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The rate of Irish entrepreneurs setting up business continues to be quite agressive with over 5,000 companies being established in the first quarter of 2007.
If you are thinking of setting up, or have recently set up a business take a look at some of the important pointers set out to here which will hopefully help you see the wood from the trees!
1. Understand the opportunities and implications of Investment Schemes
The Business Expansion Scheme and Seed Capital Scheme have both been reviewed under The Finance Act 2007, with the investment limits increasing considerably and the time period being extended to 31 December 2013.
Environmental and recycling companies as well as manufacturing, tourism and services have now been included in their remit.
Business Expansion Scheme (BES)
The Business Expansion Scheme (BES) is an incentive to private investors to invest long-term equity capital in companies, particularly new and smaller ones, operating in certain sectors of the economy, which would otherwise find it difficult to raise such funding.
Under the Finance Act 2007, the investment limit has increased from €1million to €2 million for participating companies. The individual investor in the BES scheme can now commit to up to €150,000 which is a huge jump from the previous amount of €31,750.
This effectively means that a company can raise up to €2 million through the issue of ordinary share capital and the individual can claim tax relief on their investment of up to €150,000 which is more than likely 41%.
Seed Capital Scheme (SCS)
The Seed Capital Scheme (SCS) was introduced as part of the BES in 1993 to encourage individuals currently or formerly in employment to establish new business ventures. An unemployed person or a person who was made redundant may also claim the relief. To qualify for a tax refund an individual must invest in his/her own business. The size of the refund depends on the amount of the individual’s investment.
The Finance Act 2007 has raised the investor limit in the SCS to €100,000. The SCS is designed for someone setting up their own company or for two or three people who have decided to go into a new venture together.
2. Do you need a Tax Strategy?
According to the Taxation Institute, start-ups that fail to put in place a tax strategy will run into problems that are both expensive, time consuming and in most cases avoidable.
The Taxation Institute advises that start-up companies engage a tax consultant from the outset. Tax law is an ever changing beast with a number of deadlines, forms to be completed and payments that need to be made at different times of the year.
Essentially there is enough stress in starting and running your own business without adding to it by trying to understand the tax implications.
Having a tax consultant can save you time and money, particularly when you are transferring from a sole trader to a limited company.
Tax consultants can advise on areas such as minimizing tax (example paying two salaries), closed company (companies controlled by five or less people) situations and investment tax.
Tip: A good site to look at is www.taxworld.ie
Stay compliant and register in time!
3. Managing Cash Flow
According to ISME’s most recent Quarterly Trends Survey published in March 2007 the average payment period of small to medium sized businesses in Ireland is 61 days.This can seriously affect the startups ability to function as a company so what as an entrepreneur can you watch out for?
Some pointers:
- A sale is not a sale until payment is received – this needs to be communicated to all staff
- Set out clear terms of trade – create simple yet effective processes around orders, delivery, payment terms and cancellation policies.
- Keep a paper trail – this will rid any ambiguity if the customer questions your invoice or delivery of goods and/or services.
- If you feel you need a credit reference then get one!
- You have a sales pipeline –depending on the type of industry you are in, it may be a considerable amount of time before you can convert the prospect to a sale to cash in your bank account – make sure you are prudent in forecasting this in your budget.
- Do not put all your eggs in one basket!
- Avoid taking out overdrafts to cover late payments - it will be too easy to convert this to long term debt. Financial institutions now offer invoice discounting to companies including start ups. You can sell invoices for 75-80 percent of their value, allowing you to covert debtors into cash in advance of payment.
4. Marketing – the chicken and egg scenario
As a start up it is hugely time consuming managing finances, staff, product development and any stakeholders you have involved. Tax and accounting have major implications if not addressed but what about marketing? The fact is if you do not market your company and product/service then you will have nothing to account for! However start ups often fall into the trap of leaving marketing on the back boiler depending moreso on a direct or ‘push’ approach to their market. In the short term this works to an extent but eventually the law of diminishing returns sets in – no matter how many people you put on the road or how many cold calls you make the sales just are not happening. Simply put, if customers are not aware of you, your company or your product so why would they buy from you? Marketing doesn’t have to cost the earth – there are many techniques which are effective and affordable. If you wish to find out more contact
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5. Consider your accounting package – keep it simple but effective
6. Network Network Network!
For further information about any of these points or suggestions please email
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or phone 051 872639.
Sources of information for this advice article include:
Corrigan, D 2007, ‘From tiny seeds come successful start ups’ The Sunday Business Post, 17 June 2007, p. 2.
Department of Finance, 2006 2006: Review of the Business Expansion Scheme and the Seed Capital Scheme.Retrieved July 20, 2007 from www.finance.gov.ie/documents/publications/Reports/BESSCSReport.pdf
O’Toole, C 2007, ‘Show SMEs the money’ The Sunday Business Post, 17 June 2007, p. 3.
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