Entrepreneurs' Outlook

Jul 3, 2009 | Publisher: DebbieJoseph | Category: Business & Jobs |  

It is often said that ‘fortune favours the brave’. Innovators are usually the courageous individuals and businesses that are prepared to take calculated risks to discover opportunities for future growth. It is important to consider that the future success of your business is likely to be based on the development of new ideas rather than the exploitation of past successes. Instinctively most businesses concentrate on what they do well, protecting what has made the business successful to date, not wanting to jeopardise what they have by taking risks and developing new ideas and methodologies. However, most products and services do have a finite lifecycle, and successful innovators are those able to develop the next product that captures the imagination of consumers before the current product suite has reached maturity. This should help to support the longevity of the business. Innovation can be inexpensive and does not need to be risky. By encouraging an atmosphere of innovation you could unearth an abundance of suggestions internally, without having to follow the leads of others. You may need to be bold and to appreciate that it could be necessary to take some risks. Managing a cultural change presents challenges. By involving your employees fully in the process the evolution is more likely to be accepted, and could also become a key motivation tool by empowering your team to influence the future direction of the business. Many people are stimulated by working with innovative individuals. You will also be able to identify your most talented employees as those that drive change, but also those who are able to add real value to the business, and this could be a factor when ultimately considering your own exit strategies. continued overleaf... Entrepreneurs’ outlook June 2009 Is now the time to innovate? Inside this issue: Is now the time to innovate? Calm down dear... it’s just workplace stress EIS and VCT- tax efficient investments? Maximising your marketing www.horwathcw.com ...continued from previous page Calm down dear… it’s just workplace stress To kick start a cultural change it may be necessary, at least initially, to develop a platform to innovate. Scheduled brainstorming meetings would encourage your team to make open proposals, helping them to build confidence in making further suggestions. It is important to consider how you will give recognition to those individuals who develop and implement new ideas. Ultimately, businesses that are able to continuously innovate are usually those that are more successful in the long term, however this is measured. As a business owner you are likely to encounter stress within your workplace and bear the brunt of its effects on your business. These can range from lower productivity and deteriorating relationships, both in business and personally, and poor decision making. Effective management of stress is therefore crucial. The demands of the job are cited most highly as a cause of stress. If you consistently expect a staff member to do too much, too often and in too little time, anxiety will set in. This is counterproductive. To tackle this, consider reducing the demands of the job role by setting achievable (but not easy!) targets and supporting your staff through time management training. Encourage delegation where possible and assist staff who admit they have ‘bitten off more than they can chew.’ A culture of working long hours can be destructive and increase pressure. If there is an inherent fear of being the first to leave the office, tensions can rise whilst productivity levels fall. Almost everybody works better after a break; be it a week away, a good nights sleep, or just half an hour away from the desk during lunch. Encourage your staff to maintain their work/life balance, as they will be more alert and driven as a result. Bear in mind that staff may be dealing with stress from outside the working environment; try to be supportive by considering more flexible workings hours. Review the management style exhibited in your business. If it is aggressive and based on punishment rather than reward, it could be contributing to stress levels. Let your employees know they are valued, through regular performance reviews and an ‘open-door’ policy in respect of problems. You could ask staff to identify the areas that cause most distress, and then target resources towards dealing with them. Be aware of workplace bullying or harassment, as another common cause of stress is difficult workplace relations. Ensure there is someone within the company to whom employees can talk in confidence. Don’t forget that as an employer, you have a legal responsibility to safeguard the occupational health of your staff. Some businesses may find it beneficial to document a stress policy. Above all it is crucial that your business has a culture that identifies and manages stress effectively. Of course as an entrepreneur and business owner you are likely to be exposed to a high level of stress. This can impact on your effectiveness in leading your business. You should ensure that you have the opportunity and skills to identify and manage particular areas of stress to give you a greater chance of achieving your business potential. EIS and VCT - tax efficient investments? The announcements contained within the recent Budget mean that for many high earners (those earning over £150,000), the ability to make significant pension contributions has been curtailed. Tax relief will still be available; however this will start to taper from 40% for earnings of £150,000 down to 20% for earnings in excess of £180,000. As pension income in retirement is likely to be taxed at the same or a higher rate the proposed reduction in tax relief seems to offer little incentive for those on higher incomes to seriously consider pension schemes. As a consequence people are now looking at alternative tax efficient investments as a substitute for pensions, with Enterprise Investment Schemes and Venture Capital Trusts appearing as leading contenders. Investors may have avoided such schemes in the past on the grounds of high risk and illiquidity. However, there are solutions that largely remove both of these issues and, as such, in the current tax year EIS and VCT investments could represent an excellent opportunity to achieve a good positive return whilst employing a lower level of investment risk. Typically, the lower risk models use structured finance methods with risk protection built in, typically by way of bank guaranteed income streams. In order to obtain the full benefit of the tax reliefs the EIS investment must be held for at least three years (five years for a VCT scheme); typically tax reliefs are withdrawn if the investment is held for a shorter period. Illustrated below is an example of the returns that could be achieved from the tax breaks available from EIS and VCT investments. These assume that the value of the investment stays constant and that there is no gain or loss over the investment period. EIS worked example Over a three year investment term this equates to an annualised rate of return of 7.72% per year (12.87% gross equivalent to a 40% rate taxpayer or 15.44% gross equivalent to a 50% taxpayer). VCT worked example Over a five year investment term this equates to an annualised rate of return of 7.39% per year (12.32% gross equivalent to a 40% rate taxpayer or 14.79% gross equivalent to a 50% taxpayer). In addition to the return that these examples illustrate an added cashflow advantage is that the income tax relief is claimed via the individual’s tax return in year one, when the initial investment is made. In recent years the traditional model of saving for retirement via a pension fund has been challenged by other forms of investment. With the proposed reduction in the tax reliefs available for contributions by high earners to pension funds this may be the time for entrepreneurs to broaden their horizons and consider a wider range of investment methodologies to provide their required income levels in retirement. Capital invested Investment proceeds Initial investment (max £500 million) £50,000 Proceeds after three years £50,000 Less: income tax relief @ 20% £10,000 Net cost £40,000 Net proceeds £50,000 Capital invested Investment proceeds Initial investment (max £200 million) £20,000 Proceeds after five years £20,000 Less: income tax relief @ 30% £6,000 Net cost £14,000 Net proceeds £20,000 Associate members of Horwath Clark Whitehill UK ‘Group’ Hartlepool 01429 234414 Isle of Man 01624 627335 The office in the Isle of Man is Horwath Clark Whitehill LLC and the office in Hartlepool is Horwath Clark Whitehill (North East) LLP. These are both separate, independent firms and not part of Horwath Clark Whitehill LLP. Accordingly, these firms cannot be held liable for the acts or omissions of each other. Horwath Clark Whitehill LLP Cheltenham 01242 234 421 Manchester 0161 214 7500 Kent Midlands - Maidstone 01622 767 676 - Kidderminster 01562 60101 - Tunbridge Wells 01892 700 200 - Walsall 01922 725 590 London 020 7842 7100 Thames Valley 0118 959 7222 Horwath Clark Whitehill LLP is registered to carry on company audit work by the Institute of Chartered Accountants in England and Wales and is authorised and regulated by the Financial Services Authority. We hope you find this newsletter of interest. If you have any questions about any of the topics covered, please call your regular Horwath Clark Whitehill contact. www.horwathcw.com This information is published without the responsibility on our part for the loss occasioned to any person acting or refraining from action as a result of any information published herein. Crowe Horwath International Association is a Swiss Verein. Each member of the association is licensed to include ‘Horwath’ in its legal name but remains a separate and independent legal entity. © July 2009 Horwath Clark Whitehill LLP. All rights reserved. Maximising your marketing Marketing is often a prime target for cost cutting, and can be seen as unrelated to the core operations of the business. Whilst reducing marketing expenditure will have immediate cashflow benefits, this may result in fewer business leads and work referrals in the longer term. Word of mouth recommendations from existing customers provides fantastic endorsement to your business and should be ‘exploited’. If you provide your customers with an excellent service above and beyond those of your competitors, they can become your best salespeople. By broadcasting their favourable views among the marketplace, the good reputation of your business could spread for very little cost. You should also reap the additional benefits of well-motivated staff and the ability to attract talented new people to your organisation. Your existing customers can also provide you with information about their needs; this can give you a greater understanding of the market in which you operate. Talking to them will be less expensive but potentially as effective as trying to gather the views of new customers. Get back to basics by asking a certain selection to fill in a survey or by conducting a limited number of phone interviews or by reviewing previous purchasing trends. You may want to consider employing a third party so customers are more inclined to be completely honest. Follow up with a thank- you letter to maintain good relationships. This information will help you to segment the market and help you direct your marketing resources more effectively at your target market. Give thought to whether the internet and email are appropriate forms of marketing for your business. Once set up, this is an inexpensive medium for communication. Flooding customers with ‘spam’ is damaging to business development, but a well targeted campaign could be effective. Review your marketing campaigns and think about how imaginative they are. People remember the unusual and the original, so it might be time to refresh your campaign and get innovative. Consider what other successful firms are doing and take inspiration from them. Don’t forget that these need not be in the same industry, as marketing ideas are often highly transferrable and are not necessarily costly. Above all, make use of what you have learned from the actions mentioned above. Firstly critically review the results you have gathered and assess which type of activity was successful. Where it was not, consider removing the activity from your marketing plan. Secondly, apply what you have learnt about your business, to your business. If there is a common theme in the feedback gathered, change your business processes to address it. Marketing is an essential activity in a competitive market; but effective targeted marketing is especially important when expenditure budgets are being squeezed. ‘your customers can become your best salespeople’. ‘people remember the unusual and the original, so it might be time to refresh your campaign and get innovative’.

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