Franchising – does it fit your business?

 Choosing to franchise your business is not a cheap

Franchising involves expanding your business through
allowing someone to set up and run their own business
under your brand, thereby replicating your business
model in a different geographical location. In return for
exercise. You will need to make upfront investment to
create the franchising package and attract potential
franchisees.
Entrepreneurs’ outlook
the provision of a good brand identity, established
 Obvious as it may sound, you need to be confident your
business processes and practical support you receive a www.horwathcw.com August/September 2009
fee, typically a percentage of the turnover generated by business is profitable from the outset and that it has the
the franchise in question. ability to thrive on a broader base.
Why might it be good for your business?
The most important consideration upon entering into
 You are essentially using someone else’s money to build franchising is the franchise agreement. This is a legal
your brand, thereby limiting your own financial risk. agreement that details the obligations of both parties.
 You need not take on the day-to-day operational duties
It can be tailored to specific circumstances and made as
restrictive as required; for example, restrictions can be
of each new outlet.
 If you supply a service or produce merchandise which is
placed on the way goods or services are marketed, priced
or how they are sold. It also makes clear what will happen
easily replicated, you could be suited to franchising and in the event of one party withdrawing from the
find supplying ‘the business in a box’ relatively agreement.
straightforward.
 You could use the extra income generated by In summary, franchising is by no means a quick fix and
franchisees’ fees to develop other areas of your requires substantial planning and
business. investment. However, where the
business system can be
What are the limitations? replicated and there is the
ability to fully support
 Your good reputation could be the franchisees, it
The best things come in small
damaged if the franchisee supplies can be a great
way of
inferior merchandise or services Inside this issue:
under your brand. A well-
structured franchise agreement
growing
your
packages
can limit this but the risk still exists. business. The best things come in small Listed groups in the UK have been Many small companies encounter
packages required to prepare their financial difficulties, not because of how they

 You may find relinquishing control difficult,

statements under International operate but because they cannot
Financial Reporting Standards (IFRS) access the necessary financial
particularly if you have built up a highly since 2005, but the stringent assistance to support their growth.
individual and innovative business. reporting requirements mean that The purpose of any set of reporting
Closely guarded business methods will need to be shared adoption is not as widespread as requirements is to enable third party
and could risk your competitive advantage. anticipated for others. finance providers, whether it be banks
Going green – an opportunity or potential investors, to make
not to be missed The IFRS was suitable for the informed judgements about the
complicated reporting requirements position of a company. Anything that
for listed groups, but compared to UK makes a company’s financial
GAAP, was burdensome for SMEs. To statements more transparent to these
combat this, the International finance providers should ease the
Accounting Standards Board (IASB) has access to funding, by allowing them to
We hope you find this newsletter of interest. If you have any questions about any of the topics covered, please call your regular Horwath Clark Whitehill contact.
Entrepreneurs' Relief - key introduced an IFRS for small and make informed and confident
reminders medium sized companies, which after decisions.
Horwath Clark Whitehill LLP Associate members of Horwath Clark Whitehill UK ‘Group’
nearly six years in the making, was It is hoped that the IFRS for SMEs will
Cheltenham 01242 234 421 Manchester 0161 214 7500 Hartlepool 01429 234414 released with immediate effect in July provide a platform for growing
Kent Midlands Isle of Man 01624 627335
- Maidstone 01622 767 676 - Kidderminster 01562 60101 2009. The IFRS for SMEs contains five businesses, and changes appear to be
types of simplification of the full IFRS.
 Some topics are omitted where not
- Tunbridge Wells 01892 700 200 - Walsall 01922 725 590 The office in the Isle of Man is Horwath Clark Whitehill LLC and the office in
London 020 7842 7100 Thames Valley 0118 959 7222
stepping up a pace. On 11 August an
Hartlepool is Horwath Clark Whitehill (North East) LLP. These are both
separate, independent firms and not part of Horwath Clark Whitehill LLP. announcement and draft policy release
relevant for SMEs.
 Some accounting policy options in
Horwath Clark Whitehill LLP is registered to carry on company audit work by the Accordingly, these firms cannot be held liable for the acts or omissions of each from the Accounting Standards Board
Institute of Chartered Accountants in England and Wales and is authorised and other. Franchising – does it fit your
regulated by the Financial Services Authority.
business? indicated that UK GAAP will probably
full IFRS are not permitted.
 Some recognition and measurement
be phased out, to be replaced by a
www.horwathcw.com three tier system. Such a system results
This information is published without the responsibility on our part for the loss occasioned to any person principles have been changed to in publicly accountable entities using
acting or refraining from action as a result of any information published herein.
reflect the latest thinking.
 There are substantially fewer
full IFRS, non-publicly accountable
Crowe Horwath International Association is a Swiss Verein. Each member of the association is licensed to
include ‘Horwath’ in its legal name but remains a separate and independent legal entity. entities using IFRS for SMEs, and small
disclosures.
 First time adoption is now easier.
© September 2009 Horwath Clark Whitehill LLP. All rights reserved.
entities using FRSSE. The beginning of
the end of UK GAAP is nigh…
Going green – an opportunity not to
be missed
There may be evidence of the ‘green shoots of
recovery’, but is now the time to be pressing go on
green initiatives? The answer has to be an emphatic
‘yes’. Setting your company’s green agenda is an
opportunity for a competitive edge and is not to be
missed.
The government’s independent climate change
committee has called for legally binding cuts in carbon
emissions of at least a fifth by 2020. Regardless of
concerns over the recession, the government therefore
has no choice but to accelerate the shift towards a low
carbon economy.
There are significant gains, and potential savings, to be
made from establishing a green policy that your
employees and your company can be proud of.
When trying to win new business, most companies to
whom you pitch will expect you to have a green policy.
But having just a policy is not enough. In the ever
increasingly competitive market place, evidence of a
company’s green credentials can be its competitive edge.
The green issue can also impact on the recruitment
market. Recruitment consultants are now saying that
potential employees are more green-aware, and
although the salary rate is still crucial, they are using the
green credentials of a prospective employer as a key
differentiator.
Changing the behaviour of staff is the key to reducing
your carbon footprint. Simple things like removing desk
bins can have an immediate impact, by forcing people to
reduce their daily waste and encouraging recycling.
Ensure you use your green credentials in proposal
documents, presentations and on websites to prove
these initiatives are working.
The Carbon Trust (www.carbontrust.co.uk) will perform a
carbon audit of your business for free (subject to certain
criteria) and provide a report on where you can make
savings on your carbon footprint. These can be done at
little to no cost and can save money as well as the
environment. Examples include, turning monitors off at
the end of the day and using double sided printing on
photocopiers. SMEs may also be eligible for interest free,
unsecured loans from the Carbon Trust for the purpose
of purchasing energy saving equipment.
There are also potential taxation advantages, such as
accelerated capital allowances that can be achieved on
energy efficient items. You may want to consider your
company car policy – motor manufacturers are acutely
aware of the taxation benefits of low emission vehicles
for individuals and organisations, and now offer a much
more versatile choice of green vehicles.
The evidence is clear - now is the time to review your
company’s green credentials. The sooner you act the
sooner you will benefit from opportunities that come
from being green...and it won’t cost the earth.
Entrepreneurs' Relief - key reminders
Entrepreneurs’ Relief was announced by the Chancellor Relief may also be available where personally owned assets
alongside the Capital Gains Tax reform programme and are sold in connection with the disposal of the business/
took effect from 6 April 2008. It provides relief from company itself. A restriction applies where rent has been
Capital Gains Tax (CGT) for gains arising on the paid after 5 April 2008. Where a business ceases to trade or
disposal of an interest in a business…which means a trading company is wound-up, gains made during the
knowing a bit more about it could help save you three years following the cessation date will qualify for
money. relief.
Entrepreneurs' Relief The relief may also be available where business assets are
‘...it provides provides for a rate of tax owned by a trust, and a trust beneficiary has an
for a rate of tax (roughly ‘10% of the entitlement to trust income. Where shares are held by a
gain’) which is in line trust the beneficiary must also hold at least 5% of the
which is in line with the now defunct ordinary share capital and voting rights, and be an officer
business asset taper or employee of the company.
with the now relief; but is limited to
defunct business the first £1 million of If your company is taken over for shares or loan notes it is
post 5 April 2008 still possible to claim Entrepreneurs’ Relief, and additionally
asset taper relief...’ qualifying gains. gains on shares swapped for loan notes (‘qualifying
corporate bonds’) before 6 April 2008, continue to qualify.
There are necessary You could double the £1 million limit for relief by making
conditions to meet throughout the year immediately prior your spouse or civil partner a business partner, or giving
to the disposal. You will qualify if you dispose of: him/her shares and
‘the time limit for making him/her an
 the whole or part of an unincorporated business officer or
(including a partnership interest)
claiming is the first employee.
anniversary of
 or shares in a ‘trading company’ - you must hold at least Remember, the
5% of the ordinary share capital and voting rights, and 31 January following time limit for
be an officer (director or company secretary, including the end of the tax claiming
Entrepreneurs’
unpaid posts) or employee of the company (or another
group company). year...’ Relief is the first
anniversary of
A ‘trading company’ is a company carrying on 'trading 31 January following the end of the tax year of disposal.
activities' whose non-trading activities are not ‘substantial’ So you will need to start getting prepared if you are to take
(no more than 20% of all activities). Shares in a holding advantage.
company qualify if the whole group meets this test.