Business Focus Summer 1999

A stock control system

Good stock control and ordering systems can significantly improve the profitability of your business. Here are some suggestions you might consider:

Set minimum and maximum stock levels for each line

Operate a "just-in-time" ordering system

Restrict access to the stores so that "shrinkage" is easier to control

If appropriate use an accounting system that traces each item from order, through stock, to sales so that the precise profit on each transaction can be measured

Introduce a performance related bonus system for the manager or management team responsible for stock.

Monitor stock turnover by product or line

Introduce a training programme to increase awareness of the cost of stock and the need to control it in your Marketing, design, production, engineering and other departments

These findings are consistent across the entire spectrum of small, medium and large businesses.

You may need to introduce some of these changes gradually, especially where existing processes and procedures are well established, but as you introduce new lines, you can set up effective control procedures from the beginning.

The important thing is to have a company-wide awareness of the cost of stock, and a long-term strategy for controlling it.

Recession - to be or not to be?

Is the next recession just around the corner? the debate continues with there being strongly held opinions expressing opposite viewpoints, although most agree that we do not have in immediate prospect a boom or bust economy.

Consider some of the available information:

Exports

The global downturn of is undoubtedly having a significant impact on the economy. Toward the end of the 1998 our net trade was weaker as also was the country's manufacturing output. Our exports which grew during the 1990s have suffered partly as a consequence of lower exports to Asia. Growth in UK exports is not now to expected to rise above 6% in 1999 or 2000 having been over 7% both in 1997 and 1998.

Household spending

On the home front, growth in household spending is expected to remain restrained.

Company spending

While company spending is recognised to be difficult to predict, ongoing world uncertainties remain and so business confidence remains finely balanced. In spite of the reduction in the cost of capital no clear picture regarding capital investment is yet emerging although investment in manufacturing is weaker than expected. Growth is likely to be further restrained in 1999 as a result of the fact that business have run-up an excess stock position. As a consequence firms will be running down excess stock levels during the remainder of this year.

Government spending

This is on the increase with a total managed expenditure this year of �349 billion. In line with the Comprehensive Spending Review growth be supported by the planned expansion of the public sector with the 1999 Budget alone committing a further �6 billion to boost the economy

Inflation

The Retail Price Index, having averaged 2.6% in 1998 as a whole and 2.5% from August to November, is forecast by the Treasury to be 2.5% until 2001.

The Millennium Bug

Government reports continue to indicate that less than half of UK businesses will be ready by the end of the year. The "Year 2000" problem raises the interesting spectre of stronger growth in the economy as a result of the "stocking-up" phenomenon. Conversely, this poses a downside risk to the world and UK economy in 2000.

While this provides an opportunity to look at "the big picture" we know that our clients mostly work in the local economy. The challenge for business today is to ensure that business planning is reviewed regularly and that this currently reflects the reality of an economic slowdown while seeking to maximise the advantages that are available.

Your questions answered

Q I hear self assessment is being introduced for limited companies, how will it affect me?

A Self assessment for companies, or corporation tax self assessment (CTSA) as it is more properly known, is in force for accounting periods ending on or after 1 July 1999. Companies should already be familiar with the requirements of the pay and file system, but we recommend you plan carefully for the new regime as follows:-

The retention of records. In view of the Inland Revenue's enquiry rights you must ensure that all back-up paperwork is retained and easily accessible. You will need to keep these records for six years from the end of the accounting period, under the threat of penalty up to �3,000. Quarterly tax payments based on estimated current profits have to be made by companies with taxable profits of over �1.5 million. Beware though, this limit is rateably reduced if your company is one of a number of associated companies under common control.

A self assessment company tax return is required. The previous return of profits is being replaced, with responsibility placed firmly on the company. Do check with us if you are uncertain as to

whether you are meeting all your new obligations as there is a tax related penalty for incorrect returns. Every return has to include the company's own calculation of tax payable.

An automatic penalty of �100 will be imposed if you file your return more than 12 months after the end of the company's accounting period. This rises up to �200 if the failure to file continues beyond a further three months.

Q What powers do the Inland Revenue have to launch an enquiry?

A The Inland Revenue has the right to launch an enquiry into any aspect of the company's return , accounts, and computations. The Inspector can require specific documentation under threat of penalties, including a daily charge of �30 for non-compliance. Once again, the extent of the departmental powers highlights the importance of good record keeping.

There is a specific 12-month period after the due filing date for a return within which the Inland Revenue must notify a company of its intention to launch an enquiry. In effect, this means you will not know if you are "in the clear" until two years after the company's year end.