Deal With Credit Issues

Where a person transfers anything of value either on death or during his lifetime, Inheritance Tax (IHT) may be payable. This fact could have a dramatic impact on the way a business owner structures a family succession plan.

IHT law, like most tax laws, is complex and an understanding of its implications requires careful study. Business owners contemplating a family succession as an exit route should obtain early advice on IHT law from their tax advisors.

On death the transfer of an estate of a UK resident up to a certain value is tax-free.

For the tax year 2005/2006 the tax free amount is £275 000.

Transfers to your spouse of any property either in life or after death, if both spouses are resident in the UK, are also free of tax.

Gifts can be tax free if certain conditions are met. These conditions include that the transferor lives for seven years after making the gift, or that the gift does not exceed a certain (relatively small) value, or that the total value of gifts does not exceed a specified amount in any single year.

Besides the exemptions for transfers after death and for gifts made in life, there is also significant business property relief under the IHT legislation, which could be crucial for business owners wishing to dispose of their business assets to family members, either through a sale at less than arm’s length, or through a gift, or a combination of both.

Are the most effective and relevant performance measures in place to monitor and assess the effectiveness of financial
decisions?

Have you analysed key business ratios recently?

Is there a positive attitude in your organisation to budgets and budgeting?

Is decision-making focused on the most profitable products and services, or is it preoccupied with peripheral issues?

What are the least profitable parts of the organisation, and how will these be improved?

Are market and customer decisions focused on improving profitability? Too often the emphasis is put on such objectives as increasing market share or sales, which may involve a reduction in margins and greater financial exposure.

How efficiently is cash managed in your organisation? Do your strategic business decisions take account of cash considerations, such as the time value of money? Are you giving more credit than you are receiving?

Risk averseness still predominates in business. Everyone accepts that risks need to be taken if you are to keep ahead of the competition. The answer seems to be a better understanding of what the real risks are, for people to genuinely share responsibility for the risks being taken, and for them to change their own mindset, embracing risk as an opportunity not a threat. Although this conventional approach to managing risk prevails, it is not the whole story. Understanding how organisations manage risk effectively is valuable, but managing risk is only one possible strategy. Another approach is to look for ways to use risk to achieve success, by adding value or outstripping competitors or both. To do this, organisations should stop taking the fun out of risk, emphasising the need to control it in a way that is often perceived as bureaucratic and stifling.

As any entrepreneur will tell you, risk is both desirable, providing new opportunities to learn, develop and move forward, and necessary, compelling people to improve and effectively meet the current of challenge and change.