The Blog of an Entrepreneur

When I first started up in business my first business was in a 50/50 partnership, but we didn’t really agree what each of our objectives were or what each others roles were going to be in the business. Needless to say, after a couple of years the business relationship broke down. Just like 50% of all business partnerships, hence my previous blog about the importance of have a Shareholder Agreement.

Since then I have always taken the view that I wanted to own 100% of my business interests, never having any more shareholders. I wanted to be in control of my own destiny and my own business. I then started another business with a minority shareholder, and I put a shareholder agreement in place to ensure we both performed as expected. I had a hunch that my partner wouldn’t perform, and as expected he didn’t so he has lost his shares in the business. So for a while I lost faith in working with a business partner again, but then I thought some more (and read Richard Branson’s autobiogrphy) and came to the following conclusion.

I currently run three businesses full time, but I find myself continuously coming up with other ideas for new business ventures. If I tried to run these other new businesses myself I would not be able to, there is only so much that I person can do themselves, so yet again I needed to look at working in partnership with other people to enable these business ventures to see the light of day. This is where I can talk though the thought process I had for one business in particular.

I have had many people ask me whether I was able to supply them with lists of new businesses that have just started, people who wanted to get to these new companies at the ground level to offer them anything from mobile phones to accountancy. Technically one of my businesses has access to that data through our links with Companies House, but I felt it unethical to use that business to offer this service. So I always turned this business opportunities down, until lots of people started asking me for this information. So I started investigating this business model, and whether it would be a profitable business or not. I also checked out some of the competition to see what I would be up against.

Once I started putting the feelers out amoungst my contacts it wasn’t long before I had over £300,000 worth of pre-orders penciled in for a business that wasn’t even started yet, so I needed to find a way to get this business up and running pretty quick. I spoke to some software developers and designed an automated business model, a business that could effectively run itself through automated technology and came up with the entire business model. I then sifted through my contacts to see who I felt would be the best organisation to work with, and picked up the phone to arrange a few meetings. I found an organisation who had similar links to company data that I have, know the data industry very well, and have their own contacts similar to mine. More importantly too, a company where we both know and respect the strengths of each other so that we can work together. It also helped that I brough over £1/4 million on orders to the table ready to go.

Some may argue that perhaps I’m handing another company shares in a business that I needn’t have, I have the money and orders to start this business from a running start but do I really have the time? I’m in a situation now that I consult to this new business venture, I sell the business services to my own network of contacts, and I take my share of the profits. My new business partners have an exciting business opportunity to get involved in, they run the business day-to-day and they get paid for doing that. They also want the business to work, and sell it themselves to their own contacts. They also get their share of the profits too, and speaking to their directors and Chairman they are very excited about working on this business ventre and learning from my expertise in technology and the Internet.

I have two more Joint Ventures I am working on at the moment with other businesses, and I am pleased to have found a vehicle that enables business ideas that I had previously shelved to be realised. Further more, my new business partners are all chosen by me as being firms that have the expertise that my ventures will need, but can also learn a lot from my strengths. Oh yes, and not forgetting the partnership/shareholder agreements too!

So if you are considering working in a JV arrangement, you need to choose your business partner carefully. Both partners need to gain something from the other, it cannot just be a one way street, and these gains can be anything. For example, one of the things I am gaining is freedom of my time so that I do not need to run these businesses myself. That to me has a monetary value just the same as human resources and financial investment. Consider your own strengths honestly as well as your weaknesses, and do the same for the people you are consideirng working whether. There is not point both parties being good at the same things, you will need to balance each other out and then respect the expertise of each other. There is no way my partners in this venture could tell me what is and is not a good website, yet there is also no way I could tell them anything about the industry of business information and company data.

Joint ventures are an excellent business vehicle and can lead to rapid growth of a business that perhaps on your own may not grow as quickly, and if you do need a joint venture setting up of course you know which company formation agent can help you with that :-). I’m very excited and am looking forward to the official launch of New Start Data Limited

A few years ago there was an active industry with a good few hundred companies in the UK trading at varying levels of success, from big companies to small one man operations. This industry was just like any other, providing income and jobs to hundreds maybe thousands of people in the UK. This industry was the private numberplate industry.

That was until a Government agency, namely the DVLA, realised that they could make a lot of money from the private numberplate industry and decided to abuse their position and monopolise the market. They undertook extremely agressive marketing activities, from TV to magazine to Internet, and they basically “cleaned up” as the term would go. A Government agency basic abused their position, exploited it to great financial gain, and the end result was many businesses went into liquidation and many more lost their jobs. If this happened in the private business sector it would have gone through the courts with an anti-competitive law suit, but nothing happened, the Government which claims to encourage commerce did completely the opposite and did what in my opinion should be illegal.

Well guess what, it’s happening again!

Companies like one of my business, Quick Formations, are being forced by law to carry out very time consuming comprehensive checks on each and every one of our clients under the Money Laundering Regulations 2007. These checks not only take time, but also cost money too, and we must reflect these costs and time taken in the prices we charge. This isn’t just my business, but it is all businesses in my industry sector (that comply with this legislation that is, but that’s another story). However, what do Companies House do?

Companies House state that they are an “administrative” agency, who’s role is to store data for the public record. Yet, Michael Mouse is able to file forms 10, 12 and 288a with them and Incorporate a Limited company without question. He can use a completely fictitious address, he doesn’t even have to exist, and Companies House will incorporate this Limited company for Mr. Mouse without question. Mr Mouse can then go to one of a number of countries around the world to open a business bank account because a UK company does not have to bank in the UK, and then Mr. Mouse has all the tools he needs to launder all the money he likes out of the UK. By launder, and to quote the Governments own scare mungering about this required legislation, I mean to potentially finance terrorism. Companies House, a government agency, is openly flouting a legal requirements of the company formation industry. The businesses within the company formation agency must charge to cover the administrative burden of complying with this legislation imposed upon them, but Companies House by not complying with this same legislation do not and can abuse their position in the market. The DVLA story seems likely to repeat itself all over again.

However, I have a solution and have raised this to parliament. At first I thought it would come to nothing, but at least Sally Keeble MP is listening and has started to raise concerns and move them forward.

My solution is as follows;
All agents who provide a company formation service apply for an account with Companies House. The requirement of holding an account is that the agent must be registered with HM Revenue & Customs under the MLR2007 regulations, and as such comply with the regulations. Companies House then have no requirement to carry out due diligence on documents filed by that agent.
Any company formations filed by non-account holders will require due diligence, and Companies House will be required to operate under the same legal requirements imposed on all other businesses carrying out the same business activity. They will also have to cover their costs to carry out this activity, leveling the commercial playingfield.

Here is hoping that Sally Keeble can get some results on this.

This time I’m providing an article that I didn’t write but was in fact written by a friend of mine that I hope will provide helpful to business owners who may find themselves in a difficult situation with a shareholder, or worse still in difficulty with their business overall.

You will probably be aware of the terms “Phoenix” and, more recently, “Pre-pack”.  Invariably, these terms often go together since the introduction of the Enterprise Act on 13 September 2003.  However, should we always cry foul when a new company rises from the apparent ashes of old?

You will probably be aware of the terms “Phoenix” and, more recently, “Pre-pack”. Invariably, these terms often go together since the introduction of the Enterprise Act on 13 September 2003. However, should we always cry foul when a new company rises from the apparent ashes of old?

In a recent case I was confronted with a shareholder dispute where a 30% shareholder was holding the company to ransom in exchange for consideration of his shares at an extortionate rate. His conduct in preventing various actions by the company was like a corporate tourniquet, slowly strangling the company to death. My advice was to place the company into administration (an Administrator is exempt from requiring shareholder approval on prescribed issues under the Companies Act) and seek a purchaser for the business as a going concern.

The outcome was an expression of interest from four parties, with the offer that was best for the creditors as a whole coming from the existing directors. Technically, this could be regarded as a phoenix but the result in this case was the saving of all employee positions and there will be a sizeable return to creditors. The alternative would have meant no funds available and creditors writing off 100% of their debt.

On the other hand, we have the phoenix where creditors ought to be concerned and aware of their rights. In a recent case where creditors asked me to represent them the insolvency practitioner (”IP”) had agreed to sell the business back to the directors for a nominal sum and “put the company to bed” by a voluntary liquidation. The nominal sum conveniently matched the IP’s fees.

Because the creditors I represented were aware of their voting power, I was appointed Joint Liquidator and the original concerns were justified as I am about to sue the directors for a significant sum.

The Association of Business Recovery Professionals is the trade body for IPs and is currently waiting for approval of new guidelines on what must be reported to creditors in a pre-pack scenario. Having read the draft guidelines, I cannot see why the same requirements are not imposed on liquidations where a phoenix has occurred.

When you are a creditor of a company that is being presented with a “Done deal” and the business has been sold (or it is being proposed that a sale be approved) creditors should consider whether the (proposed) transaction is beneficial to creditors as a whole. To assist in this thought process I would suggest the following be taken into consideration:

What marketing activities were undertaken by the company and/or the IP prior to agreeing the proposed sale?
How (and by whom) were the assets valued
What alternative courses of action could (or should) be taken or considered?
Following on from (3) above, what is the likely financial outcome of the alternatives available?
Are there any reasons why the alternative options could not be followed through (e.g. inability to trade for the interim period due to no funding)?
Were steps taken to enquire whether third parties could offer interim funding while the business was advertised for sale?
Had the directors guaranteed any of the liabilities and how were those creditors holding guarantees being handled as a result of the phoenix?
If deferred consideration, what security will the IP have to protect the sale proceeds?
Being able to switch off the emotional mind (very difficult in many cases) and focus on what you are actually being asked to approve generally allows a considered conclusion to be reached. Knowing your rights as a creditor of an insolvent company re-enforce your ability to ask those searching questions and, where appropriate, challenge the proposals put before you.

The field of insolvency is a highly specialised area and very few people truly understand its meanings. Therefore, should you be the unfortunate recipient of an insolvency notice then you would be best served contacting a Licensed Insolvency Practitioner who can explain your rights in a clear and concise manner.

Gary Pettit is a Partner and Licensed Insolvency Practitioner at Begbies Traynor who are the largest independent firm of insolvency and corporate rescue specialists in the UK. Should you wish to contact Gary then his details are:

Begbies Traynor
Calverton House
Tilers Road
Milton Keynes
MK11 3LL

T: 01908 261300
F: 01908 565850
D: 01908 264870
M: 0787 6477312
www.begbies-traynor.com

My wife made a fantastic observation at the weekend which to a degree can summarise much of what is happening in the media about the Credit Crunch we are experiencing at the moment, and I think this has a lot to account for with the downturn in the economy.

Her Father is widower on a fixed insurance income and pension. He is not employed, so not likely to get made redundant and has no mortgage. What I want to demonstrate is that he is one the least likely to be affected by a downturn in the economy than anyone.

The bad press and media coverage of the Credit Crunch has worried him, so he has started cutting his spending. When he goes shopping he has stopped buying the extra’s he would normally purchase and is only buying essentials, and when he puts petrol in his car he no longer fills up but only puts a tenner or so in at a time. He is cutting his spending in fear of the economy downturn, despite this downturn having very little overall effect on his personal finances.

All that my Father-in-Law is inadvertantly causing is a reduction in consumer spending brought on by csaremungering of the press and media. By reducing his spending, he is reducing the income into the economy, who in turn are reporting reduced consumer spending to the media, who in turn are spreading doom and gloom stories to people like my Father-in-Law who then cut their spending fearing the worse. Do you see what is happening here? Now put that on a national scale, where hundreds of throusands of people around the nation are fearing the worse and cutting their expenditure into the economy, holding onto their pennies for a rainy day. Businesses then have to pull in purse strings and make redundancies to counter act the reduced spending, which then again leads to ever more bad media coverage of the economy.

Before anyone mentions the downturn in the property market, this was bound to happen. The property market could not sustain unrealistic property inflation which was pricing first time buyers out of the market and making it practically impossible for them to get onto the property ladder. For example, I purchased my first home (a 2-Bed Semi) for £43,000 and sold it 8 years later for over £160,000. How on earth can that be sustainable? The property market needed a reality check, and that is what I believe this now is. It is just a terrible shame that people have to suffer redundancies because of it.

I read Duncan Bannatyne’s autobiography last year, and must confess to finding it a good inspirational story. However I’d like to use one piece of advice he gives in his book that goes against much of the advice offered by many business advisors, and that I myself also disagree with.

My first business wasn’t a great success. I ran it for two years and it pretty much as good as went out of business. My second business struggled for the first couple of years, and that also nearly went down the pan until I changed my ways. It’s now a great success, so what changed? Well quite a lot of things changed about the way I approach my business, and one key area was that I started to use professionals to do things instead of struggling to do everything myself.

In Duncan’s book he gives reference to two examples. One is that he learnt how to form a Limited company, and then completed all the paperwork and formed his first business by himself. The second is he gives reference to learning about the legislation involved in running a nursing home. He then advises that you shouldn’t waste money paying other people to do things when you can in save that money and do the “thing” yourself. This I firmly disagree with, and I’m a true example of why it is wrong to take on that apprach and here is a couple of examples why.

Websites: I have lost count of how many businesses have poorly designed websites that they have tried to do in house to save money, without realising that all they are doing is making their businesses look too tight fisted to create a professional image of their organisation. They look tachy and I’d never deal with a business who takes pride in promoting a lame public image of themselves.

Business Cards: When someone passes you a business card printed on cheap do-it-yourself paper from a cheap stationer. Realistically it would cost you less than £50 to get some better quality business cards printed from a high street printer, on card. If you can’t afford £50 for business cards then you need to relook at your budgeting and startup costs.

Both the above reflect the impression you are giving other people about your business, and you should be thinking about creating a professional image. You want to portray a sustainable business that is going to be around for a while, not that of a business that can’t afford basic business cards. As for a website, it is better to have nothing at all than something that makes you look like an amateur.

Duncan does suggest contacting the relevant Government organistations and ordering their handout booklets to read and learn about whatever it is that you need to comply with. Personally I feel this is a waste of your own time, when you should be focusing your energies on growing, developing and selling your business. If I relied on the Government guidance on how to comply with the Money Laundering Regulations I could inadvertantly find myself breaking the law because their guidance is riddled with contradictions. If I followed their guidance on how to comply with the umpteen million different Emplyment Legislations I again could find myself breaking the law without realising, or worse still, I could find myself drowning in so much paperwork I’d never find time to run my businesses.

My advice is manage your time. It is actually sometimes a much more efficient and cost effective use of your time to use professionals to do what they are good at so you can get on with running your business safe in the confidence that “whatever” you could have done yourself more slowly has been done more quickly and professionally by a professional. I now surround myself with professionals who know how to do things much better than I do. I technically can do the programming that powers my Efiling business, but it is a much more efficient use of my time to pay others to do it better than I can. I could also technically learn how to write my staff contracts, but it is a much more efficient use of my time to pay someone else to do it. The end result is that my businesses get the attention from me that they need to grow and develop, and not have me tied up in books, leaflets and other unnecessary paperwork.

Using Duncan Bannatyne’s example of forming a Limited company. It probably cost him about £40 all in to form one of his companies himself, and by the time he received all his paperwork back it would have been about a week. So that is about 5 hours of his time learning and form filling, £40 paid out, and a week delay in delivery of his Certificate. He could have paid my “professional” company to do it for about £50, took him about 15 minutes and we would have had the paperwork back with him the next day (quicker than Companies House directly).

Even multi-millionaires can learn something from us mere trainee millionaires.