Deal With Credit Issues

Springfield Remanufacturing might be a perfect example of how an open paradigm works. In 1993, when the company was International Harvester’s engine-rebuilding plant, management decided to close the facility. But the general manager, Jack Stack, knew the business could succeed by creating a partnership with the employees. By passing the hat among the employees and borrowing money from a bank, he had enough to buy the firm.He was able to bring Springfield Remanufacturing back from the dead by using an open management system. In 1995 this company generated $104 million in revenue and at least $2.8 million in net profits. The company has experienced strong growth ever since. Stack listed these positive components:

• Employee involvement and ownership
• Sharing of rewards and risks
• Invaluable employee input
• A self-managed organization
• Increased worker education
• A rapidly growing business incubator

Contrast the experiences of the open paradigm used by Springfield with the telephone company’s closed paradigm. Organizations that share appropriate information, financial data, and the planning process with their workers and customers are proving to be more efficient and creative organizations with higher quality, higher profits, and higher employee morale.

One way of receiving the full benefit of taper relief even though the business assets have not been owned for two years, could be to delay payment through instruments like bank guaranteed loan notes (or corporate bonds). These are cashable sometime in the future with the result that CGT could be payable only at the future date when full taper relief could apply, because for CGT purposes the date of disposal is calculated from the date of payment and not when the agreement to sell is entered into. However, you need to be careful that the right kinds of notes have been issued and it is prudent in all cases to receive prior IR clearance.

Other schemes for avoiding tax include giving up your UK residence and being paid in a qualifying overseas country, because non-UK residents do not pay CGT. However, besides the question of whether the saving is worth this inconvenience, you would need to be careful about how soon you return to the UK and whether this loophole has not been closed.

Payment of a capital sum over time is still treated as capital (and not income) for CGT purposes, unless something in the sales agreement affects the amount of the selling price.

Goodwill is a business asset for CGT purposes and is subject to the same rules and allowances and reliefs as other business assets. However, it will be important to both vendor and purchaser to establish clearly what portion, if any, of the price being paid can be allocated to a goodwill component.

Customer perceptions and behaviour – what the customer wants and expects – are among the biggest influences on pricing. Successful pricing is based on a clear understanding of the needs and nature of the target market. The culture of the market affects pricing decisions. If there is an acceptance of a particular type of pricing structure or approach, strategies will often follow this. The maturity of the market is also important. If the market is mature with few new customers, pricing decisions should focus on taking customers from competitors as well as retaining market share. But if the market is new and growing, the aim is to build and gain market share as rapidly as possible.

These two approaches may or may not lead to the same result. Lastly, if the market is in decline, prices may need to be cut simply to compete for a dwindling number of customers.