Ian Sanders Chat from Business N2K on Vimeo.
Here is a talk with Ian Sanders (entrepreneur, writer, published author and all round ideas guy) on business, entrepreneurship, story-telling, productivity, education and making it as a successful business in 2013.
Please note that this talk was recorded back in Feb 2013 and is now released having solved some technical issues – entirely my fault ;)
It is easy to forget that many new companies can still apply for the national insurance holiday on new recruits which is available until 5 September 2013.
Get more info here.
What is it that makes some businesses far more successful than others?
In the years I have worked with successful fast growth companies I have seen the following traits displayed by each of them
1. Think BIG
These highly successful fast growth companies may start out small but they think big from day one. This may be evident from their aggressive growth targets; their fearlessness in competing against companies 100 x bigger than them; or how they organise themselves internally with CEO, CFO, CMO etc titles.
2. Cover bands don’t change the world
Their mission is crystal clear. They know what they want to achieve even if they’re not exactly sure how they will make it happen – yet. To be another “me-too” business is not an option. The mission is sometimes disruptive in existing markets; sometimes a new slant on existing markets or other times striking out into completely new blue ocean markets. Having a clear mission that cascades throughout the organisation allows for decisions to be made quickly: “Does this move us closer to our mission / goal / objective – Yes or No?”
3. Give me a lever long enough and I’ll move the world
The business must be scalable if it is to continue on its growth trajectory without sacrificing the majority of its profit margin on more people, materials etc. Achieving scalability is different from business to business but every successful business has a plan for profitable scalable growth.
4. Clients’ interests are always put 1st
No matter what internal protocol says, if a client is unhappy they will go the extra mile to put it right. There is no navel gazing. They treat every client like it is their only client. I use the word ‘client’ rather than ‘customer’ deliberately – a customer may be viewed as transactional – a ‘one-off’ – whereas a client is a long-term relationship. These successful companies want clients.
5. No need for corporate values charts
Every member of the team is an embodiment of the culture of the organisation in the way in which they act every day. I am not sure if this stems from the fact that the founder(s) of the business are directly involved in the recruitment of new staff in the early stages and therefore recruit only those who understand and resonate with the mission of the business? Whichever, it works as you will often hear clients or suppliers reflect “Where did they find staff like that? They were so keen, so helpful, so eager to please – it was a pleasure working with them”.
6. Invest in many small bets
They know that if they are to grow and respond to changing market needs they will need to take risks and try new stuff. Trying new stuff costs time and money. Staking the future of the business on 1 new idea, product or service is folly – the walls can crumble in an instant if the project fails. So rather than sit tight and do nothing, these highly successful businesses try lots of little projects and test them with the market. If the feedback is positive (and cash is being received) then they can invest little by little into these little bets until they have a fully fledged new offering.
7. Dynamism is built into their DNA
It seems like there is a constant feedback loop going on in the business. Client-facing team members share successes and failures internally with lightening speed. Advances in technology allow these businesses to observe and listen to client needs. Tweaks to products and/or services are made on a daily basis. There is no standing still. Ever.
Taxes (Photo credit: Tax Credits)
If you are looking at starting a new hi-tech venture then the timing has never been better in utilising the latest available UK tax incentives.
Consider a scenario where say 4 enterprising entrepreneurs are looking at building a new state of the art technology platform.
They budget it will cost c£1m to get to market but know they can prove the concept with c£100k-£150k.
But there’s a problem – cashflow is tight….
This is where a bit of forward tax planning can help.
Firstly, they could set up a new company to undertake the venture. They could then structure the shareholdings such that no shareholder and director has more than 30% of the shares and subscribe for shares under the Seed EIS Scheme (SEIS). The company would need to obtain certification that it is SEIS qualifying and it would be well advised to seek advance assurance from HMRC.
A company can raise £150,000 in total under SEIS so each of the four shareholders could subscribe £37,500 for 25% of the ordinary shares.
Under SEIS, each shareholder would be able to reclaim 50% income tax relief on their investment – so £18,750 income tax relief could be claimed by each shareholder amounting to a total £75,000 tax saving.
But there’s more….
The company could use the funds to engage in a qualifying SEIS trade of preparation for a trade by carrying out R&D activities. The R&D work could fall within the R&D tax credit regime which allows for a 125% uplift in qualifying spend for SMEs and capacity to claim a tax refund in situations where the company is loss-making – this will almost certainly be the case based on our facts as the company is pre-revenue.
So say the company invests the £150,000 into qualifying R&D in its first year then the company would be eligible to deduct a further £187,500 for tax purposes i.e. 125% * £150,000.
The company would suffer a tax loss of £337,500 and could either carry this loss forward to offset against future taxable profits or it could elect to surrender the tax loss in return for a tax refund. The refund is restricted to 11% of the enhanced R&D tax spend which equates to £37,125 cash back from HMRC.
Once the SEIS cash has been exhausted they can seek further funding under the less favourable (but still hugely attractive) Enterprise Investment Scheme (EIS). Further R&D tax credits should be available in later years too whilst the R&D activities continue.
So our new venture has succeeded in deploying £150,000 of funding and expenditure at a net cost to the founders of just £37,875. SEIS and R&D tax incentives have effectively provided the additional £112,125 cash funding!
This scenario does not take into account the possibility of some or all of the SEIS shareholders taking advantage of the one-off capital gains exemption on gains reinvested in the tax year to 5 April 2013 – we’ll leave this for another post as the tax savings are staggering!
Hopefully this illustrates that with just a bit of forward planning and by seeking some professional advice, it is amazing how you can conjure up much needed additional cash to fund worthwhile ventures.
It’s been a busy start to the year so far. It’s nice to see businesses that I’ve been talking to and getting to know for a number of weeks, months (or in some cases years) reach critical points in their business lifecycle in either starting new ventures, seeking and raising funding or selling their businesses.
I’ve been privileged to work alongside and advise these businesses across all of the above scenarios in just the past week alone and have sought to put them in the best possible position (and side-step any potentially expensive business balls-ups!).
Having the benefit of working alongside and advising growing entrepreneurial businesses every single day allows me the benefit of spotting latest trends and recurring issues which in turn allows for practical hands-on advice to be passed on – in nearly all cases aimed where possible at ‘prevention’ rather than cure – as digging businesses out of holes that they have inadvertently created is normally a whole lot tougher (and more expensive) than getting things right from the outset.
This is where a good relationship with an accountant who is familiar with your sector can help. Even if it’s just to meet up for a coffee and chat. There’s no need for this to be overly formal or regimented. We’re here to help.
If you’re in the digital, tech or media space (or simply an ambitious business with BIG plans) then please get in touch. It costs nothing to have a chat. I would love the opportunity to show how we can help.
Here my short (impromptu) video on why I believe many business start-ups fail.
The old adage that “cash is king” remains as true as ever today, however, there is something else that I am increasingly seeing that can put the future survival of new businesses in jeopardy.
This issue is that: many startups fail to define upfront the market need or problem that their product or service will solve.
Seems obvious right?
You would think so but with so many new businesses looking to innovate into new areas and with technology providing an increasingly affordable platform on which to build new businesses, this consideration sometimes seems to get sidelined – typically until businesses seek funding and / or its too late.
So focus now on that particular market failure or wider need that your future business will plug in the world? What need are we anxiously waiting for you solve by creating your business? What frustrates you (and many others?) that your business will crack?
Be clear on the problem and your business solution and you will be one step ahead in defining future revenues and a potentially profitable business.
I had an interesting conversation recently with a teacher who works at a local prestigious private school. He enthused about the private education offered by the school e.g. the high educational attainment levels, freedom from following a rigid curriculum and the worldwide travels and life experiences for the lucky pupils. All highly impressive until he got to the careers that the majority of the pupils go on to follow:
“…our pupils go on to become lawyers, accountants, bankers, doctors or work up to senior management in the local multinational companies…”
Ugh.
As a chartered accountant with a law degree who has held the position of senior manager within a local multinational company, I’m qualified to guffaw with disappointment!
I managed to utter:
“Do many go on to start their own businesses?”
The answer was a predictable “no”. This was swiftly followed by a 20 minute rant from me (poor guy) about how we need more entrepreneurs, more wealth creators and business owners and how we need to inspire them as early as possible. To show kids that there is an alternative to a “prestigious job” within the professions or in industry and to plant the entrepreneurial seeds during their schooling.
I questioned whether it would be possible to set a week aside as some sort of “Enterprise Week” within the school – a week dedicated to developing tomorrow’s young entrepreneurs?
This could kick off with an inspiring talk by a successful entrepreneur. This would get the kids enthused and ready for the fun and exciting week ahead. The pupils would be put into mixed teams ready to take on a week long intensive project. The actual outcome is far less important than the learning but the project could be framed around solving a customer or consumer problem (like the best entrepreneurial ideas usually do) with a view to each team presenting their proposed product, service or solution at the end of the week.
Each day could have a different theme or focus such as:
Each stage could be faciliated by external specialists. The week would be activity and experimentally driven i.e. minimal class room style teaching. Mistakes would be encouraged and celebrated as it takes the teams closer to a better solution.
Who knows it might even lead to the creation of solutions that are better than those delivered by the ‘real world of work’?
Is this already happening? If so, please let me know as I would love to get involved or at least shout about it here.
“Start with the end in mind”
says Stephen Covey, in his landmark 7 Habits of Highly Successful People.
Meanwhile, Fast Company co-founder Alan Webber advocates that entrepreneurs should:
“Answer the final question first”
Two highly successful visionary guys with a consistent key message – but what does this mean for you as an entrepreneur aiming to build your business or startup?
Think back to those other entrepreneurs, bosses, managers or speakers who inspired you – what did they have in common? It is normally the uncanny ability to paint a consistently clear picture of a better future. A better place that, if everyone worked and pulled together as a team, you would reach. In a nutshell, they had vision.
All of these visionary entrepreneurs and business leaders have invested the time to think long-term about their business strategy. To be clear on the intended end game. To achieve this, they will have wrestled with BIG questions like:
BIG questions demanding BIG answers.
The sooner you are clear on exactly why you are in business the easier it will be for you to make the right strategic decisions for the future and inspire others to help you build your business. If all of this is still a little fuzzy in your own mind, I recommend you get yourself out of the office for a strategy blitz to consider the BIG Qs or just go lie on a beach and think, dream and paint a vivid picture in your mind of what success in your business will look and feel like – see the end game. Have a vision.
You’ll then know and recognise it when you get there…
Most business start-ups tend to opt for setting themselves up as a limited company from day one – but is this right?
Answer: It depends.
In many cases, a limited company is the right option but it pays to think through all the options as there can be benefits to thinking a little differently.
You basically have 3 main choices in the UK:
The main advantage of a limited company is the limited liability status. This means that the company’s liability to a claim made by say an aggrieved supplier is limited to the share capital of the company. So if the company is set up with £1 share capital – that’s the extent of its liability. Hardly worth pursuing so the shareholders can sleep at night.
Limited liability status is not only important to protect the livelihood of the company owners but it is also useful for protecting valuable assets like trademarks, patents, know-how and other intangible assets.
But a company is not the only business vehicle that can attract limited liability status. Partnerships can also now attract limited liability status as an LLP (Limited Liability Partnership).
Why consider setting up an LLP over a company?
The key issue is flexibility. LLPs are more flexible than companies, particularly in relation to tax planning.
Consider the example of Jane & Freddy. J & F are starting a digital advertising agency. Rather than opting for the typical default option of a limited company, they set up an LLP at Companies House. J & F are partners in the LLP rather than shareholders and directors of a company. J & F pay income tax under Self Assessment rather than PAYE. They don’t pay any income tax until 31 January in the year following the coming 5 April tax year end. So they can diligently set aside this tax and keep it stashed in say a high interest cash ISA or bank account until it is due to be paid to HMRC. This compares with paying tax over monthly under PAYE.
But it gets better. There is no Employer’s National Insurance (currently 12.8% – potentially set to increase to 13.8% from 5 April 2011) on partners’ income from the LLP. Plus partners(and sole traders) are subject to Class 2 and 4 National Insurance which is more favourable than company Class 1 National Insurance. If they have taxable benefits such as company cars then there is also more favourable tax treatment in an LLP than in a company.
And yes…. it gets even better. After 2 or 3 years of successful trading, J & F may decide to incorporate their LLP and turn it into a company. (This might particularly be the case if they feel they have reached the stage where they need external investor funding in return for shares in their company.) The digital advertising agency business and its assets (e.g. computers, cash in the bank etc) would be transferred to the newly formed company at market value. This would crystallise a capital gain based on the market value of the business – however, this tax can be deferred.
The market value of the LLP business would be measured not only on the tangible assets transferred but also more interestingly on the intangible elements of the business, particularly goodwill (which may account for most of the value in the business). Goodwill is made up of the value in the brand, the customer base, its future potential etc built up over the past 2 or 3 years of trading – the factors that would influence a willing hypothetical purchaser to pay over and above the value of the visible tangible assets.
Post transfer, J & F Ltd would be the proud owner of the digital agency business and assets. The goodwill element would attract valuable tax relief in the company. Also, in return for the value transferred in, the company would have a debt owed to J & F as LLP vendors and now shareholders. This creates a highly valuable and flexible tax-free balance that can be drawn down as and when needed by J & F. Combined with a carefully managed remuneration extraction strategy from the company, J & F will have added considerable after tax value to their business which they can enjoy now compared to if they had followed the herd and set up as a company from day one – all by thinking a little bit differently.
The purpose of this short article is to emphasis that there are alternatives to setting up a company for a new business venture. It is oversimplified and the key benefits and principles may change (e.g. in light of the imminent emergency budget!) so, as ever, please take professional advice specific to your circumstances.
