Small Business Woes

nuts2this

Pride goes before the fall....

I run a small business in the IT sector, There are 6 of us in total, 4 FT 2 PT. The business itself is on paper profitable but lately cash flow seems to be a right bugger.

My problem is that on paper we are making money however personally I'm not. everybody gets paid on time and i have restricted myself to a average salary of about 33k. Looking at my personal situation I have f*** all savings I am paying debts that I incured setting up the business.

Costs are pretty much taken out of the business the only major cost is the human costs. I see my only recourse is to cut staff which is never nice.

If anyone has an opinions on the general state of the market I would like to hear them, what are the employment conditions for people if I have to let people go?

De Rebel

My suggestion may or may not be appropriate, but you did ask for comments. If you don't like what I write feel free to ignore it.

The transition from start-up to mature business is often a traumatic one. Overheads/ fixed costs increase, the principal's time is consumed by administration/management/personnel issues instead of productive stuff like sales/promotion/ etc. Don't give up. Don't despair. Take a breather. reflect fro a while. Where are the non-profitable bits. Where are the costs. Whrere are the issue. Are sales good, but debtors outstanding appaling because you dont get time to collect cash, or because lots of jobs are 95% done, but not invoiced?

And step back further. Would some coaching be beneficial? Enterprise Ireland used to run a mentor program ( and probably still do) whereby an experienced business man spend a limited amount of time (at their expense) assisting growing companies through the transformation that follows startup.

A good accountant (one with industry experience, not the glorified book keeper that most accountants actually are) might also be able to assist you in pinpointing some of the issues, and planning their resolution.

Best of luck.

Merrion

With regard to your second question, the IT market is on the up a bit after a couple of years in the doldrums.

RicardoSmith

Merrion wrote:

With regard to your second question, the IT market is on the up a bit after a couple of years in the doldrums.

I'd say on the whole its static with signs of recovery, but nothing moving yet. Salaries have tumbled and I'm seening jobs I would have expect to demand 30+ at 20+. For many people that not worth it so theres lots of people leaving IT and few people going in to it. I'm also seeing a lot of non nationals in IT now and that is also driving down salaries. Anyone thats in a 30/40+ job is staying put in it.

These day its impossible to make money with hardware, or even software. Its only in services that there is some demand. Unless of course you have a specialist product and market.

Thats my 2c.

I've no shortage of freelance work at low rates, but personally I'm getting out of contracting into a permanent job for more money than I was getting contracting.

fintan

Run everything you pay out as expenses through the company (telephone bills, clothes, food), all tax deductable, plus if on paper the company is making a loss, this can be deducted for tax purposes.

You say you are paying debts that you incurred setting up the business? should this not be paid by the company? instead of being paid out of your salary? (maybe im mis-understanding)

Instead of pay increases, top up employee pensions, also tax deductable.

As others have pointed out a savvy accountant is worth their weight in gold.

What can your employees do to help? If you ask them to come up wth ways to generate more money / save money they receive bonuses (x perctange of profit) all ideas accepted nothing is too far fetched and have the team help them flesh out the ideas.

Specky

Sounds like you're running into the same growth issues that many companies go through. We run a small business network development programme that helps you get through this. Have a look at www.hotbedskillnet.com and make contact with our network manager Liam Brennan. He'll fill you in on the details.

You are not alone or unusual, so why not benefit from a bunch of people who've gone through it or are in the process of going through it?

RainyDay

fintan wrote:

Run everything you pay out as expenses through the company (telephone bills, clothes, food), all tax deductable,

If you are suggesting that personal expenses (clothes, food) are paid through the company as tax-deductible expenses, this of course would constitute tax fraud, and both your accountant and Revenue will be all over you. Surprising as it may seem, Revenue aren't dumb, and do consider the possibility that some people will chance their arm like this.

fintan

Expenses incurred in running your business are allowed, i was just giving different types of examples.

Victor

fintan wrote:

Run everything you pay out as expenses through the company (telephone bills, clothes, food), all tax deductable, plus if on paper the company is making a loss, this can be deducted for tax purposes.

This might have worked in the old BIK régime, but I think you are fooling yourself if you think it would work now.

RainyDay

fintan wrote:

Expenses incurred in running your business are allowed, i was just giving different types of examples.

How would clothes and/or food be legitimate expenses involved in running your business?

fintan

My experience would be dealing with self-employed people. Clothes for work are allowed as is business lunch / dinner etc

i was just throwing some ideas out there, i think you guys are getting hung up on details

RainyDay

fintan wrote:

My experience would be dealing with self-employed people. Clothes for work are allowed as is business lunch / dinner etc

Hi Fintan - The devil is in the detail. Your original statement that 'Run everything you pay out as expenses through the company' was very broad, and anyone foolish enough to take your advice literally could find themselves facing stiff Revenue bills for interest & penalties in a few years time. My understanding regarding allowances for clothes is that it is quite restrictive - if you need special safety clothing to do your job, that is an allowable expense. But having to wear a suit to work is not considered an allowable expense, for example. Business lunches for specific purposes (e.g. entertaining clients) are allowed within reason, but you won't get away with claiming your daily lunch as an allowable expense.

fintan

Your perfectly correct i did make a broad sweeping statement (i shouldnt reply when im in a hurry). But I did make other points in my orginal post, what ideas do you have that might help Nuts2This?

RainyDay

It is hard to give a more specific response as the information given in the original post was pretty sketchy. If the business was originally profitable, I'd be asking what has changed recently - are customers paying slowly? If so, is this just a sign of weak credit control or are the customers unhappy with the service they are getting? Are the estimates given for the projects over optimistic? Is there good project management in place to prevent scope creep, where the customers will keep asking for more & more (for the same money)? But without more info on the nature of the business, the customers and the recent problems, it is hard to help.

nuts2this

Thanks for the input, I felt that I ran a tight ship, customers are paying, they are just paying slowly, there is no issues surrounding service etc, anyway I have dont some further exploring of my problem and it turns out that a rep was making up staggered payment agreements for customers and "bullying" the part time accounts person to accept this, which means that the expenses we incur are "front loaded" at the start of the job and while we do get paid it can be up to nine months before we get paid. I can believe I allowed a situation like this develop, I am so pi$$ed off at the moment and just want to kick her out of the company however I know that it would just be an unprofessional kneejerk reaction.

Specky

If you want to kick her out you probably should make it more of a foot jerk reaction...

...in a company of your size can you really blame someone else for operating a policy you do not approve of? Particularly for so long that you allowed invoices to go unpaid for 9 months withough knowing what the problem was? Don't you look at your aged debtors reports?

nuts2this

I had a typo in my last post "I can believe I allowed a situation like this develop" should have read "I cant believe I allowed a situation like this develop".

Yes I do look at my aged debtors but lets say the job was 4k she had arranged that they pay for the job in 1k amounts in quaters, 1k up front, another in 3 months another in 6 and the last payment in 9 months. We do allow certain customers to pay monthly but only when the amount is greater than 10k and then depending on the job, I dont look at every order we receive but I (stupidly) thought that these were a particular type of job (i.e. ones where the cost to us is not front loaded)

Its my own fault. I will be looking at all orders in future thats for sure

spongebob

If the rep did this off their own bat I'd kick them out if they had not consulted me on it.

M

narommy

RainyDay wrote:

Business lunches for specific purposes (e.g. entertaining clients) are allowed within reason, but you won't get away with claiming your daily lunch as an allowable expense.

I would disagree with this.

Business lunches are disallowable.

Staff lunches are allowable once a certain distance from the normal place of business.(on an out of pocket basis) , as is staff entertainment. as is staff canteen.(once available to all staff members equally)

However if any non staff member/Busines client is involved in a meal or function then the whole amount is disallowed!!!

I wouldn't take this as a general guide cos the devil IS in thte detail.
ie. where is your normal place of work?