Due diligence, training costs for the self-employed, the future of the minimum wage, and the importance of accurate book keeping
Today’s blog post covers a variety of topics for business owners. Are you perhaps considering purchasing another business but are not sure where to start? Self-employed but worried about the cost of upskilling or updating your CPD? How will the minimum wage continue to grow and evolve and what impact will this have on your staffing budget? Read on to find out more!
Thinking of buying another business? What due diligence should you consider?
When in business, it’s not uncommon to be approached by another business with a view to you buying the business or entering a partnership deal. It might be a competitor that approaches you, or it could be a customer or supplier.
Alternatively, you might identify a business that you would like to acquire as part of your own growth plans.
What things should you consider before entering a deal to buy another business? In this article we will look at some of the key considerations.
Financial assessment
What is the financial health of the business you are looking to acquire? To answer this properly means reviewing accounts, cash flow projections, debts, assets, and liabilities.
Doing a detailed review of these will put you in a good position to understand the financial status of the business. You will learn what working capital is needed by the business, how realistic any projected ventures might be when compared with past performance, and whether there are any hidden liabilities. All this will help you determine the true value of the business and any potential risks involved.
Legal compliance
Ensuring that the business you are looking to buy complies with all their legal and regulatory requirements is essential. You do not want to run the risk of a problem relating to non-compliance coming out after you have purchased the business and then being liable for it.
Permits, licences, contracts, intellectual property rights, and any ongoing legal disputes should all be explored.
If you can identify any legal issues upfront, this will help you to mitigate risks and avoid future problems.
Evaluate how the business operates
Assessing the operational aspects of the business helps you to understand its strengths, weaknesses, and operational efficiency. This includes looking at the processes, systems and infrastructure of the business. You should also explore its supply chain and customer base, as well as its human resources.
Evaluating how a business operates beforehand can help you to decide whether it is a good fit for your business or if there will be difficulties integrating the business with your own processes.
Market analysis
Clearly where you are relying on the target business to increase overall business income, then you need to know how this will be accomplished. You will want to analyse what the competition is for the business, what its current market share is and its potential for growth. Being knowledgeable about industry trends is also important in assessing the marketability of the business.
As you understand the market dynamics of the business you are looking to buy, you will be in a stronger position to assess future opportunities and put together appropriately targeted strategic plans.
Customer and supplier relationships
Evaluating existing customer and supplier relationships helps you to understand how dependent the business is on them, and to know whether there are any potential risks. For instance, reliance on a single customer or supplier may be undesirable.
This kind of evaluation can also help you to work out what customer satisfaction levels and the business’ brand reputation is like.
Employee assessment
It is vital to review employee contracts, benefits, turnover rates, and the culture of the organisation. This can help you assess whether there are any potential HR challenges you need to be aware of. You can also get a sense of how the employees in the new business will be able to fit and work with your existing team.
Synergy analysis
Evaluating potential synergies between your business and the new business may reveal opportunities for saving costs, enhancing income streams, and efficiency gains. This could mean that the new business will offer you more value than an initial glance might indicate.
In conclusion, there is a lot to consider when looking at buying or entering into partnership with another business. However, thorough due diligence can pay dividends in minimising risks, maximising opportunities, and making sure that the acquisition will bring you success.
As expert business advisors, we have helped with carrying out due diligence in many business acquisitions. Please feel free to give us a call to find out how we can help you!
Are training costs tax deductible for the self-employed?
HM Revenue & Customs have recently updated and clarified their guidance on training costs paid by the self-employed.
The general rule for whether the cost of a training course can be deducted from your self-employed profits is that it must be incurred wholly and exclusively for the purposes of the trade being carried out by the business at the time that the training is undertaken.
If you are self-employed, a training course that updates or provides expertise or knowledge in your existing business area will normally be deductible. This means that training on new skills or knowledge for you to keep up with changes in your industry, or to help you keep up with advances in technology can be allowable.
In addition, training on subjects that are ancillary to your main trade can be allowable too depending on the circumstances. As an example, a plumber who books a training course on bookkeeping or digital skills would likely be able to deduct the cost of those courses from his self-employed profits.
Where a training course is to give an individual skills to start a brand-new business, or to add a new, unrelated business area to their business, then HMRC view them as not allowable.
To see some examples of expenses and whether they are likely to be allowable or not please see: https://www.gov.uk/guidance/check-if-the-cost-of-training-could-be-an-allowable-business-expense
What is the future for the National Minimum Wage?
The Low Pay Commission (LPC) has published a report on the future of the National Minimum Wage beyond 2024.
In recent years, the LPC has been setting the National Living Wage based on a target of two-thirds of median hourly earnings. The National Living Wage is now set to reach this target, and so the LPC is now reporting to the government with advice on what its next steps on National Minimum Wage could be.
One of their recommendations is to reduce the difference between the youth and adult rates. From April 2024, the minimum age for National Living Wage was brought down from 23 to 21. The LPC are suggesting that this should be further reduced so that the adult rate will apply to anyone over 18 years old.
The LPC also feel that the Apprentice Rate could be removed. However, they acknowledge the risks this would bring if this were done at the same time as reducing the gap between youth and adult rates for non-apprentices.
Therefore, they are suggesting that the Apprentice Rate is kept, but for those aged over 18, it changes to a discount of the age rate during the apprentice’s first year. This will still mean that the cost of training is acknowledged in the pay rate but allows for an increase in wages.
To see more about the LPC’s proposals, please see: https://assets.publishing.service.gov.uk/media/6603e9009741c5001139dc1a/The_National_Minimum_Wage_Beyond_2024.pdf
Food inflation slowing down according to BRC
The British Retail Consortium (BRC) has released figures showing that food price inflation in March has slowed to its lowest level since December 2021.
Shop Price annual inflation dropped to 1.3% in March, compared with 2.2% in February.
The Chief Executive of the British Retail Consortium, Helen Dickinson, said that “while Easter treats were more expensive than in previous years due to high global cocoa and sugar prices, retailers provided cracking deals on popular chocolates, which led to price falls compared to the previous month. Dairy prices also fell on the month as farmgate prices eased, and retailers worked hard to lower prices for many essentials.”
Whether retailers will continue to be able to maintain lower prices remains to be seen. Businesses are facing increased costs with the rise in National Living Wage in April, as well as business rates increases for those not eligible for the small business rates freeze. Still, the positive news is very welcome!
See: https://brc.org.uk/news/corporate-affairs/good-news-for-households-as-prices-fall/
Good bookkeeping: A backbone of business success
Keeping your accounting records up to date can feel like a chore, but when your bookkeeping is kept up to date, you and your business can gain some significant benefits. Let’s review a few:
Financial clarity
Regular bookkeeping ensures that your business’ financial transactions are accurately recorded, categorised, and updated regularly. Having up-to-date information can give you insights into your business’ financial health and help you to make informed decisions about your business with confidence.
Budgeting and planning
By tracking your income and expenses, it will be much easier to develop a realistic budget, set your financial goals, and allocate money effectively. Accurate financial data can help you to reach your goals.
Compliance and tax management
Proper bookkeeping makes sure that you comply with tax and, if applicable, company law. When your accounting records are kept accurately and are up to date, it makes tax return preparation easier and reduces the risk of mistakes with their resulting penalties.
Monitoring cash flow
Keeping up-to-date records or income and expenses allows you to monitor your cashflow. Tracking inflows and outflows of cash enables you to identify trends and anticipate cash shortages or surpluses. This means you can be well placed to take proactive measures when you need to manage your cash through a tight spot.
Forecasting and managing cashflow is essential for financial stability and meeting the short-term obligations of your business.
Identifying financial trends and patterns
Over time, good quality bookkeeping will provide you with valuable insights into trends and patterns. This will help you to identify areas of strength and weakness, and spot emerging trends.
You may be able to evaluate how effective a marketing campaign was, or what difference a pricing adjustment makes. These trends and patterns can be a great help in your strategic decision making.
Good bookkeeping is not just a back-office task, but rather is a fundamental aspect of business management and growth. When you invest in robust bookkeeping systems and processes, you lay the groundwork for financial stability, sustainability, and prosperity in the long run.
If you need help with any aspect of your bookkeeping, please give us a call. We will be happy to help you!