Category Archives: Business Stuff / Internet Marketing

Fulfilment by Amazon

I don’t know about you but my least favourite part of selling products via the Internet has always been the packing and shipping element. I just don’t enjoy it but if you want to sell physical products, it is a job which has to be done.

Drop-shipping goes part-way to getting round this task but for me there have always been too many ‘cons’ and not enough ‘pros’ when it comes to this method of trading. The ideal scenario would be to have someone who would happily store, pick, pack and ship your products as you sell them. Someone trustworthy, someone with reliable and tested systems already in place, someone who isn’t going to charge a fortune to do this for you. Someone like Amazon perhaps?

Yes, its true, Amazon are now offering a pretty amazing service called Fulfilment by Amazon which does exactly what the name suggests. Amazon will store your entire inventory (from one item to thousands of items) and pack and ship your products as you sell them. This service isn’t just designed for those who are selling their products on the Amazon website (although it integrates perfectly if you are) but you can also use Fulfilment by Amazon if you are selling on eBay, from your own website or pretty much anywhere else online!

It’s affordable too. Amazon charge a fee for handling, picking and packing and a weight-based fee. Obviously with such a range of products available charges will vary widely but to give you an idea, fulfilment by Amazon (for a product sold on Amazon) of a 1kg electrical product would cost just £1.85 plus normal Amazon Marketplace fees. Fulfilment for the same product sold somewhere other than Amazon would cost £3.85 which is still a pretty good price in my book when you consider the amount of work saved.

If you are selling high value products on the Amazon Marketplace, things get even better as Fulfilment by Amazon are currently charging absolutely nothing to fulfil products with a value of £300 or more (they simply make their money on the normal Marketplace fees). For high value products, surely the Fulfilment by Amazon service is a complete no-brainer?

Amazon have for some years been catching up with eBay and some would say they are already over-taking them as the place to sell. Offering a complete fulfilment service will put Amazon way in front for many sellers. This is particularly the case when you consider that eBay has always attracted buyers looking for a bargain whereas many sellers find that Amazon buyers are happy to pay higher (and often more realistic) prices.

There is one other huge advantage of using Fulfilment by Amazon and that is that it will give sellers the flexibility to take time off and actually go on holiday. If you sell on eBay or anywhere else online, you will know that your business is open 24/7. This means if you want to take a break, you either need to arrange for someone to ship orders for you or you just have to close things down for a week or so. I tend to close my eBay shop down when I am away as it just easier but if I was using Fulfilment by Amazon I wouldn’t need to. As long as I had an Internet connection to keep an eye on orders etc, I could sit back and let Amazon handle everything for me. The ideal scenario in many ways and one which is long overdue. Well done Amazon!

Start a new business or buy an existing one?

Ok so you’ve decided to work for yourself but does that mean you have to set up your new business from scratch? Actually, no…

At any one time there are countless existing businesses for sale in all manner of industries and if you have the money, there is no reason why you shouldn’t consider this option if running your own business appeals.

There are many reasons why a business might be for sale – the owners may wish to retire, they may be looking at starting a new venture, they may want to release cash or they may just be fed up of the business having run it for many years. Equally, the business could be in difficulties and the owners are just trying to offload it onto someone else (although businesses in this situation can sometimes offer better potential returns if you have the ability to turn things around).

The cost of a business will be based on a number of factors including the history of the business, its current performance in terms of turnover and profit, future performance and potential for growth, the reason for the sale and so on. A very basic way of valuing a business would be to work on a multiplier of the previous years profits (for example, Internet businesses are often valued at 2.5 to 3 times annual profit. Thus an online business generating profits of £50k a year may be worth £150k if sold. This is a basic and crude way of valuing but it gives you an idea.

Many people think that buying a business is expensive and to be fair, if you are looking for one with huge profits, it will be. However, there are many smaller businesses for sale (particularly in the Internet industry) which can be snapped up for thousands or even hundreds of pounds. I have personally sold website businesses for just a few hundred pounds in the past.

Buying an established business is a great way to leap-frog many of the hurdles you may have with a complete start up. You will have an existing customer base, an existing product or service and possibly a database of previous customers to market to. You may also have an existing brand and in the case of an online business, existing search engine traffic etc. Injecting new ideas into a business via a change of ownership can also be good for the customers. I have had businesses in the past which I have run for many years and have simply got bored of them. This isn’t good for me and it wasn’t good for my customers. Moving them onto someone else with new enthusiasm was good all round and if you can look at a business and see an opportunity to increase income by adding to or altering their services etc this is an excellent way of taking the business to a new level.

Going forward my own personal preference would be to purchase a good quality, established business rather than to set one up from scratch. If you are thinking along the same lines, have a look at the sites below as they may help in your search and when looking at businesses for sale:

Online businesses for sale: Flippa.com
All manner of businesses for sale worldwide: Businessesforsale.com

Google Adsense Revisited…

I can’t believe it is nearly a year since I last updated this blog! Where does the time go? I was only reminded because an old subscriber of mine dropped me an email to see if I was still working online! The answer to this question is yes, most definitely however these days the majority of my online businesses have absolutely nothing to do with Internet marketing or showing other people how to earn a living online hence the fact that this site has become a little neglected.

However I was prompted to add this quick post following the above email and also because of a promotional card I received through the post from those lovely people over at Google. The card was promoting Google Adsense (which I have been using since it was first launched) and was customized around one of my sites to inform me that I wasn’t using the maximum number of Adsense advertising blocks on some pages. This was true, I wasn’t! To be honest, the site in question is one which I haven’t done a thing with for years and just sits there kicking in a bit of Adsense revenue every month but it prompted me to take another look at it.

I like to think I know a bit about Adsense and over the years, it has earned me some serious dosh so I wasn’t overly convinced that adding another Adsense block would make a lot of difference. However, the card from Google also suggested that I set the site up to accept both text and image advertising blocks (something which I do as a matter of course these days). Because the site had had Adsense added so long ago, the option to display images and text wasn’t one which I had opted for thus only text ads were being displayed. There are a number of advantages of displaying both, not least the fact that it gives a bit more variety. Also people do tend to filter out Google text advertising these days as they become more used to it. I have also found that image ads can often pay a higher clickthrough rate but that may just be on the keywords I am targeting so you may have different results.

Anyway, long story short, I spent half an hour adding and updating the Adsense code on three of my ‘old’ websites two days ago and so far the results are staggering. The sites were previously achieving good clickthrough rates of just over 4% but after my amendments this rate has increased to over 17% for the past two days! Now two days is clearly not a very long period of time and it will be interesting to see how this rate adjusts over the next month or so but as an initial result, this is excellent.

I have Google to thank for dropping me the promotional card (of course they will be earning more as a result of my changes too) and if you have Adsense blocks on a website which you haven’t looked at for ages, I urge you to take five minutes to review them today and make sure you are using Adsense to its full potential otherwise you may well be leaving money on the table just as I was.

How To Set Up Your Business – Part Three – Limited Company

In this, the third and final article in a series of three, we will look at the option of setting your new business up as a Private Limited Company.

Many people are under the impression (wrongly), that in order to start their own business, they must first set up a limited company. This can put people off before they even start. As can be seen from the previous articles in this series, it is not necessary to form a limited company if you prefer not to. However, there are numerous reasons as to why someone might prefer to run a business as a ltd company and some of these reasons are detailed below.

HOW DO I SET UP A LIMITED COMPANY?
Out of the three options of sole trader, partnership and ltd company, setting up a limited company requires the most ‘work’ – mostly paperwork. However, don’t be put off – it isn’t as hard or complicated as people often believe.

To form a ltd company from scratch, you can use a solicitor, however there are numerous firms in the UK that specialise in setting up ltd companies or that will sell you an existing company ‘off the shelf’. To find a firm that provides this service, just do a quick Google search for ‘company formations’ or similar.

Most people will opt to set up a private limited company. The company must have at least one director and a secretary. If there is only one director, he/she cannot act as the company secretary as well. The director and secretary will normally also become shareholders – the people that actually own the company.

Your next choice is to decide between an ‘off the shelf’ company and a new company. An off the shelf company is already set up and you simply transfer the shares and directorships to yourself. This is probably the quickest way of obtaining a ltd company, but you are limited to the choice of names of already formed and available companies. Once you have obtained your off the shelf company, you can change the name if you wish.

With a new company, you start from the beginning and form a brand new company, with your choice of name (subject to availability).

Fortunately, whether you decide to set up or purchase your new company using a solicitor, a ltd company transfer service or by dealing with Companies House yourself, you will always have someone to help you with the process and to ensure that you have filled in the various forms correctly.

FINANCIAL LIABILITY
A limited company is a separate legal entity in itself and this means that ‘it’ – the company, is responsible for its own debts. When a company is formed, the ‘shareholders’ purchase shares in the company and this payment is normally the starting capital that the company uses to establish itself. The shareholders maximum liability is the value of their initial investment for their shares. Regardless of what happens later on with the company, they cannot be called upon to come up with more money to pay off company debts. In addition, the company director’s personal assets cannot be touched to pay off company debts, unless the company has been trading fraudulently.  This is known as ‘limited liability’, since the liability of the owners is limited, unlike a partnership or sole trader whose liability for the company debts is unlimited.

Now, before you get excited about the prospect of setting up a company and running up huge debts that you might never have to pay off, read on…..

As I said above, a company is its own entity and as such, it can be valued ‘on its own’. Usually, as a company grows, the directors will retain some of the profits each year to add value to the company balance sheet. This is a bit like the companies savings account – each year that goes by, it saves a little bit more of its profit and so the business value grows. The value of a ltd company is sometimes referred to as its ‘Net Worth’. The net worth of a company is basically the amount of money that would be left if all the company assets were sold and all the company debts were repaid. In the beginning or if every year the directors withdraw all of the profit for themselves, the company may have a very low net worth and as such, minimal value.

Note that the net worth is a snapshot value – it is not necessarily equal to the price that a company would fetch if it were to be sold. The net worth is the value that would be left if the company stopped trading at a point and everything was sold and all debts repaid. When a company is sold, other factors come into play such as the future profitability of the company and the perceived value of any goodwill that has been built up over the time the business has been trading.

If a company has a low net worth, then a prospective lender may, quite rightly, feel uncomfortable about lending the business any money. After all, if you went to the bank for a loan and your only asset was £100 worth of shares, then the amount the bank will lend you would be minimal. For this reason, it is perfectly normal for a lender, especially banks, to ask for company directors to guarantee the debts of the business. Therefore, if the company defaults on a loan, the creditor can require the guarantor to repay the debt instead and may resort to seizing their personal assets if necessary.

Many directors do not like giving guarantees for their companies – when I worked in finance it was something that I often asked for and which regularly caused directors to get a bit upset. My answer was always the same:

‘If you as a director do not have enough confidence to support your own business by way of a guarantee, then why should we support it and lend you any money?’

A bit harsh? Maybe but perfectly true. After all, if you have doubts about risking your own money on your own business, why should anyone else be prepared to risk their money on it?

The good news is that once a business has become more established and has a reasonable net worth, then there is a good chance that you will be able to ask the lender to cancel your personal guarantee and let the company stand on its own two feet.

TAX/NATIONAL INSURANCE
Tax and NI is a little bit more complicated for ltd companies but don’t worry, once you get your head around it, it is really quite easy to understand the basic principles.
As I said before, the ltd company is a separate legal entity, so even though it is your company, technically you are not classed as being self-employed. As a director of the company, you are in fact an employee of the company – that’s right; you’ve just got yourself another job!

In your employed status, you pay income tax in exactly the same way as if you had a normal job – usually through the PAYE (pay as you earn) system on a monthly basis. In addition, the ltd company has to pay corporation tax on its profits. Don’t worry if that sounds as though you pay tax twice on the same money – you don’t. Your salary will already have been deducted from the profit of the company as an expense; therefore it will not be taxed twice. Take a look at the following, very simplistic example. Note that the following does not take account of tax allowances or any relief that may be available, it is purely to illustrate the above point.

ABC Ltd
INCOME £50,000
EXPENSES £20,000
DIRECTORS SALARY£20,000
PROFIT £10,000

The company will pay corporation tax on the profit of £10,000. In addition, the company director will pay tax on his salary of £20,000.

National Insurance is also slightly different for a ltd company. The employee (company director) makes a contribution and the company also makes a contribution on the employees’ behalf. Clearly if you are the only director and it is your company, then both contributions are indirectly coming out of your pocket.

FINANCIAL RECORDS

Yep, you’ve guessed it already – the financial recording keeping rules for ltd companies are a bit more complicated as well!

Limited companies must file a copy of their annual accounts with Companies House, within a set timescale after their year end. Failure to do so can result in penalty fees being incurred. Smaller companies are able to file abbreviated accounts and are not required to have the accounts audited (this means being checked by an accountant to confirm that they give a true and fair view). Larger companies have to file full accounts and are required to have the accounts audited.

In fairness, a larger company is more likely to have several directors and shareholders and it is likely that these shareholders will expect the company to produce audited accounts so that they can see how their investment (their initial input of cash to purchase the shares)is doing.

Unless you are qualified or have some experience in accountancy or book-keeping, I would recommend that you employ a professional to prepare company accounts. At least this way you can be sure that they have been completed correctly and they will be ready before the Companies House deadline. Many small company director’s leave the accounts until the last minute and then either rush to do a whole years worth of figures in one go or just don’t bother and end up being fined. As the old saying goes, a good accountant will earn his fee in saved tax and penalties.

CREDIBILITY
Despite the fact that it is very easy to set up a new ltd company and the fact that it can be done for next to nothing, larger companies often prefer to deal with ltd companies rather than sole traders or partnerships. Personally, I don’t think that credibility alone is a good reason to set up a limited company, unless you absolutely have to in order to deal with other businesses. There are far more important things to take into account, such as accounting requirements and potential tax liability etc.

How to set up your business – Part Two – Partnership

In the second of a series of three articles about how to set up your new business, we will be looking at the Partnership option…

In many ways, the partnership route to setting up a new business is very similar to setting up as a sole trader – with the obvious difference that more than one personis involved. A partnership can be formed by any number of partners – it doesn’t have to be just two people. It is common practice for some professions to be operated as partnerships regardless of size – for example accountancy firms.

HOW DO I SET UP A PARTNERSHIP?
Setting up a partnership is very similar to setting up as a sole trader. You can choose a ‘trading as’ name and simply become ‘Bob Smith and John Green trading as ‘County Plumbers’. In the same way as with a sole trader business, if you are trading under a different name to the partner’s names, you need to list the partners name and a business address on any stationery.

Again, it is not necessary to register the partnership name with anyone, but each partner must advise their tax office of their new self-employed status.

In addition, whilst it is not a legal requirement, it is absolutely vital that the new partners draw up and sign a ‘Partnership Agreement’. This agreement should normally be prepared by a solicitor and will outline such points as:

The names of the partners
The name of the business and its purpose/activity
Date the partnership begins (and time it will last if appropriate)
Details of initial investment by the partners and details of interest to be paid to partners in respect of their investment (if any)
The profits split – not all partnerships split profit 50/50. If you put 90% of the capital up and your partner only worked part-time for the business, would you want to share the profit down the middle?
Details of how the business will be managed and who will have control over different aspects
What will happen if a partner dies, retires or wants to leave or sell his/her share of the business

When a new business is being set up, especially if it is being set up by friends, it is very easy to forget about or just not bother with a partnership agreement. I cannot stress strongly enough –

YOU ABSOLUTELY MUST HAVE A PARTNERSHIP AGREEMENT!

I have seen numerous businesses run into difficulty because the partners have fallen out over a particular issue and some have even ended up taking each other to court. If they had of had a partnership agreement, this may have been avoided.

It is worth mentioning at this point that there area couple of different types of partner (actually there are a few more, but these are the main two types):

FULL PARTNER A full partner will be involved in the day to day running of the business and will share in the profit/loss of the business as agreed in the partnership agreement.

SLEEPING PARTNER A sleeping partner will not normally be involved in the day to day running of the business. This type of partner normally makes a financial investment into the business and in return will benefit from an agreed share of future profits or an agreed return on his/her investment.

FINANCIAL LIABILITY
Again, in the same way as with a sole proprietorship, the partners are personally liable for any debts of the partnership, with one very important difference. Each partner is jointly and severally liable – this means that each partner is liable for any debt of the business, including the share of the other partners.

To illustrate, if a business runs into financial trouble and Partner A has no personal assets and Partner B has considerable personal wealth, then the creditors of the partnership (the people that are owed money), may decide to pursue Partner B for everything owed, as it is more likely that they will get the money back than from Partner A.

The above applies regardless of which partner committed the partnership to the debt in the first place or whether the partner is a full or sleeping partner.

Because of this ‘joint and several’ liability, it is vital that you fully trust your partner – it is perfectly possible that his/her actions could cause you to be made bankrupt. An extreme point maybe, but nonetheless possible and it does happen.

TAX/NATIONAL INSURANCE
As with a sole proprietorship, partners pay tax as per the normal rates, based on their share of the profits generated by the business.

National Insurance is the same – each partner pays the fixed level of Class 2 contributions and then may have to pay Class 4 contributions based on their share of the businesses profits.

FINANCIAL RECORDS
In the same way as a sole proprietor is not legally obliged to prepare audited accounts, neither is a partnership. It may however be even more advisable for a partnership to employ a qualified accountant or book-keeper, as the fact that the profits of the business are being shared between two or more partners may complicate the individual partners’ tax position slightly and it is best to make sure that everyone pays what they should.

CREDIBILITY
There isn’t really any difference between the credibility of a partnership and the credibility of a sole proprietor. A partnership may be seen as being a slightly larger concern, but as stated above, some larger companies will still prefer to deal with a limited company rather than a partnership.

There are some exceptions to this – as already mentioned, some professions, such as accountants or solicitors, will trade as partnerships and this is seen as being perfectly acceptable and indeed, the ‘norm’.