PRIME business club

Last week the basic state pension went up to £95.25 for a single person and £152.30 for a couple. This isn’t much, and the earliest you can get it is when you reach 65 if you’re a man (so you’d qualify if born on or before 5 April 1959) or 60 if you are a woman (born on or before 5 April 1950).

For these reasons people have been heavily encouraged to top up state provision with some private scheme. And people running their own businesses often invest in that with a view to selling it or some assets to fund retirement.

There’s an interesting article in the Observer about the pros and cons of different ways of saving for your retirement. Basically it’s saying private pension plans are not all they are cracked up to be, particularly because they are typically inflexible about when you can cash them in.

Taking control of investments yourself may be better than leaving it to a pension fund manager. Here’s an extract:

“For many years I have been very anti-pensions,” says Colin Jackson, an independent financial adviser and director at Baronworth. “Yes, you get tax relief on your contributions, which is a great incentive to invest, but when it is time to retire and the market is against you I think the technical term is: ‘You’re stuffed.’ ”

Jackson does have company pensions from over the years but says he is “bitterly disappointed” with their performance. He thinks property is a far better medium- to long-term investment, followed by Isas, with pensions at the bottom of the pile. He also says that people should look beyond residential to consider commercial property.

“Many years ago we decided to buy the building we work in,” he says. “That is now my pension.”

The article estimates that £100,000 invested in property 10 years ago would have turned into just under £221,000 now - even taking into account recent house price falls. Had that £100,000 been put into an average instant access savings account, it would have grown to £129,000 (not inflation adjusted), while it would have shrunk to a shocking £91,646 if it had been invested in an average UK-based equity fund.

More at Observer site

What can you do if you don’t have the money to invest in anything?

Well, working till you drop may be the only option.

If you can manage to keep working beyond state pension age it’s even possible to convert the pension you would have received into a lump sum for when you eventually do retire. You don’t lose out by continuing to work.

Here’s an example from the official Pension Service site, run by the Department for Work and Pensions.

Ahmed decides to put off claiming his weekly State Pension of £105 for three years. When he finally claims his State Pension, if he chooses a lump sum, he will get a lump sum of around £18,000 (before tax) as well as his normal weekly State Pension entitlement.

You can find out how much you could get by putting off claiming your own state pension by phoning the Pension Service’s Forecasting Team on 0845 3000 168

Peter Melling from Liverpool asks:

I need training to trade as a locksmith. Where do I find a grant or funding for the training?

Dick Stroud, Author, managing director, lecturer  replies:

Trying to understand the Government’s training grants system is a non-trivial task!

There are multiple schemes in place and some of them may be applicable for helping with training to become a locksmith. This link provides an overview of the types of grants that are available.

Some of the banks provide guidance about the business practicalities of becoming a locksmith. Alliance and Leicester are typical of what is available.

My advice would be to contact your local Business Link and make an appointment to see one of their advisors. You can get the contact details of your nearest office from this link.

When you make contact make sure you stress that you want to talk with somebody with an understanding of personal training grants.

One further word of advice. There are a lot of companies advertising Locksmith training courses. Before deciding which training organisation to use, make sure you check them out and ask to speak to a couple of their recent students. Good luck.

Dick Stroud

Dick Stroud is a course director at the Chartered Institute of Marketing and a visiting lecturer at London Business School. His latest book is The 50-Plus Market.  

Robert Ashton, author, speaker and small business owner, replies:

Ask at your local Enterprise Agency. They’ll be able to point you in the right direction. Find them at www.nfea.com

Robert Ashton is a popular business speaker and runs ‘Business Boot Camps’ for entrepreneurs seeking growth.

Nicola Dickins, MD, trainer and consultant, relies:

Business Link have a fantastic tool for searching for funding for businesses within a geographical area. 

ELECT provide specialised services for new businesses in Liverpool. Give them a call on 0151 263 9554. They link in with training providers locally.

Nicola Dickins is the founder and Managing Director of Make it Happen Consultancy Ltd.

Disclaimer: The opinions expressed are those of the author(s) and are not held by PRIME unless specifically stated. The material is for general information only and does not constitute legal, accounting, tax or other personalised advice. You should not rely on this information to make (or refrain from making) any decisions. It is not a substitute for independent, professional advice for your own particular situation.

About Ask the Experts

PRIME has assembled a team of business experts who have generously volunteered to answer your questions for free. You can read more about them here, or Ask your own question.

Finding the funds to help start a new business has never been more difficult. Despite almost daily announcements from the banks and different government agencies, the lending famine in practice remains a harsh reality for most people.

So PRIME has decided to go ahead and start piloting its own scheme, set up with two commercial partners - Zopa Ltd and the Bank of America, under the auspices of our president HRH The Prince of Wales. We plan to make it fully live with a proper launch in April (after Easter), but are now in a position to process some initial loans.

The good thing about the scheme is that it does have money to lend to people over 50 who are starting a new business. The downside is that the application process is highly competitive - you will need a well thought out and practical idea, and will be asked to explain why your business is viable. And of course it is a loan - you have to give the money back.

But before describing the new PRIME scheme, do you really need to borrow the money in the first place? Many new businesses find they don’t, or can reduce the amount needed - and this isn’t just because the people launching them have sufficient personal, friends and family funds at their disposal.

Thinking carefully about your business model may reveal ways of reducing the capital needed to get your business off the ground. This is often preferable to launching with borrowed money, which after all you have to start paying back pretty well immediately.

Also have you tried the other options? We don’t claim our scheme is the right solution for every olderpreneur. We just want to get the self-employment option moving again despite the frozen state of much of the financial system.

Keeping tabs on what is actually available is difficult, but we summarise our understanding of some of the other options at business loans that may still be available. Many of the government schemes are local in nature or hemmed in with other restrictions, but if you are eligible they may we well worth investigating further.

So with the preliminaries out of the way, to understand more about the loan scheme click here.

Here’s a summary of places to go in the UK for a business loan if you are having trouble finding the funds to start a new small business. These are alternatives to PRIME’s own new scheme, which we know isn’t suitable for everyone.

The credit crunch means that what is available from the High Street banks varies almost from day to day, so we have concentrated on public sector and non-profit community sources. But clearly when eventually the commercial sector starts lending again to small start-ups they may rapidly become a major source of funding once again.

Business Link summary page “Real help with finance now”

Business Link scheme for startups “Use your business plan to get funding”

Northwest regional scheme
The Northwest Regional Development Agency, which is part of government, has put together Small Loans for Business with local partners aimed at new and small businesses. You can apply for any size of loan between £3,000 and £50,000. But to be eligible you have to be based in Cheshire, Merseyside, Greater Manchester, Lancashire or Cumbria.

With the credit famine now biting hard all over the country there’s a glimmer of hope in the North West. The Northwest Regional Development Agency, which is part of government, has put together a scheme with local partners aimed at new and small businesses.

You can apply for any size of loan between £3,000 and £50,000. To be eligible you have to be based in Cheshire, Merseyside, Greater Manchester, Lancashire or Cumbria.

More details at Small Loans for Businesses

Hopefully this scheme with be copied by other Regional Development Agencies around the country. But at the moment the North West is leading the way.

Peter Mandelson has announced a package of measures to end the business loan famine and get banks lending again. It involves giving the big High Street lenders more taxpayers’ money - this time up to £20 billion to guarantee up to 50% of the value of any loans advanced to small and medium sized businesses. This could insure the banks against half the risk of companies defaulting on the loans.

Will this be enough to get banks lending again? It remains to be seen. And where do you go to actually get such a loan? Here too details are presently sketchy, with the government announcement (see below for full text) referring you to the banks. But at least the government is now on the case.

Business Link page where more details should get posted over the next few days

Guardian story
Mandelson unveils £20bn plan to free up credit for businesses

Financial Times
Complex concoction gets mixed response

The Scotsman
Taxpayers to fund ’safety net’ for banks as firms offered £10bn of loans

Text of Government announcement below

Read the rest of this entry »

If you’ve got a poor credit history one of the problems is that it can be hard to get a credit or debit card. This can make it difficult to buy online, and it can be very inconvenient when travelling.

There’s a good article on Martin Lewis’ excellent Money Saving Expert site about pre-paid cards.

These are cards you can get without a credit check, because you have to load money onto them first. They can then be used like an ordinary credit or debit card until the money on them is exhausted. So they work in the same way as a pre-paid pay-as-you-go phone card.

The best of the pre-paid cards can be used in the same hotels, shops and web sites as normal credit or debit cards - many belong to the same Maestro or Visa networks. Martin’s article goes into the pros and cons of pre-paid cards, including hidden charges.

Over half a million women could benefit from changes to the pension bill currently going through Parliament. They will be able to buy back up to 12 years of contributions to fill in gaps in their National Insurance record, enabling them to then qualify to receive the full state pension. Currently only around a third of women reaching state pension age qualify for the whole amount.

Though women only need to have 39 years of contributions at the moment, compared to 44 years for men, the breaks from work many women take to raise children or care for another family member means a pensions shortfall is much more common among women - 90 per cent of men get the full whack.

The proposed changes will affect both men and women who reach state pension age between 5 April 2008 and 5 April 2015, enabling them to plug much bigger gaps in their National Insurance record. The reason for doing this is that the cost of buying the extra entitlement is usually much less than you’d get back from the state over the full length of your retirement.

None of the changes apply to you if you reached pension age (60 for women, 65 for a man) before April 2008. And complicating the calculation of whether you would really be better off is Pension Credit, a separate system that kicks in for those on low incomes.

More on this story from the BBC

The Pensions Service - official information from the government

Pensions Advisory Service - independent non-profit source of information.

www.entitledto.co.uk is a free web-based calculator that can help you work out which - if any, benefits you are entitled to receive, and give an indication of how much. It can also give a quick figure for any tax credits you should get, so you can decide whether to claim.

Many people setting up a new business make little or no profit at the start, so Working Tax Credit may well be payable. Once your net profit rises enough you will of course have to give HMRC its cut, so while your income is low it is only right to claim.

Check your entitlement now. Don’t let the banks snaffle up all the money!

With spending on London’s 2012 Olympic bid now projected to top £9 billion, what chance have small businesses of getting their hands on any of the loot?

Well, at least some. You may not be able to grab 10-digit sums, but you can at least bid for some of the smaller contracts on the www.competefor.com site.

The web site is run by the London Development Agency, but you don’t have to come from the London area to participate. Among the opportunities listed are many smaller ones, such as those listed below. Note the broad range, from construction to catering and web services, and the scale, which includes some small projects posted by larger subcontractors.

Ecological Consultancy Service
Description: An ecological survey and assessment is required at the Eton College Rowing Lake at Dorney Lake, due to host the Rowing, Flatwater Canoe/Kayak and Paralympic Rowing events at the London 2012 Olympic Games.

Website Development and Ongoing MaintenanceDescription: Ongoing maintenance management and content & functionality development of LDA Climate Change microsites with an emphasis on improving their web presence and their brand. A key element is to provide up to date, useful information relating to all aspects of climate change & energy efficiency that is suitable to be posted on the websites.

Catering Team - required for Aquatics Centre
Description: Catering team required for busy kitchen servicing staff and operatives. Will need to cater for up to 400 people at peak period and deliver wholesome cold and cooked food, to be served during meal breaks. It will be necessary to cater for a diverse workforce including different faith requirements, vegetarians and those seeking healthy diet options.

Office Cleaning - Aquatics Centre site office
Description: Daily cleaning of the Aquatics Centre site offices. This includes a three storey modular block with approximately 150 desks and a 3 storey welfare unit.

Installation of fencing/hoarding
Description: The installation of fencing/hoarding for a bridge within the Olympic Park, approximately 30 metres long and comprising of 18mm ply board on a frame with typical posts 900mm deep in a 1200mm x 600mm diameter concrete foundation.

Miscellaneous Electrical and/or Plumbing Works
Description: Miscellaneous electrical and/or plumbing works as and when required to site offices.

Scaffolding Works
Description: Various scaffolding work as required.

Anti Graffiti Paint
Description: Supply and application of Anti Graffiti coating to concrete structures. This work is to be carried out over a period of two years on multiple visits.

If you have a low income it is possible you have lost out by the abolition of the 10p starter rate of income tax. So the current row about recent changes may affect you. But how?

According to the respected and non-partisan think tank the Institute for Fiscal Studies (IFS)

The impact of Mr Brown’s income tax changes on an individual taxpayer goes as follows: last year people under 65 paid no income tax on the first £5,225 they earned, 10% on the next £2,230, and 22% on the next £32,370; this year they will pay nothing on the first £5,435 and 20% on the next £36,000.

Taken in isolation, this means that people on incomes between £5,435 and £19,355 this year would be worse off, because they lose more from the abolition of the starting rate than they gain from the cut in the basic rate. The loss is greatest at £232 a year for someone earning £7,755.

Most people on incomes between £19,355 and around £40,000 would gain noticeably from the reform, with the biggest gain of £337 a year at £36,140.

However, that is not the end of the matter. Gordan Brown simultaneously made changes to tax allowances, Child Tax Credit and Working Tax Credit that go a long way to compensate people on lower incomes who have lost out - or they would if people claim everything they are entitled to.

So taking the whole budget package into account, and assuming everyone goes through the rigmarole and claims means-tested tax credits, how does the picture change?

The IFS again:

Roughly one family in five loses; two in five gain and the rest are unaffected.

Most of the losers are of two sorts. First, childless single people who do not qualify for the working tax credit because they [...] work less than 30 hours a week, or earn too much.

Second, childless couples who lose twice from the income tax changes, but gain at most once from the working tax credit because it is a family payment rather than an individual one.

Another vocal category of loser is early retirees, who do not receive tax credits, but who are too young to benefit from the increase in the tax allowance for those aged 65 and over.

The IFS goes on to make various recommendations about how the policy can be changed at this late hour. Some concessions are likely with local elections coming up and a revolt of Labour MPs in the offing. But the moment it is too early to say exactly what the final outcome will be.

One fact though is clear. The way the tax system is changing it is becoming increasingly important for people in work to claim things like Working Tax Credit and Child Tax Credit. Far from being welfare benefits separate to the tax system, the government is increasingly making them part of normal taxation. If you don’t claim you are in effect paying tax at the wrong rate, and losing money.

LATEST from BBC on 10p tax rate row

Full IFS article on abolition of the 10p starting rate

PRIME guide to how to claim Working Tax Credit

Neat tax calculator to check roughly what you pay

From October 2008, a new benefit called the Employment and Support Allowance (ESA) will start replacing Incapacity Benefit and Income Support for those unable to work due to a disability or long-term illness. The new system will apply to new claims from 27 October 2008. Those with existing claims accepted before that date will continue to be paid on the existing system for another two years.

At the moment you can apply for Incapacity Benefit or Income Support, or sometimes both under a confused system that will eventually be completely scrapped.

At the heart of the new system is a new medical test, the Work Capability Assessment, designed “to look at what people can do rather than what they cannot” according to the government press release.

ESA claimants will be split into two groups based on the results of the test: those judged able to take part in some form of work and those who can’t. The amount of money you receive and the sort of training, if any, offered depend on which group you fall into. Meanwhile Jobseekers Allowance will continue to be available for those without health problems who quailify.

These changes are all part of the 2007 Welfare Reform Act, which is only now becoming law as the relevant provisions are enacted. You can read the detailed regulations passed at the end of March here.

There is a good discussion on BBC Moneybox on how these might affect real claimants.

The new system has had little detailed coverage in the press, with most media outlets ignoring it or treating it as an opportunity to comment on benefit fraud. However, the whole welfare reform process has been dragging on for some time. Many of these changes were announced last year by then Work and Pensions secretary Peter Hain, prior to his resignation in a scandal over alleged failure to properly declare over £100,000 in political contributions.

Official DWP page

Get tough tests face the sick on benefit

Is Labour abolishing illness?

Are some of your customers stars, bringing in money, skills and enhancing the reputation to your business? And are others quite frankly duds, bringing you hassle and actually losing you money on each sale?

Simply asking these questions can lead you into making some useful changes to the way you do business - so you do more work for the customers who are better for you.

But sometimes it isn’t obvious who the heroes and villains are. So here’s a 10-step technique  that will help you identify them.

Calculating what a given client is worth to you

1. This works most simply in businesses where you have a few clients, but if you’ve got a lot divide them up into meaningful segments that you can find or estimate figures for - e.g. those who buy food and those who don’t, the Monday crowd versus the Saturday crowd or whatever. It’s also more accurate if you do it for a longer time period, so quarterly is better than monthly, but don’t worry if your records don’t go that far back.

2. Next you need to know your own hourly staff costs. In an established business this would be the salaries plus all the costs of making someone productive - office space, equipment and so on. However in a start-up where there’s just you and you are not paying yourself much yet it may be hard to come up with a plausible figure. For this exercise a rough approximation will do. So you could just say £10 or whatever you think is reasonable. We are going to apply the same figure to all clients so it still makes for a fair comparison.

3. Now for each client or segment you are interested in tot up the total hours you spent on them last quarter, and multiply it by your hourly staff time figure. Add in any other significant hard costs like travel or material spent on that client. That will give you the cost of that client.

4. Now check what they brought in last quarter. You can keep things fairly simple. If you invoice in bigger chunks divide it up to give you a quarterly figure. And for segments tot up the quarterly income for the group - gross, without deducting any costs.

5. Subtract the cost of the client you worked out at step 3 from what they brought in. The result is a fair approximation to their relative monetary value to you.

6. Next the important bit - the fiddle factors. We all know some clients are reliable and easy to deal with, while others are a pain. So think of a fair monetary value in pounds per quarter for the joy (add) or pain (subtract), and apply this hassle factor to the value score.

7. We also need to recognise that some clients are valuable for strategic reasons - perhaps referring business to us, allowing us to build up valuable expertise or taking us in the direction we want the business to go. So we need another fiddle factor to recognise this strategic value. Again add an appropriate positive amount in pounds to any client taking you in an exceptionally useful direction, subtract money from clients who lock you into dead-end work you’d rather avoid and leave average clients alone. This gives the overall “value” of the client to you.

8. Now repeat from step 3 to 7 for all the clients or segments you wish to compare.

9. You should end up with a set of numbers, with best clients scoring high and your worst low. Note that because of all the approximations and the inclusion of intangible fiddle factors the number doesn’t represent the actual profit from each client. For that you’d need more real data, which you should eventually accumulate.
Nonetheless, this exercise is legitimate and does tell you something important. The high scorers are bringing in the most value to your business in the broadest sense. The low scorers are more of a drain and repay your efforts less. So if you have uncovered any serious duds or brilliant stars you might want to drop the duds and work more with the stars should the opportunity arise.

10. One final step may make identification of heroes and villains easier. Divide the value figure for each client by the number of hours you worked for them, which you’ve already totted up at step 3. This removes the amount of business you are getting from them from the equation, and gives you more of a pure customer-quality score. The high scorers are the ones you probably want more business with.

Owners of small businesses selling all or part of their business will only pay capital gains tax at 10 per cent. Months of speculation about changes to Capital Gains Tax were finally clarified in the Chancellor’s 12th of March 2008 budget report.

The 10 per cent rate applies only to the first £1 million of assets sold during a person’s lifetime. This so-called “Entrepreneur’s Relief” is a response to criticism of the original proposals.

These would have treated people selling small businesses they had laboriously built up themselves in the same way as big private equity firms that just buy and sell assets - hitting both with the same high rate

Tax expert Penny Bates comments on the BBC site

More about tax and disposing of a business at the HMRC site

In other budget news, the Small Firms Loan Guarantee scheme will get extra funding to encourage the banks to lend small businesses they might otherwise consider too risky. And a new capital fund will be set up to encourage female entrepreneurs to grow their businesses.

Other measures are promised to make it easier for small firms to bid for public sector contracts.

Most small business owners would reject the offers made on TV’s Dragons’ Den, according to a poll by accounting software firm Kashflow. Almost two-thirds of the firms participating felt they could get a better deal elsewhere. The Dragons typically offer cash in return for taking a hefty equity stake.

The research revealed that business owners do not believe that the deals offered by the five Dragons represent good value for money. Instead they would turn to a bank in the expectation of getting a more reasonable rate on a loan, or private backers in the hope of retaining a larger percentage of their own business in an equity deal.

Of those who would take the offer, the most popular reason was to benefit from the experience of the Dragons, followed by the opportunity to grow fast and the PR benefits.

Full story