business expansion: but is it sensible andlawful?
Discussion
Your advice and views please!
My small business is booked up with work through to 2008 and we are having to turn away customers, which hurts. I provide the technical expertise and my wife provides the admin support. To cope with demand for more mundane work I have enlisted a 'small army'of people who all have full time jobs but who give me a few hours a week. For sake of this post, and to maintain confidentiality, lets say they assemble parts that I design and manufacture. My accountant is happy they won't get caught by IR35 (they all have other ful time jobs, supply their own IT and can share work between them to suit their own needs and demands).
Our expansion is limited because of our capacity to simply administrate additional work. The administration is key because the work is technicaly very detailed and we cannot afford to miss deadlines or not deliver to the highest quality. We work from home and don't want to employ staff. My wife is reluctant to alow the administartion to be out-sourced under our name as there is no capacity for error and mistakes would reflect on our business.
One of my 'army' has suggested that she could set up her own business full time selling assembly skills direct to clients, but she can't do this without my technical skills and access to the client base, which broadly I control nationally.
My thought was to enter into a new business venture with her so that we can exploit the work we are having to turn away. She would administrate the process under a new trading name (so her mistakes do not reflect on our main business)with me taking an advisory technical role, training her staff (which she can't do) quality assuring her processes etc.
At the moment it is a niche market where the client has no choice but to use our services, or else do the work in-house which is disruptive for their own processes. If I can't take up the slack, eventually someone else will and that could start to impinge on my existing market.
A few questions:
Can we lawfully fix prices between us so that the clients can't play us of against each other?
If we enter into a joint venture, should that be a partnership or limited company, and could my existing company be a partner rather than me personally?
Can we draw up a written agreement to share the profits so that she keeps the bulk for doing the graft and I get an agreed share for essentially 'franchising' our admin systems, sourcing clients, quality assuring her work and training her own 'army'.
How can I prohibit her from approaching our existing clients?
Would the VAT and tax man see the new venture as the same business? ( around 50% of our work relates to the asemby work, the other 50% is something completely different).
My small business is booked up with work through to 2008 and we are having to turn away customers, which hurts. I provide the technical expertise and my wife provides the admin support. To cope with demand for more mundane work I have enlisted a 'small army'of people who all have full time jobs but who give me a few hours a week. For sake of this post, and to maintain confidentiality, lets say they assemble parts that I design and manufacture. My accountant is happy they won't get caught by IR35 (they all have other ful time jobs, supply their own IT and can share work between them to suit their own needs and demands).
Our expansion is limited because of our capacity to simply administrate additional work. The administration is key because the work is technicaly very detailed and we cannot afford to miss deadlines or not deliver to the highest quality. We work from home and don't want to employ staff. My wife is reluctant to alow the administartion to be out-sourced under our name as there is no capacity for error and mistakes would reflect on our business.
One of my 'army' has suggested that she could set up her own business full time selling assembly skills direct to clients, but she can't do this without my technical skills and access to the client base, which broadly I control nationally.
My thought was to enter into a new business venture with her so that we can exploit the work we are having to turn away. She would administrate the process under a new trading name (so her mistakes do not reflect on our main business)with me taking an advisory technical role, training her staff (which she can't do) quality assuring her processes etc.
At the moment it is a niche market where the client has no choice but to use our services, or else do the work in-house which is disruptive for their own processes. If I can't take up the slack, eventually someone else will and that could start to impinge on my existing market.
A few questions:
Can we lawfully fix prices between us so that the clients can't play us of against each other?
If we enter into a joint venture, should that be a partnership or limited company, and could my existing company be a partner rather than me personally?
Can we draw up a written agreement to share the profits so that she keeps the bulk for doing the graft and I get an agreed share for essentially 'franchising' our admin systems, sourcing clients, quality assuring her work and training her own 'army'.
How can I prohibit her from approaching our existing clients?
Would the VAT and tax man see the new venture as the same business? ( around 50% of our work relates to the asemby work, the other 50% is something completely different).
shirepro said:
Can we lawfully fix prices between us so that the clients can't play us of against each other?
If we enter into a joint venture, should that be a partnership or limited company, and could my existing company be a partner rather than me personally?
Can we draw up a written agreement to share the profits so that she keeps the bulk for doing the graft and I get an agreed share for essentially 'franchising' our admin systems, sourcing clients, quality assuring her work and training her own 'army'.
How can I prohibit her from approaching our existing clients?
Would the VAT and tax man see the new venture as the same business? ( around 50% of our work relates to the asemby work, the other 50% is something completely different).
Some thoughts (go and see an accountant!)
1) If your price structure is the same then it is fair, unless of course you are a big company making lots of cash
2) + 3) I would set up a new Ltd company, your company can be a shareholder. You can then split the profits via divs.
4) A contract can be put in place stopping her from going to your clients. However I would have to ask about trust on this one.
5) I have no idea
D
Firstly I would ask, are these people you currently use hired on a "Self Employed" basis? If they are, are you sure that this is OK? On what basis are they considered to be "Self Employed"? Being part time in itself is not sufficient proof. There are plenty of part time employees about.
Your accuntant's opinion on IR35 is totally irrelevant - IR35 does not come into this situation at all as it only applies to "intermediaries" i.e limited companies or partnerships used by you in place of employees.
If an individual purports to run their own business, they had better be in a position to prove that is exactly what they are doing. If you place too many restrictions on what they can or can't do, you are acting as if you are an employer and the Inland Revenue will not be happy.
The VAT man can get a bit suspicious as well as they do not like the notion that someone might try to hive off an el;ement of their business to someone else in order to get below VAT thresholds. They call this technique "disaggregation" and it is a definite "No No".
Your accountant should really be advising you on this.
Your accuntant's opinion on IR35 is totally irrelevant - IR35 does not come into this situation at all as it only applies to "intermediaries" i.e limited companies or partnerships used by you in place of employees.
If an individual purports to run their own business, they had better be in a position to prove that is exactly what they are doing. If you place too many restrictions on what they can or can't do, you are acting as if you are an employer and the Inland Revenue will not be happy.
The VAT man can get a bit suspicious as well as they do not like the notion that someone might try to hive off an el;ement of their business to someone else in order to get below VAT thresholds. They call this technique "disaggregation" and it is a definite "No No".
Your accountant should really be advising you on this.
On the issue of price fixing, what you have described I think, would be a cartel - which is not something the authorities like!
One thing to consider is that although business growth is important, it's not always profitable. You could very easily end up turning over bigger amounts but with little comparative increase in profits.
Higher risk but less ROCE.
One thing to consider is that although business growth is important, it's not always profitable. You could very easily end up turning over bigger amounts but with little comparative increase in profits.
Higher risk but less ROCE.
This would appear at first glance a very complicated way to in effect grow your business. The most important thing a business needs to grow is more/higher sales. You seem to have this in abundance. I would have thought that going the traditional route is your best option. Yes there will be problems and hurdles to overcome. But keeping it simple will make these issues easier to manage. Keep you business under your control. You need to be prepared to take that next step. There is also plenty of proffessional advice to help you along the way.
However you decide to go forward, best of luck to you.
Paul.B
However you decide to go forward, best of luck to you.
Paul.B
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