Clive is Head of Enterprise at ICAEW and both an ICAEW chartered accountant and associate of the Chartered Institute of Management Accountants. Clive started his career at a small firm of chartered accountants based in Cardiff; after 20 years in a variety of business finance roles he joined the ICAEW, where he has worked for 18 years.

Clive is Head of Enterprise at ICAEW and both an ICAEW chartered accountant and associate of the Chartered Institute of Management Accountants. Clive started his career at a small firm of chartered accountants based in Cardiff; after 20 years in a variety of business finance roles he joined the ICAEW, where he has worked for 18 years.

Q: Recession – Good or bad time to start a business, and why?

A: Recessions can be a good time to start a business. In recession businesses and consumers place more emphasis on cost when making buying decisions. That means they are more prepared to consider new previously untried suppliers. However, if you're setting up and make low cost a key part of your offer you must do your research first to see who are your competitors, how their product or service compares with yours, what prices they’re selling at, etc.

So during a recession, if you are starting a business, it is even more important to do the basics such as being as prepared as you can be, monitor the cashflow rigorously and keep expenditure to a minimum. It may be tough but that applies to every business. It is worth considering that established competitors may have greater difficulty adjusting to lower demand by more effective pricing or cutting costs and could end up going out of business. So the market dynamics may adjust in your favour.

Q. In your October article on the ICAEW website you stated that “during the recession more people start a new business.” Why do you think this is?

A: There are four main reasons for starting a business. These are:

  • You have a skill, trade, profession or vocation and you want to exploit the opportunities
  • You have an innovative product, service or idea
  • You have a hobby or interest which might generate some income
  • You were previously employed and now need an income.
This last category is sometimes called “distressed entrepreneurs” because it is their distressed situation which is driving them to start a business. They do not generally have a great drive to meet a market need or create an innovative new product or service. When the recession is over or if the individual finds employment they will cease trading. Recessions tend to create more of this type of start-up business.

At all times of the economic cycle, there is a constant “flux” of businesses starting and ceasing self-employment. This is good for the economy as it is constantly refreshing markets and creating new competition.

Q. Do you think SMEs are to play an important part in the recovery of the British economy? If so, why?

A: SMEs are important to the UK economy. SMEs (businesses with less than 250 employees) make up 99.8 percent of UK businesses, representing 59.1 percent of UK private sector employment and 48.6 percent of private sector turnover.

Our 2011 ICAEW UK Enterprise Survey shows that employment growth in the UK in the next 12 months is likely to come from SMEs. While some large companies are planning to increase their workforce, more are planning to reduce it.

In addition SMEs are the growth engines of an economy. As the answer to the first question suggested, during difficult economic times, new market entrants act to bring new competition to established businesses and provide innovative products and services often at lower prices.

Q. The ICAEW strongly encourages SMEs to export. What advice can you offer businesses that are thinking about following this path?

A: I do not believe that the business case for exporting is fully understood by UK businesses. The following are some of the advantages:
  • Exporting can help a business achieve levels of growth not possible domestically
  • It can increase the resilience of revenues and profits
  • It helps spread business risk
  • Exporting can offer economies of scale not possible domestically
  • Exporting should help increase the commercial lifespan of products and services
  • It can increase the returns on investment in research & development
  • Exporting can help improve financial performance
  • It improves productivity
  • Exporting helps businesses boost their profile and recognition internationally.
Businesses thinking about exporting need to include visits to the potential markets as part of the process of deciding which whether to export and which markets to address. This will enable the business to make contacts locally. UK Trade & Investment (UKTI) have a number of services to assist new exporters explore overseas markets and to research their potential.

UKTI have produced a publication Your export opportunity: Our insight which outlines the opportunities of exporting (PDF, 2.97mb).

UKTI and the ICAEW have co-operated to produce a publication International Trade: An Accountant’s Guide (PDF, 1mb). It particularly looks at exporting from the risk and reward aspects.

Q. What tips can you give entrepreneurs for choosing their accountant?

The relationship between a business and their accountant can be a long term one. I know firms dealing with the same family business for over 40 years. So it is worth investing time and effort to find the right firm for your business.

What to look for in a firm of accountants

Look for a firm which is similar in size to yours or has clients of the same size as your business; they will be more understanding of the issues and problems you will face.
  • Do they have experience of businesses in your sector?
  • What is their reputation?
  • Will they be acceptable to third parties e.g., finance providers, shareholders?
  • For audit, investment business or insolvency work, make sure that the accountant is authorised to undertake the work.
It is important that they are members of a recognised accountancy body. What qualifications do they have? Are they chartered or certified? Do they have professional indemnity insurance which a client can claim on, if the accountant has given bad advice?

Making contact

To find firms of accountants in your area, search a directory such as the ICAEW Directory of FirmsThen telephone three to six firms and arrange to meet with at least three of these.

At the first meeting tell them what you are planning to do and check whether they offer the services you will need to build your business. Discuss your accounting records and whether they can suggest improvements.

If you need finance, you may need a business plan. How much would they charge to do one with you?
Establish what the fees will be and when they are payable.
  • Ask who at the firm will be dealing with your work - it may not only be the person you are meeting with. Do you feel happy that he/she will be able to help you develop your business?
  • Ask to speak to existing clients - references are always important.
After the appointment

After appointing your accountant, you should receive a letter setting out their terms and conditions. Your accountant should always keep in touch, not just at the year-end. However you must tell your accountant as soon as possible of changes in your business, problems, circumstances etc. For example, if you decide to sell your business, tell your accountant - he/she could plan to minimise tax liabilities and even help with the sale.

After your accounts have been prepared, you should receive a letter setting out future tax liabilities.
Review your accountant's charges every three to five years.

From time to time, assess whether your accountant's services still match your business needs. If you are not getting what you want – tell your accountant and if still not satisfied consider going to another one.

Many businesses are put off from employing a qualified accountant because of a fear that it will be too costly. This means they do not receive the level of advice that only a professionally qualified accountant can give.

Q. What do you think are the biggest accountancy issues facing SMEs at the moment?

A: I would cite two big issues. Firstly SMEs need to keep on top of the book-keeping and accounting. It is more vital than ever to monitor your business performance to ensure it is going in the right direction or to take corrective action if it is not.

You need to regularly review figures for sales, gross margins, overheads and net profit. These need to be checked at least monthly. Cashflow should be checked daily. You should always know how much cash or unused borrowing you have and how it is forecast to change over the next three months. This will give time for remedial action if it is necessary.

The second big issue is around having confidence in your financial reporting system and making sure your suppliers and customers have confidence in your business. This is reflected in two ways. Firstly many small businesses (basically businesses with a turnover of less than £6.5 million and less than 50 employees) are exempted from the need to have an external audit. However even if you decide not to have an audit you might decide to opt for an Assurance report which is a half-way house between an audit and no external report. It has the advantage that it can be targeted at specific features of your business. For example if you have a head office and some locations off-site you may want assurance that the off-site activities are operating to the same level of controls as the head office and that theft or fraud are not occurring. This could be a particular feature of the assurance service provide by your external accountants.

Secondly regarding giving suppliers and customers confidence in your business you need to think about your credit rating. Even businesses which do not borrow from a bank use trade credit from suppliers. If your business is basically financially sound, you should consider filing full accounts at the Registrar of Companies rather than the abbreviated versions allowed to small businesses. Abbreviated accounts give little information of value to the credit reference agencies and if you’ve got a good story to tell it would be better to file full accounts. In addition you should not be late in filing annual accounts as credit scores often take account of the timeliness of information. To go even further you should consider whether you should send monthly management accounts to a credit reference agency This can improve your credit score, particularly if the accounts show a strong financial position.

Q. What three tips would you give to an SME trying to ensure it remains fully tax compliant?

A: Be on top of your book-keeping/accounting and get your accounts prepared as soon after the year end as possible. That way you should be aware of the business’ tax liability well before the date of payment, If you have a proactive accountant you should have a regular dialogue about tax issues, changes in tax law, etc

Apart from having an accountant who is available to assist you the following are my three tips:
  • Save regularly towards your next tax payment. This is particularly the case for the self-employed in their first few years, as the Income Tax payment on account system requires particularly heavy payments relative to business profits. Whether you are self-employed or a company you should always be aware of when the next tax payment is due, how much is payable and have worked out where the funds will come from to pay it.
  • Always try to understand how the taxes you pay are calculated. Profits for tax purposes are different from accounting profits. Understanding the differences - items such as capital allowances replacing depreciation in statutory accounts – can help make better business decisions.
  • Be aware of any specific tax incentives available to businesses in your sector such as R & D Tax Credits and how you would be eligible for them.
Q. What can SMEs do to prepare for the upcoming mandatory pensions plans?

A: The reform of workplace pensions has been a long time in happening. The Pensions Act 2008 laid the foundations for a fundamental reform. The Act requires employers to automatically enrol their workers into a qualifying pension scheme. The Act was designed to address the fundamental change in the aging UK population alongside the desire to see more people retiring with a pension other than the state retirement scheme.

So from October 2012 business will be required to put a minimum pre-determined percentage of every employee’s pay into an approved pension scheme. To ease the administrative and financial burden on businesses, the introduction of auto-enrolment is being phased in. The largest business will start making contributions in October 2012 and the smallest businesses in February 2017. The starting point for each employer is called their "staging date." The appropriate staging date is determined by the amount of the employer’s annual payment of PAYE. For example, the staging dates of an employer:
  • with PAYE of £120,000 or more is 1 October 2012
  • with PAYE of £10,000 to £19,999 is 1 March 2013
A new employer with PAYE first becoming payable between 1 April 2012 and 31 March 2013 has a staging date of 1 March 2016. For most small business (less than 50 employees) the staging date is likely to be 3 years away. But it is not too early to think about the alternatives available under the act.

The key decision is whether to:
  • use an existing pension scheme if it qualifies
  • amend an existing scheme to meet the qualifying criteria
  • set up a new pension scheme which meets the qualifying criteria; and/or
  • use NEST (National Employment Savings Trust)
  • or use a combination of these options.
Regardless of the scheme they choose, employers must give their employees factual information such as: that they are going to be enrolled into a pension scheme; what that pension scheme is and the amount of the contributions they will have to pay.

The Act contains minimum percentages that employers and employees must contribute in total. The minimum percentages increase gradually between 2012 and 2017.

If your business already has a pension scheme businesses should find out if they will be offering a compliant scheme. You may also look on the Pensions Regulator website.

Q. What basic skills do you think make an entrepreneur successful? What are the biggest challenges start-ups and entrepreneurs face when starting a business?

A: There are different types of entrepreneur. The general perception sees them as the owner or manager of a business enterprise who makes money through risk and initiative. A person who starts a business based on a trade, profession or vocation can be referred to as an entrepreneur. However, there is usually an already defined market for their product or service. The risk they take is limited to whether they can create a demand for their product or service (in preference to their competitors) in sufficient quantities to provide them with a living. Hence they require marketing and sales skills which not every person starting a business is good at. They are also required to have the usual management skills such as managing staff and finances. Some start-up businesses do not employ staff and do not borrow money (at least not immediately) so the management skills required are often quite limited. Even record-keeping can be outsourced to a book-keeper or family member.

The true entrepreneurs are the people who set up a business because they believe they have an innovative product, service or idea where there is not an established existing market. These entrepreneurs have to create a new product or service and build demand for it. So, as well as innovation and greater understanding of risk, they require a greater awareness and knowledge of their market combined with sales skills. And these entrepreneurs usually intend creating a high growth business which means that they need the full panoply of management skills. In particular they must build a team, very often from nothing. So an ability to select the right staff is vital. Finally as these entrepreneurs often require significant investment from sources outside the company, they must inspire people with their vision and confidence so that they can raise the finance required for their new product or service.

A “serial entrepreneur” is an entrepreneur who frequently comes up with new ideas and converts the idea into a new business. They tend to possess a higher propensity for risk, innovation and achievement. Serial entrepreneurs are more likely to experience repeated entrepreneurial success. They are more likely to take risks and recover from business failure. An entrepreneur, who has achieved a successful outcome from one enterprise, is more likely to start new enterprises.

Q. The ICAEW stated that the UK is “less business friendly” than it was in 2010. Can you elaborate on this?

A: The annual ICAEW UK Enterprise Survey is now in its fifteenth year. Among the questions respondents are asked is if they feel the UK regulatory and taxation environment is business friendly. In the 2011 survey business opinion was fairly evenly split. This was a change from 2010 when attitudes were more positive. Small and medium sized enterprises (SMEs) tend to be less positive than larger businesses about regulation, with 26 percent of micro-entities (0 to 9 employees) saying the environment was business friendly compared with 52 percent of very large business (over 1,000 employees).

On this issue the UK does not compare favourably with the other regions surveyed in the ICAEW 2011 Global Enterprise Survey. The relative net scores are as follows:
  • UK – Net score -9 percent
  • Europe (excluding UK) – Net score +6 percent
  • Americas – Net score +9 percent
  • Asia Pacific – Net Score +53 percent
  • The Gulf – Net Score +80 percent
  • Africa – Net Score +14 percent
Past Enterprise surveys reveal that the biggest regulatory burdens are in Employment law and Employment Taxes and Health and Safety issues.

Government policy to reduce the regulatory burden on business is centred on it’s One In, One Out policy (but this excludes H M Revenue & Customs and EU directives) and Departmental Challenge Panels. As our survey shows these policies are not yet perceived as having improved the UK regulatory environment.