Mannion Lochrin & Co. helps many local businesses deal with the everyday issues surrounding the management of business in the Connemara region. We provide the expertise to allow each business make more informed decisions to improve their profitability. Some of the common themes and issues which we are regularly asked to advise on are listed below.
Should I incorporate the business?
- Advantages of incorporation
- Disadvantages of incorporation
- Audit requirements for companies
- What are the advantages of a Sole trader/Partnership?
- How to manage business profitability?
A key to any business success is to have adequate funding and a proper plan to grow the business into the future. Our firm can assist your business in reviewing operations, deciding on the best structure for the enterprise and planning for the growth of the business and the ultimate succession of your business to either the next generation or to external buyers. It is always prudent to plan for the future. Mannion Lochrin & Co are here to assist you in that process no matter what stage of the business cycle you are at.
A question which is often put to financial advisors is whether a business activity should be formed as a limited company or as an unincorporated entity like a sole trader or partnership. The answer is (as is often the case) “it depends…” There are many forms of company structure (limited by shares, limited by Guarantee, Public limited companies etc) so once the choice is made to incorporate you also need to decide which company structure is best for you.
If your business is growing rapidly and making substantial profits then a company structure makes a lot of sense as you can reinvest the profits in the business and not have to pay punitive taxes. Let’s look at the advantages and disadvantages of a company structure.
The main advantages of the company structure are:
The main disadvantages of the company structure are:
Audit requirements for companies
Recent regulations have meant that certain companies may be exempt from preparing audited financial statements each year. (An audit is a detailed examination of the company records in accordance with audit regulations and guidance by a qualified registered auditor firm like Mannion Lochrin & Co Ltd.) If a company can avail of an audit exemption then it must satisfy the criteria, but most companies can now qualify to be audit exempt. A company may (it doesn’t have to) opt not to have an audit as typically this can result in less work having to be done by the registered auditor firm which can result in less regulatory work and fees being charged to the company.
What are the advantages of a Sole trader/Partnership?
The advantages of a sole trader or partnership are in the main the opposite of the disadvantages of a company formation in that you generally have;
- complete confidentiality
- less regulation
- only taxed once on the profits
- avoid the costs and regulation associated with companies
However there are drawbacks to a sole trader set-up also. Generally if your sole trader business goes belly up you could lose everything, including your home and savings as you pay for your losses. However one of the main drawbacks is that you pay a lot more income tax on your profits each year and this can prove a significant cash flow problem for any business with large profits.
BUSINESS PERFORMANCE REVIEW
Businesses should never be complacent about their continued success and they should constantly review their operations to ensure they are maximising their return and planning for a future where increased competition and price pressures are likely to be the rule rather than the exception.
So what should business owners do to review their operations with a view to maximising their returns? Well business profitability is a function of a number of factors which need to be considered both individually and collectively. They fall under the following major headings. And they are:
- Gross Profit
This is actually the order in which these headings appear in your financial statements but they are all inter-related and steps taken to improve one heading can adversely impact on other areas so the key is to consider any measures collectively. Remember the goal here is to maximise the after tax return for the business owners.
A profitability review is a constant requirement for those in business. It is necessary for each business to constantly review their sales mix, pricing and strategy and to tackle costs both from suppliers and service providers.
By improving the underlying profitability of the business you are ensuring that you are capable of facing increased competition and challenging business conditions in the best possible shape and therefore safeguarding your assets and income security into the future.