Chapter Nine: Finding expert professional aid
There are quite a few important aspects of managing a business which you must handle on your own, but there are some which can only be done by hiring a professional. You require professional services as there could be facets of the job that you may simply not think of being a non-professional, but which would occur to a professional; and even for the simple reason that a professional increases your odds of being successful.
A choice instance of this is when dealing with the Revenue Services. They are more likely to be cooperative when trashing things out with your chartered accountant than dealing with you directly, as they are ware that your accountant works by professional standards and will not try to fleece them like tax payers sometimes attempt to do.
Another argument in favour of hiring professionals is that; even though you could do various things on your own, you are likely to waste a lot of time in gaining knowledge about the tasks and in ensuring that you’re doing it correctly; so much so that the worth of your time could far exceed what you would pay the professional. You might think that you have a lot of time on your hands at the start, but you may get real occupied, or could chance upon a huge deal that warrants your undivided attention, and thus it is a good idea to hire a professional.
The key people you will be looking at are advocates and accountants, and amusingly enough, the basic standard for selecting good ones are completely opposing.
For the kind of work I told you about, your ideal choice is to look for a small corporation of accountants in your area. You only require a big firm of Chartered Accountants if you have a limited company.
What you have to find is some company where any of the top people will be handling your business and not delegate it to one of the minnows, who are typically allocated the work of handling smaller clients. In bigger organisations, each member of the staff has to enter time sheets, assigning each half hour shift to a particular task. Thus, it is quite common for inactive trainees to peruse a list of the company clients, pick someone randomly, and charge them for a few hours of work, which were actually spent at lunch or sleeping in.
And you don’t always get charged erroneously. The trainees may have actually spent time on your books, but are so inept to begin with that no real work gets done, only the charges being real. All such ‘work’ time is fed into the system, which finally translates into a huge bill for you, with you consequently working your rear off to get the charges lowered. That is why I suggest going to a smaller firm where the top people are aware of what exactly your job entails, and thus they bill you on the entire job (what they think is fair) rather than give you an hourly rate. You will require an accountant to organize your year-end books, draw up your tax returns or help you do it, and maybe even negotiate for you with the Revenue Services. Your accountant can also offer valuable tax advice, so that you know what to do in order to lower your tax liability.
This could entail timing your purchases right and other such tasks, so you will perhaps have to inculcate the habit of consulting your accountant prior to doing anything big. The perfect accountant is one who calls you a few days from the budget release and explains to you what you need to know and how the budget will affect you.
Asking your friends and business acquaintances for a personal reference is the best method to locate a good and economical accountant. If this does not work, go to the Chamber of Commerce.
When it comes to hiring solicitors and advocates, you should not go to a small firm in your area (like with the accountants) and definitely not a one-or-two person outfit, except if they are commercial law specialists. The problem is that majority of the small firm solicitors do not specialise in commercial law, and even though they are usually trained in all kinds of legal tasks, such advocates typically spend most of their time handling household property stuff, wills, probate etc. They are generally out of practice with business matters that you may need them to do. And since they will just try and spend some time brushing up on their business law acumen, you will probably get charged for such time spent poring over their law books. Another problem with small timers is the rule of the Law Society for solicitor rates. The rule mentions some suggested minimum hourly rates for different level employees, where the trainees and legal executives form the base, while the partners form the top brass. In a small organization, there are likely to be only partners, which essentially indicate that you will be charged highest rates for all the tasks. But in a bigger firm, where there is a separate commercial law unit, you could end up paying less.
Even though the charges for partners’ time will likely be more in big firms, almost all your jobs could be handled by the lower brass consisting of trainees and legal secretaries. These people are not as highly qualified as top lawyers, but they do tend to have more training in a specific aspect of the law, thus being much more knowledgeable in their area than a regular general lawyer would be.
You require the services of an advocate to: peruse or draw up the contracts with your manufacturers and distributors; to find and offer you counsel on commercial leases (for when your business becomes so big that you need a separate office!); and maybe even to assist you in debt collection if any of the distributors give you trouble (although thankfully I have never been through this).
The Chamber of Commerce can give you references or you can enquire at the library in your area for a listing of all the solicitors’ firms and their areas of specialisation.
Other professional services:
If you choose to go the whole route for acquiring a patent, you may need the services of a patent agent. You can get in touch with Chartered Institute of Patent Agents (phone no. 0171 405 9450) and request them to mail you their area-wise list of agents.
If you wish to import products for sale and require assistance with the legal documentation and with HM Customs and Excise, you need to find good Import Agents or Forwarding Agents. The Yellow Pages is a good place to begin and so is the international trade department in your bank.
How to select professionals:
Degree of competence being the same, it is best to select a professional who you are comfortable with and who is easy going. Keep in mind that their basic duty is to counsel you, and in such a manner which enables you to take good decisions as you have comprehended all the outcomes of a particular situation. You won’t get this kind of clearness if the professional you choose is very intolerant or too egotistical or in a great hurry to elucidate matters for you. Majority of the professionals are very decent and civil, but you may happen to meet someone who tells you that your only job is to give them the required papers and details and then leave them to their work, for which you simply pay them. If you do know precisely what you require and are okay with simply giving directions and butting out then this is OK. But, most of us in a new business, want someone who will take the time to make us understand and offer guidance, thus the advice to choose someone you’re comfortable with.
Another thing with professionals is that you should not hesitate to enquire what their charges are going to be, and should not refrain from saying they are a lot if you seem to think so. When the whole economy is bad, which it has been for some time now, lawyers too are quite ready to bargain about their rates.
Here’s a summary of your plan of action:
- Locate a capable commercial advocate.
- Locate a capable accountant.
- Build contacts at the Chamber of Commerce, with people who may be of help.
Chapter Ten: Financial Aspects and money matters
The bottom line for starting any business is to get rich (ok…let’s just say earn money), thus you have to take care of the economic aspects as well. The major ones are:
Your business account should be different from your personal one. If you do have various businesses, you should ideally have a different account for each. You should also have a separate business credit card, one which can be used globally, so as to facilitate payments for subscribing to those trade journals I told you about.
Banks levy different fees for having a business account than they do for personal ones. Banks typically charge you for every transaction, and thus it is a good idea to look at various banks so as to find the lowest charges. If you will be getting inward remittances from foreign nations, ask the banks what their charges are for that and if the charges are same for cheque payments and wire transfers, or they differ.
Majority of the banks offer free banking services for a 12 month period after opening a commercial account. You could try to get a longer free period, or perhaps get them to decrease their charges.
A bank is usually one such place where people typically believe that they must do exactly as told, but that is not necessarily so. In today’s times, the banking sector is highly competitive, with bank managers having minimum numbers of various types of bank accounts that they must open. That oft-used tale about taking your overdraft business someplace else is not just a tale anymore, but instead a good bargaining tool. Bear in mind that banks make their money through interests on overdraft facilities, and if you should choose to go to another bank, that will also create a gap in their minimum requirements.
If the situation ever arises that you have to arrange funds for your work, you should go with the overdraft facility rather than taking out a business loan, which is what your bank will persuade you to do. The basis for this choice is that even though interest rates may be lower on the loan, you will have to pay interest for the entire term of the loan. But with an overdraft facility, interest is calculated on a day-today basis, depending upon the balance in your account every day. Thus, you will end up paying interest on a smaller amount, the minute you have deposited your royalty payments in your account. All in all, you save a considerable amount of money on interest with an overdraft than with an official business loan.
Whatever route you decide to take, your bank will require you to generate a cash flow estimate to establish your capacity to repay them; and you can get their esteem for your professional business methods by giving them such cash flow estimates without their asking. Better yet, you should generate two estimates; one for an official business loan and the other for the overdraft facility, which will also go to show your rationale for going the overdraft way.
Your accountant can help you in producing the cash flow estimate, but it typically constitutes a monthly graph that shows your probable earnings and expenses, and the variation in the balance amounts.
The last thing to know about banks is that you just cannot rely on them to always get everything right. You should maintain that they post you bank statements every month, which contain an itemised description of any charges, and should then tally these with your cheque book and deposit slips. If you come across any unusual items, write to the bank for a clarification, and then study your following month’s statement to ensure that the entries have been corrected.
Book Keeping and Accountancy
Accounts are definitely one aspect of your work where it is just too easy to overspend. Most people tend to believe that keeping accounts is a very tough job, and that it has to be carried out in a particular manner so as to keep the Revenue Services happy. This is why people hire Chartered Accountants, who create an accounts system for their business and then periodically send a person to them to enter the books, do the Profit and Loss accounts, and create the balance sheets at year ends.
However, you do not actually require a CA to handle all this work. Although you are required to create the year-end accounts, and also file your tax returns, you certainly do not require a CA for this, except in the case of a limited company. If you do not work under a limited company, you can simply approach someone with slightly lower credentials for handling the year-end accounts, and can hire a part time book-keeper to help with the other stuff if you don’t have the time to handle it on your own.
Seriously, it’s not that tough. You won’t really be doing any complex stuff like keeping a sales book with numerous accounts, handling returned merchandise, crediting it etc. Your earnings will generally comprise some lump sum payments and a cycle of royalty cheques every three months.
Your expenditure is also not going to be a lot – perhaps some phone bills, stationery costs, stamps and postage, subscriptions for publications, fuel etc. You should never throw away the receipts for any payments and should always write down expenses which do not carry a receipt. Your accountant will tell you exactly what you can deem as a business cost, but it essentially encompasses all the expenses that are incurred in running your daily affairs.
For those who have a PC, various accounting software is available to them. Else, you can simply purchase a regular lined notebook and keep your accounts by hand. You just have to make a note of all your earnings on one page and every expense on a separate page. You should write a small note with every amount so that you know what it is about, and the rest will be handled by your accountant when the financial year ends.
Value Added Tax (VAT)
If you apply for VAT, your accounting tasks will increase a little. The VAT figures will have to be noted separately alongside your earnings and expenses, which then have to be summed up when preparing the VAT returns every three months.
An important thing that needs to be done is to give your distributors the correct VAT invoices. This is how I usually go about doing this – my distributor gives me a record of the sales achieved and royalties accrued. I then post him the VAT invoice mentioning ‘Royalties from XXX date to XXX date’, after which they post me my cheque.
Not once have I thought it necessary to examine their accounts. Trust does play a role here, but I can even double check to see that the sales details from the distributor correspond with the sales details provided by the manufacturer.
You might not need to apply for VAT. If your total earnings (entire income, not just profit) are more than the minimum amount as declared in the annual budget, you are applicable for VAT. However, if your total earnings are less than such amounts, you are not required to apply, but do have the option if you so desire. If you spend a lot of money on things that include VAT, you can claim the VAT back by registering. But only you will be able to judge if the VAT claim is worth pursuing, in light of the added accounting work which will surely need to be done.
Here’s a summary of your plan of action:
- Look around for a bank that offers you the best deal. It is best to choose an overdraft facility over formal loans.
- Manage your day-to-day book keeping with someone helping you out for the year end accounts.
- Determine whether it is worth your while to apply for VAT.