trader has more flexibility regard to the administration and management of the business


Employing People:


If your business grows and you have more work than you can do yourself then if you pay someone to help you may become an employer without realising it.


A person can be called self employed but be regarded as ‘employed’. There are 2 different issues which arise;


• For HMRC purposes treatment relating to tax and NI varies (see www.hmrc.gov.uk)
• Employees have many rights such as holiday, sick and maternity pay and the right not to be unfairly dismissed or discriminated against.


The basis on which a person is evaluated as employed or self employed differs whether it is for the purpose of the Law or HMRC. Also HMRC can consider a person to be self employed and the Law considered the same person to be employed.



Consideration relevant for a legal evaluation of a person’s employment status is using the example of a domestic cleaner;



• Does a Master and Servant relationship exist? i.e is the person told what to do, how and when? Is the worker controlled?
A. Cleaner is asked to work every Monday from 10-2 and told what needs cleaning
B. Cleaner dictates when she works and decides what to clean.


• Who owns the equipment used to carry out the work?
A. Cleaning materials, hoover, mop and bucket provided for the cleaner to use.
B. Cleaner brings her own cleaning material and equipment.


• Does the worker work for other people?
• Can the worker send another person in their place (substitution)

If there is a chance that the worker you use may be considered by the Law as an Employee then there are 2 important items to remember;



1. Whether Ltd or sole trader?exposure
2. After 12 weeks they are entitled to Terms and Conditions of employment (otherwise known as a contract).This is a very important document and should not be simply copied.
3. The Termination/exit of an employee can lead to number of claims for compensation. Therefore before dismissing a worker advice should be sought from an experienced Employment Lawyer.

Finance:

A lot of decisions can't be made without first having a full business plan including financial forecasts and a cash flow. But what is a business plan – why write one at all? What are the key things to consider and include?


• Why should you write a business plan?


Even if you do not believe you have a need for a business plan, think about it. Just writing it will make you think about EVERY aspect of your business, things you may not even have thought about and by putting all the issues on paper you will be sure you have covered every aspect of your business.


• What the plan should include


An executive summary - this is an overview of the business you want to start. It's vital.
A short description of the business opportunity - who you are, what you plan to sell or offer, why and to whom. You must by this stage have done your market research thoroughly.


Your marketing and sales strategy –


The competition and know why you think people will buy what you want to sell and how you plan to sell to them.
Unique Selling Proposition?
Your management team and personnel - your credentials and the people you plan to recruit to work with you.
Your operations - premises, facilities, your management information systems and IT.


Financial forecasts –
Level of sales. This will help the reader understand how many sales you must make to cover your costs, and also how much financing you must raise to start up
Start-up expenses in a period of uncertain sales volumes. If sales are on credit (including via credit card) it may take up to four weeks for you to receive the cash.
Implementing the plan


Finally, a plan - living document and contain specifics regarding dates, deadlines and specific responsibilities. It should be constantly reviewed and updated, as well as being used in regular “plan versus actual” discussions.
Taking actions and being accountable for them.
Winning business plan will help to ensure that the business is fully focused on what is required to achieve the company’s goals.


• The audience for your business plan –

Banks? Investors? Anyone interested in your business? This is a vital first question, once answered it will direct how you write it.