Tag Archives: business strategy

Do you know where your business is going?

business_directionQuoting Laurence J. Peter:

"If you don’t know where you are going, you will probably end up somewhere else."

For a business owner, this sounds like a good reminder of the importance of having a strategic business plan. How else will your business end up where you want it to be?

Business strategy seems to be a particular problem for SMEs. Research conducted by Kent Business School found that about half of SMEs surveyed said they had no business strategy or plan, and on closer inspection, only 10% of those who said they had a plan could actually produce one! The conclusion is that "95% of SMEs don’t know where they are going”.

Why have a strategic business plan

So why don’t SME’s have long-term business plans? I think that there are two key reasons:

  1. A business strategy is perceived as “something complicated that only big companies do”.
  2. It’s particularly easy for small business owners to get stuck in the day-to-day detail of running their business, and not make the time for thinking strategically.

Research, supported by common sense, says that businesses with a strategic plan grow faster and are successful for longer. The alternative is reactive daily decision making, with the risk that, before you know it, another year has flown by, and your business hasn’t progressed as much as you had intended.

As a business owner, it’s important to always keep sight of the bigger picture – what are you trying to achieve for your business, and for yourself?

Your business strategy sets the direction for your company and provides a roadmap to get your business from where you are now to where you want to be. It should also provide context to help your team make the right day-to-day decisions.

Are you thinking strategically?

Ask yourself the following questions:

  • Am I clear on my business (and personal) goals, from now until exit?
  • Have I identified the key steps needed to reach my goals?
  • Do I have plans in place to achieve these key steps?
  • Do my team understand these goals and plans, buy-into them, and know what their specific role is?
  • Am I tracking progress against these plans every quarter, every month?
  • Am I adapting my plans to reflect changes in my sector?

If you can answer “Yes” to all these questions, then you must be one of the 5% of SME’s successfully working towards a long-term plan – congratulations! If not, perhaps it’s time to start thinking strategically and so read on!

Starting your strategic plan

It’s important to remember that strategy is an ongoing process, not a one-off or annual task, but don’t let that put you off getting started. Try this three-step approach:

1. Create time to think strategically – yes, you are very busy, but you have to find a way of dedicating some regular time to thinking strategically, whether this is 15 minutes a day, an hour a week, or half-a-day a month. Schedule and commit time that takes you away from the day-to-day challenges and allows you to focus on the bigger picture.

2. Follow some sort of strategic planning process – I suggest keeping it simple to start with, try answering the following questions:

a. What’s your Purpose and Vision? i.e. what problem does your business aim to solve, and what do you want to achieve
b. Why do your customers buy from you?
c. What are your business strengths and weaknesses?
d. What key steps do you need to take to achieve your vision?

3. Execute the plan – this is where most businesses fall-down. Prioritise your key steps and plan what needs to be done, by when, and who is going to do it. Make sure that roles and responsibilities are clear and understood, and that people are given space to take on the extra activities. Monitor progress against the plans and adapt where necessary.

Top Tip: Throughout the process, you should get input from others, both within your team and externally, including your Financial Director who can provide valuable insights and advice. Not got one of your own?  Talk to Michael about having your own part-time Finance Director who will have practical experience of developing and implementing business plans and can bring an external viewpoint and experience of different sectors.

Nick Lumb
FinanceHeads Member

Project Exit: Planning your business exit strategy

Business Exit StrategyThe best time to start planning your business exit is the day you start your company.  If that is not possible then a planning horizon of at least 1-5 years but the longer the better.

This will give you the time to groom your business to show its best face, maximise buyer interest and take advantage of valuable tax planning opportunities.  In addition, a clear exit plan gives you a framework to guide decision-making and helps develop a coherent strategy for building your business.

Some entrepreneurs want to sell their business during their lifetime, taking advantage of the generous tax rate of 10% under Entrepreneurs Relief.  This may leave them cash rich, but Inheritance Tax (IHT) planning is advisable together with considering the funding of long-term care when elderly.  For those that want to retain a business to pass to the next generation, planning for IHT and checking the availability of Business Property Relief would be wise.

However, where the plan is to pass the business down to the next generation, there will be a need to consider IHT.

Inheritance Tax is a tax at 40% on estates above the nil rate band of £325,000 on death.  Your estate for IHT purposes will include a valuation of your company shares/business interests on death for tax purposes, together with certain gifts made within 7 years of death.

However, for entrepreneurs, there is a valuable Business Property Relief (BPR) of 100% or 50% against the valuation of relevant business property, which reduces the chargeable estate.

Business property qualifying for the 100% relief rate includes:

  • A trading business, i.e. a sole trader or a partnership
  • Shares in an unquoted trading company, including shares listed on AIM

This relief covers family companies.  There are various conditions which pose traps for the unwary, including;

  • It must be a trading business or company rather than one whose business is the holding of investments or dealing in securities
  • The business or shares must have been owned for two years before death
  • A business with excessive cash balances or other assets not fully deployed or necessary in the business, will also not qualify

Business property qualifying for the 50% relief rate includes:

  • Shares or securities giving more than 50% of the voting rights of a quoted company
  • Land, buildings, plant and machinery which was used for the purposes of a business carried on by a company of which the deceased then had control or by a partnership of which they were a partner
  • Land, buildings, plant and machinery which, was used for the purposes of a business carried on by the transferor and was settled property in which he had a beneficial interest

Key takeaway: don't assume that your business will qualify for BPR.

Seven Common BPR Pitfalls

Many entrepreneurs are aware of BPR, but are ignorant of the many pitfalls, meaning their IHT bill may be significantly higher than they have planned for when it comes to their business exit. The seven most common BPR pitfalls are set out below.

1. Is it a qualifying “business”?

A business or company will not qualify automatically if it includes elements of:

  • Dealing in stocks and shares, or
  • Dealing in land or buildings, or
  • Making and holding investments

The legislation does not directly refer to the situation where some of these activities may be present in an otherwise qualifying business or company.  The legislation refers to “wholly or mainly”, which is usually understood to be more than half.  In practice, HMRC’s interpretation will turn on the facts and the writer has seen them argue that more than 20% is the tipping point, so expert advice is essential.

For example, a business investing or dealing in property would not qualify for BPR, but confusingly, a property development business would. The difference being the act of development, rather than just buying and selling.

This lack of clarity presents a planning opportunity.  For instance, if a trading company owns an investment property, then in some circumstances 100% BPR will be available on the whole value of the shares in the company.  However, if the investment property is owned outside the company, no BPR would be available.

2. Are there any “Excepted Assets?”

BPR is not available on the value of certain assets owned by a business but not essential to the business.

Excepted assets often include:

  • Property partially used by the business and partially let to other occupiers
  • Assets used mainly for the benefit of the business owner or his family such as a holiday home
  • Cash balances surplus to those needed for trading. However, if the excess is say, part of a sinking fund for future investment or replacement, or can otherwise be shown, as needed for some future business use then BPR will be available.  Expert advice is essential.

3. Directors loan accounts

Directors’ loan account credit balances, also can be a trap for the unwary.  Typically, when the company has borrowed money from a director shareholder, or where a business and its goodwill is transferred to the owner’s company, creating a large credit balance in favour of the owner.

This is often to allow the extraction of cash from the company without suffering income tax.  The problem here is that the director shareholder’s estate includes this balance as an asset.  However, it is not one that normally qualifies for BPR.  Where the balance has little likelihood of repayment, it might be worth considering converting the loan to shares, which would qualify for BPR.

4. Resolutions to wind up a company

A resolution to wind up the company, before death will prevent BPR applying, unless they are part of an insolvency procedure to allow the business of the company to carry on post restructuring.

5. Binding contracts for sale

Property that would otherwise qualify for BPR does not qualify if it is subject to an unconditional contract for sale at the time of the owner's death.

6. Shareholder agreements

Shareholder’s agreements or partnership agreements often provide for surviving shareholders or partners to take over the deceased’s interest in the business.  These “double-option” or “cross-option” type arrangements need checking.  Properly drafted, they should form a “binding contract” for the deceased’s share to be sold to the survivors, which allows BPR to apply.  However, the writer has seen some poorly drafted ones where BPR would be lost.  Your lawyer can give advice on this.

7.  Property owned outside the business

It is common in family companies to find key business assets owned outside the business.  Often the shareholder personally owns the business premises or the intellectual property rights and receives a rent for their use.

There are good risk avoidance and tax planning reasons for this type of structure, but the applicability of BPR is often forgotten.  Because the assets are owned outside the business the BPR rate is 50% rather than 100%.  However, that only applies if the owner of the property had a controlling interest in the business or company.  If there is only a 50% partnership share or shareholding, this does not give control and no BPR is available on those outside assets.

Top tip: make sure there is a casting vote in the partnership agreement or in the company’s articles for shareholders, as case law has confirmed that this does confer a controlling interest and will preserve the BPR!

BPR is an extremely valuable tax relief for family businesses, but don’t just assume it applies, get advice from an experienced FinanceHead. For guidance in selecting the right FinanceHead for such a job please contact Michael Cartwright.

Paul Teasdale
FinanceHeads Member


N.B. These are general guidelines, always take advice from an expert before proceeding.

Director vs Business Owner – Understanding the difference could save your business

Director vs Business OwnerBeing a business owner and a running a business can be the same thing and can also be very different.

Running your own business, often involves building and leading a team, it demands creating value, provides opportunity to nurture talent to grow and flourish and it allows enormous freedom to fashion an organisation in your own style and culture. People who run businesses come from many walks of life with varied professional skills, disciplines and in some cases no previous experience.

Not every owner or entrepreneur has corporate or management experience. Confusing the business with your personal assets, especially when it comes to cash is a common pitfall. You need to remember that the business is a unique business entity and not your personal piggy bank. HMRC have very tough measures and penalties nowadays for any inappropriate payments to owners.

As businesses grow the demands on the owner/manager change. Here are three areas to think about to keep your business healthy and growing.

1. Work on the business, not in it

The successful performance of a business is usually down to the right combination of skills that together can help you deliver a product or service to a market at an economically attractive price. The successful business will require financial investment of some sort to get started, to expand, to weather variable patterns of trade and to innovate.

When you are running a business you are accountable to the shareholders who carry the ultimate financial risk. They often provide a very strong, supporting and guiding role to the team running their investment. They can also sometimes have little or no involvement in the business.

When you own a business and run it you can often be the single arbiter of success and the distinction between the two can be blurred easily. The size of the business will often dictate the size of a team you have around you to share the various responsibilities, execute the business plan and service your customers. As much as possible you need to delegate the daily routines and responsibilities. A good Financial Director can take a lot of the corporate management and reporting off your plate.

Owning and running a business are two very different roles even if they are done by the same person. It is often said that running your own business can be a lonely place. This is mostly true if there is no immediate support network of professionals who you can share the objectives and the challenges with. It is also true that having the freedom and luxury of determining what happens and being able to directly influence success is very satisfying.

A regular health check on what you do with your time is always time well spent. Are you working on the factors that will influence your success or are you just working in the business?

2. Size doesn’t matter 
On a day to day basis your owner’s hat can often be left at home. In the highly developed and organised structure of rules and regulations that business operate in today the job of managing a business follows a well-ordered path.

Irrespective of the size of your business it is vital that you establish and maintain sound principles such as board meetings, board reports and minutes and rigorous but appropriate processes. These will go a long way to keeping your business on track.

The pace of the business may not however be so well ordered with each day throwing up different objectives and demands: an RFP to submit, client meetings to attend, a VAT return to file, staff to hire, targets to review, products to purchase, cash to manage….. Having a sound base of principles to monitor and check performance by is critical to success.

Whatever your size and especially the SME’s, adopting the best parts of a larger organisation at the earliest opportunity will aid your success.

3. Business strategy and direction
As the business owner you need to be clear what your primary business objective is and be able to appraise the business away from all the day to day demands. Sometimes tough decisions are needed and clarity on what your strategy is will help you make these decisions when it really matters.

Key questions to ask yourself are:

  • What am I aiming to achieve with my investment?
  • If I have a plan to grow my investment, how am I performing?
  • What funds do I need to grow my investment?
  • Do I have an exit plan?
  • Should I have an exit plan?
  • What do I need to do to be exit ready?
  • The list goes on……

Differentiating between being the business owner and running the business is an important distinction to make. It often takes building a team, sometimes small to start with, who can help set the owners objectives and monitor progress as the weeks go by and crucially adjust the plans and actions to keep the objectives on course. Often this team will be the same people working with you to run the business on a daily basis, although that is not always the case. In any event keeping the distinction will lead to a healthy balance of performance and challenge and see your investment grow as the reward for all the long hours of wearing many hats!

One of the team to help you remain focused and reach your objectives will be your Financial Director. For a flexible option contact Michael to see which FinanceHead can help you as a business owner and a director.

Ian Hook
FinanceHeads Member