What Comes First: Business Strategy or Tax Strategy?

Any business advisor will tell you the answer, but what’s happening in the real world?

Here are a few examples:

VAT

When Jeanne started her exercise class business, she decided after taking advice that she wouldn’t register for VAT. It makes sense. If you want to compete with everyone else then you can’t charge 20% higher prices to include VAT. But now she’s stuck. She can’t grow the business beyond the VAT threshold because she would have to increase her prices or take a significant reduction in margin. Now she’s contemplating setting up separate businesses to boost her earnings. It’s quickly going to get complicated – she can do without all the distraction of doubling the admin work.

Five years in to running his hair salon, Scott takes a day off a week and shuts early some days just to limit his takings to keep them below the VAT threshold. But he’s living hand-to-mouth.

Which came first in these two cases: tax strategy or business strategy? The payoff of course is that both businesses reduce their tax bill, but at what cost?

I’m sure this isn’t what was intended when a VAT registration threshold was included in the VAT legislation created in 1973.

Income Tax

John runs a sole-tradership and draws money from the business as he needs it and, more importantly, when it’s available during the year. His accountant then finds the most tax efficient way at the year-end to distribute his drawings between salary, expenses and dividends. Cashflow is not managed proactively, so while John knows what’s in the bank he doesn’t keep track of every due payment or receipt so he sometimes draws too much and leaves the business short of cash. This regularly causes him to have sleepless nights.

Norman runs a limited company and runs it the same way. He takes no salary as such and reinvests most of the profits into the business to fund growth. He restricts his drawings to pay as little tax as possible. He’s looking to exit the business in 3-5 years. Unfortunately, because he’s not taking any kind of salary, let alone a market rate salary, he has no idea how profitable the business truly is and is complicating things for himself when he eventually come to sell.

Ken is looking to buy a new vehicle for his business, that he will use personally too, in order to reduce his tax bill. However, his tax savings are less than savings he’ll make obtaining a vehicle this way compared to some of the alternatives.

Which came first in these cases – business strategy or tax strategy? Again, the payoff is a lower tax bill, but at what cost in terms of business growth and equity?

These examples are not rare. Many micro-businesses and SMEs are operated in a way that minimises tax liabilities. Their business strategy is defined by their tax strategy. In the real world, it seems, tax strategy more often takes priority over business strategy.

And in every case described it is stunting the growth potential of the business. That may be OK in some cases, where the owner doesn’t want to grow. However, where they do it is holding them back. In any case, all businesses should be looking to grow at least a little just to overcome the effects of inflation!

So what’s the solution? Some say that the government should change the tax rules to benefit SMEs even more. Others might point out that accountants are well placed to help business owners put business strategy before tax strategy. However, both of these “solutions” abdicate responsibility. Governments will forever tinker with tax rules, shaving a bit here and adding a bit there. The overall result is added complexity, confusion and probably a ligher wallet. Tax advisers will prioritise minimising the tax bill because that’s their job and the tangible, immediate benefits show how good they are at it.

The solution then is for business owners to recognise that a successful business should pay taxes. That a successful person contributes to society by paying taxes. And to be successful means developing and implementing a business strategy that will achieve their goals not minimise tax.

With a business strategy in place, then a tax strategy can be applied to mimimise the tax liability of that strategy without strangling business growth.

So how do you create a business strategy? There are books written on the subject, but here are the essentials:

  1. Define what you want to achieve, or start with the end in mind as they say. I don’t believe anyone really starts out wanting to build a sub-£78,000 turnover business. Many settle for that, but few start with that ambition. Starting with the end in mind allows you to pre-think what the business needs to look like in terms of turnover, profits, headcount, infrastructure, etc.
  2. Look at what’s already available in the market and come up with something different. That might be a different target market, or a different way of delivering what you offer. But to avoid competing on price (like Jeanne) you must have something different to offer your target market, not just a little better, or smaller, or bigger, or faster, or whiter, but completely different.
  3. Figure out which people would want to buy that difference and why they would buy it – why should they care enough to part with their hard-earned cash?
  4. Figure out how to tell people about it and how they can get hold of it most easily.
  5. Then create a plan to help you understand how the cashflow will be generated to achieve your goal. Too few business plans are written to aid understanding of the specific steps involved in achieving a goal and the risks associated with those steps. Write yours with those two things in mind.
  6. Follow the plan step by step and adapt it regularly as you gather real world data to support or otherwise your business idea.
  7. Discuss with your tax advisor/accountant how to minimise the tax liability of the plan and impress upon them that changing the plan is not an option.

If you’re already in business, it’s not too late to figure out a more effective strategy to achieve your goals. The best time to start is today.

9 HOT Debt Management Tips

1. Four top tips: Four highly recommended methods for managing debt are to track your expenses, cut spending, pay cash and establish an emergency fund.2. Make timely payments: If payments to your DMP and creditors aren’t made on time, you could lose progress you’ve made on paying down your debt.3. Know the differences: Debt management companies come in many forms, including debt consolidators, credit card companies internal departments (ironically), credit counseling organizations, and settlement attorneys.

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4. Exercise due diligence: Research debt management services very carefully; the FTC has found that some organizations that offer DMPs have deceived and defrauded consumers.5. One-stop shop: Credit counseling agencies advise you on managing money and debts, help you develop a workable budget, and offer free educational materials and workshops.6. Never hurts to ask: A quick call to a credit card issuer often results in reduced interest rates; if not, convey that you’re considering transferring balances.7. It’s up to you: No debt management solution will work if a consumer can’t responsibly handle credit cards and control daily spending habits and routines.

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8. Lose the loans: non-profit community service organizations can often provide confidential financial guidance, free consumer credit counseling services, educational resources, and debt management assistance.9. Helpful articles: Many consumer debt-management companies offer online newsletters with weekly educational tips for balancing your budget, making ends meet, and achieving your financial goals.

The Energy Healing Power of Natural Medicine

Natural medicine is a system that uses a variety of therapeutic or preventive health care practices such as homeopathy, naturopathy, chiropractic, and herbal medicine. Alternative medicine is also known as traditional, naturopathic, natural or holistic medicine. Proponents of alternative medicine are not refuting the validity of discoveries in and the practical uses of conventional medicine, but are merely trying to put some things into perspective. Due to the widespread interest in natural medicine along with the disappointment and disenchantment with Western medicine, many people, especially in the United States and Europe, where conventional medicine has taken a dominant foothold, are seeking the advice and treatment from naturopathic physicians. These practitioners include herbalists, acupuncturists, naturopaths, chiropractors, and others, who advocate preventative health measures as well as recommend wholesome foods and nutritional supplements for their patients and clients. Considering the growing popularity and effectiveness of alternative health treatments and products, certified and licensed professional practitioners of such medical practices should be given their rightful and respectful place in medical society. Natural medicine has been proven not only to be safe, but more effective than Western medicine in treating many chronic illnesses such as diabetes, hypertension, asthma and many other diseases as well

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The history of Natural Medicine and its roots can be traced back thousands of years to ancient cultures such as India and China. Ayurvedic (E. Indian) and Chinese medicine, along with their diagnostic and herbal systems, are still used in these countries extensively, as well as in the United States, especially in Europe, where alternative medicine is well respected. Chinese herbal medicine has a documented history of over 2500 years in China, and is now widely used by practitioners all over the world. It has been legally practiced in the United States. since the mid seventies by licensed acupuncturists. Homeopathy is also a well-known form of alternative medicine discovered in the 18th century by German physician Samuel Hahnemann, but was practically stamped out in the U.S. in the late nineteenth century by the American Medical Association. In 1938, though, the U.S. Food, Drug, and Cosmetic Act finally recognized homeopathic pharmacopoeia as the legal equivalent of allopathic medicine.Another more contemporary and popular form of herbal medicine, called Western herbalism, can be traced back about two hundred years in America. Samuel Thomson, born in 1769, is considered the father of Western herbalism. He discovered over sixty different medically effective native plants by clinical testing, and on the basis of these findings, devised a theory of disease and botanical drug action. Randy Kidu, D.V.M., Ph.D., writes in his articled entitled A Brief History of Alternative Medicine: “The history of herbal medicine is interesting because herbs have been a part of our diet and pharmacy since man began roaming the earth. Coprophytic evidence (seeds and other plant part(found in preserved fecal pellets) points to herbal use by cavemen. Early herbalists practiced their trade since before recorded history in all parts of the world including China, Egypt, Greece, Rome, Africa, England, the Americas, and Europe. Many herbs are also mentioned in the Bible. Today, based on sheer numbers of folks who use one form of herbal medicine or another, it remains the most-used medicine worldwide.”Twenty-five hundred years after the advent of allopathic medicine, modern medicine is still grappling with the idea that herbal medicine could be an effective treatment, and not just quackery, although thousands of years of recorded history has proved its efficacy. A new model of understanding in medicine needs to be incorporated into the existing allopathic model. Because of the growing popularity and effectiveness of natural medicine, practitioners may eventually be given their deserved place in medical society. The incorporation of natural medical practices into the existing model of conventional Western medicine, including the training of new medical doctors, is now called Complimentary Medicine. In order to solve our health problems, this modern paradigm for treatment in medicine must be promoted. This can only truly emerge when bias, self-interest, greed and discrimination is discarded and diverse medical knowledge is promoted and shared, not only between university trained scientists and medical doctors, but among Alternative Medicine practitioners, philosophers, metaphysicians, and other intelligentsia of society as well.

Skip The Lines – Bring The Amusement Park Right To Your Own Back Yard

There’s no shortage of things to do in Atlanta. From professional sports to amusement parks, there’s something for everyone. In fact, Atlanta is proud to house some of the nations largest amusement attractions, including the ever popular Six Flags Over Georgia. Children (and adults) love the thrill and adrenaline rush of the large roller coasters. However, one thing most people don’t like about amusement parks is the long lines. By the time it’s all said and done, you can spend several hundred dollars for your family to have an afternoon of fun, and only get a few rides in. This year, instead of spending the day waiting in long lines for short rides, why not bring the fun right to your back yard? With today’s technology, you can literally do just that! One of the advantages of living in a large city like Atlanta is that we have large rental companies that can make your special event feel just like a trip to Six Flags… complete with a train and an ice cream cart!

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If you’re trying to replicate the amusement park feel, there are definitely specific items that you’ll want to be on the lookout for. As mentioned previously, ice cream carts and trackless trains help make the special event feel more like a day at Six Flags.In order to make your next special event more special, try some of the following tips:

Head online to do some research on the party rental company that has the selection your looking for. If you want an ice cream cart to complete your theme park adventure, look around until you find what you’re looking for.

Don’t settle for the first website you see. There are literally hundreds of inflatable party rental companies in Atlanta. Keep looking for a website that offers a wide variety of rental items that you’re looking for.

It’s better to rent everything from one company. Renting in bulk can help you save money. Larger companies will offer discounts for larger purchases of multiple units and rental items.

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Having a day of amusement park fun is cheaper and easier than ever before. By bringing the amusement park to your front door by using a party rental industry, you can include more people at a lower price. So next time you’re planning a special day, instead of spending tons of money for just a few people and braving the long lines of amusement parks, invite the whole neighborhood and bring the amusement park right to your own back yard!