Category: Business and Financial Planning

Although originally known as the technology behind bitcoin, blockchain’s potential extends considerably beyond cryptocurrencies, with major tech firms and banks among the many organisations which are actively looking at ways of exploiting the concept for wider uses.

In simple terms, blockchain is a distributed public ledger – a consensus of shared, replicated and synchronised digital data which is spread remotely across multiple sites, countries or institutions rather than being held centrally in one place, such as on a server. Instead of using a middle man such as a bank to make a transaction, blockchain removes the need for third party intervention, allowing consumers and suppliers to connect directly with each other.

By using cryptography to keep exchanges secure, a blockchain provides a “digital” record of transactions that everyone on the network can see, the network in this case being a chain of computers all of which must approve an exchange before it can be verified and recorded.

The potential applications of blockchain are vast, and include any type of transaction that involves value, including money, goods and property – such as tax collection, trading in securities, birth, wedding and death certificates, even nuclear codes!

By way of illustration, here are just a few applications where blockchain technology can be expected to have a major impact on business.

• Smart Contracts

Although the term “smart contract” was first used in 1993, it gained popular currency with the Ethereum platform, the best known of the digital currencies after bitcoin. A smart contract is essentially a computer protocol which facilitates and enforces the performance of a contract. It is akin to a computer program that is automatically executed when specific conditions are met. And, because they are run on the blockchain platform, contracts will be executed just as programmed – with no possibility of downtime or third party interference.

Smart contracts can be used for any form of financial or legal transaction, offering total security at minimal cost.

• Cloud Storage

Current cloud storage is similar to banking in that it relies on trusted third parties to act as intermediaries and to hold secure, private data. This makes it an ideal application to be replaced by blockchain, where data can be stored on dozens of individual nodes distributed around the globe, rather than in a regional data center which represents a potential single point of data.

With a blockchain, no third party controls user data or has access to user files, ensuring total privacy. There may also be the possibility of considerable cost savings for users, freed from dependency on major cloud capacity suppliers like Amazon.

• Supply Chain Efficiency

Most businesses sell products that are not made by a single company but by a chain of suppliers who sell their components to a single company that assembles and makes the final product. The issue with such a supply chain is that if there is a problem with one of the components, the whole brand or product can be affected, and the efficiency of the system compromised. With blockchain technology, digitally permanent records, which can be verified and approved, can be created to show the state of the product at each stage of the value chain, allowing individual suppliers to be paid for their part, irrespective of issues with the “chain” as a whole.

• Employee payments

With its roots in crpytocurrencies, it is logical for blockchain to be considered as a means of paying employees – for example, if a company has overseas employees or contractors. Incorporating bitcoin in the payroll process, for example, could eliminate costly fees associated with bank transfers, as well as the time delays associated with moving money from one country to another.

• Online Voting

Blockchain is seen as a way of bringing the voting process into the 21st century, whilst guarding against election fraud. By providing an online, secure means for people to place their votes, blockchain can allow voters the means to safely record their votes without revealing their identity or political preference. In turn, officials can count votes and have confidence that each vote is attributable to one voter only, no duplicates or fakes can be created, and no tampering can take place.

Blockchain technology is here to stay. While it may have had its origins in bitcoin, the concept of a distributed public ledger which eliminates the need for intermediaries whilst offering enhanced security and privacy has many wider applications and potential, and its uses in many different fields – health, government, information technology, security, legal, human resources, to name but a few, as well as financial markets – appears to be endless. As such, we can expect it increasingly to become a common phrase in the lexicon of business, as more people look to embrace the concept and expand what can be done with the technology.

 

Introduction

One of the biggest mistakes small business owners make is not keeping personal and business funds, assets, and expenses, separate. This can get them into a lot of trouble with tax authorities, and, in some cases regulators; one of the most common reasons, for example, that small legal and accounting practitioners get hauled up before disciplinary bodies is due to a failure to maintain a clear distinction between client, and personal and business, accounts.

Human error can, and does, occur, and the odd transaction can be paid from the wrong account, or posted to the wrong ledger. However, to avoid potential tax, legal or other consequences, it is important to create a system to ensure that the personal is separated from the business as much as possible.

There are, of course, those who deliberately look to mix the two. A recent report (http://ajd.consulting/2017/10/04/new-report-highlights-reasons-for-tax-evasion/) highlighted the fact that there are people who habitually indulge in low level tax evasion, such as those who claim personal items as business expenses, or buy assets for the business, such as laptops and printers, which they then take home for personal use.

However, these people are likely to be the exception not the norm. In most cases, the opposite behaviour will occur, and a small business owner pay for a business expense from personal funds. Whilst such actions are understandable – in their mind their business may be inseparable from them – it is important to mark the distinction. The business and the individual are not one and the same.

Maintain Separate Bank Accounts

The first set is to establish separate bank accounts for business and personal expenses, with separate debit, and where necessary or applicable, cheque books and credit cards as well. Any income earned from the business should be put straight in the business account and any income from personal sources – wages, dividends, interest etc. – should be paid into the private account.

Don’t Mix Up Payments and Expenses

Make sure that business and personal expenses are paid from the right account – whether it be by bank transfer, cheque or card. Business payments by cash should, wherever possible, be avoided, unless it is items of a very minor nature – for example, taxi fares. or refreshments – as such transactions can have potential tax implications. However, if you must make a cash payment, note whether the payment came from the business or personal account, and whether subsequent reimbursement is required.

Remember also that paying a business expense with a personal cheque or debit cards just looks unprofessional; it gives the impression you are not a real or serious business person.

Maintain Accurate Records

If you want to claim expenses as business related, you need to keep an accurate record of when and where the money was spent and for what purpose. Whenever possible, get an invoice and keep this on file, perhaps with a simple note explaining the nature of the expenditure.

This is especially true of any travel-related expenses – airlines, hotel bills, restaurant and entertainment expenses. Tax authorities are notoriously tough on such items and will look to argue that, wherever possible, such expenses are personal rather than business. Record the details of your trip, who you met and for what purpose. You may need to build a case that such costs are eligible as business deductible.

Separate Billing

Particularly when working from home, it can be difficult to separate the personal from the business. Try to create a separate identity for each. If, for example, you use a room in your house as an office, create a written agreement renting the space to your business. Get a separate phone number for the business, and make sure it is listed accordingly. Similarly with a mobile phone. Always ensure, as much as possible, that calls of a personal nature are not made or received on the business phone and vice versa. Ensure the billing for the business phone is in the company name.

All business expenditure should be billed in the company name. Where your office is located outside your home, ensure this address is used on the invoice. And, if your business has a VAT number, try and see that this is included as often as possible on any supplier invoices (you may also need it for any B2B transactions with any supplier in the European Union). In other words, make sure that everything possible is done to distinguish expenses as clearly belonging to the business.

Contributing Assets to the Business

If you put money into the business in terms of assets or cash, distinguish how the investment is to be treated. If it is a loan, create a short agreement between you and the business, stating the main terms, interest rate (even if it is considered interest free), and repayment conditions.

Taking Money Out of the Business

If you want to take money out of the business, pay yourself a regular salary, and make sure that it is reasonable in terms of what the business can afford. Remember that the money in the business does not belong to you; provision needs to be made to pay taxes, suppliers, employees and other stakeholders. It is also worth bearing in mind that drawings from a business, especially in a start-up phase, may need to be minimised whilst the company gets on its feet.

Summary

Keeping personal and business expenditure separate is both necessary and important. Necessary because it will protect you from action by tax authorities and regulators; important because you need to understand the true profitability of your business, and this is impossible to do if income and expenses are mixed. Get into the right habits, differentiate and clearly label what is personal and what is business, and, where necessary, document what you have done.

 

 

Introduction

Whilst there is no inheritance tax in Cyprus, it is still essential that you have a will which covers all your assets in Cyprus, irrespective of whether you are a Cypriot national or not. This is because if you die intestate, your estate will be disposed of according to Cypriot laws of succession.

Domicile

The concept of domicile can be complex and it may be appropriate to seek legal advice as to your status, because this can be key when it comes to inheritance. Basically, everyone acquires a Domicile of Birth, which is the country in which you were born. This can be changed to a Domicile of Choice, although in practice this is very difficult to do and, in some cases (for example, if you were born in Denmark or the US), is virtually impossible.

In order to make somewhere your Domicile of Choice, you need to set up home in another country and sever all links with your country of birth and show you have no intention of ever returning there (and even that may not be enough in some instances)!

At the very minimum, if you want to make Cyprus your Domicile of Choice, you must prove you are permanently resident in the country, and intend to stay here for the rest of your life.

The Estate

An estate consists of two elements – the immoveable and the moveable assets. Immoveable assets consist of land and property; moveable assets consist of everything else – for example cash, money held in bank accounts, household goods, cars etc.

Intestate

Dying without a will is known as dying intestate. If you die intestate, you have no choice as to how your estate is distributed; it will be divided according to the laws of intestacy in the country in which you are domiciled.

If you die intestate in Cyprus, then your domicile will be used to determine the distribution of your assets.

• Overseas Domicile

The immovable estate is distributed according to Cypriot laws of intestacy; the moveable estate will be distributed according to the intestacy laws of your country of domicile. And, even if you reside in Cyprus which has no inheritance tax (IHT), you may be subject to such taxes on your estate according to local law there.

• Cyprus Domiciled

Both your immoveable and moveable estate are distributed according to Cypriot laws of intestacy.

Testate

If your father was born in the UK or any other Commonwealth country, then you have the freedom to dispose of your whole estate (both immoveable and moveable) by Will. However, if that is not the case then things get more complex.

Cyprus has a complex set of Succession laws which are based on the principles of “forced heirship”; in essence, assets are distributed to your surviving relatives in an order of precedence which dictate who should get what and under which circumstances.

Broadly, an estate will be divided in two parts – the disposable section and the compulsory section.

In the case of the disposable section where a will has been made but which is not covered by the Commonwealth provisions, then between a quarter and a half of an estate can be passed by Will (the exact portion depends on which of the deceased’s relatives are alive at the time of their death). In the event that somebody dies and leaves no spouse, child, descendants of a child or parents, then the whole estate can be distributed by Will.

The balance of the estate will be distributed according to the forced heirship rules. In the simplest case, where somebody dies and leaves a spouse and children, then only a quarter of the estate can be distributed by Will; the rest is then passed to the wife and children in equal shares, including the matrimonial home.

Where the complexity arises is if the deceased’s family situation is not so straightforward at the date of their demise. If the deceased left a spouse and parents, but no children, for example, or left a spouse, had no children or grandchildren, but had surviving brothers and sisters.

There is a complicated set of rules and order of precedence which needs to be followed in such cases, depending on the actual family situation of the deceased at the time of their death. Those potentially affected by such a situation may want to seek legal advice as to implications of their circumstances.

Conclusion

All experts agree that it is important not to die intestate because otherwise you have no control over how your assets will be divided; they will be subject to the intestacy laws in your country of residence and Domicile of Birth (unless you have managed to pass the rigorous tests for electing somewhere else as your Domicile of Choice).

If you have a father born in the Commonwealth, then if you have a Will you have complete freedom as to how your estate will be distributed. However, for those whose father does not qualify under the Commonwealth rule, things may be more complicated, and their ability to dispose of their assets as they wish, limited by the law.

 

 

 

 

 

 

Break-even is a term that is part of the lexicon of everyday life; applied to fields widely different from finance. However, it is in the world of business that it has its greater application, and where its importance as a concept is most relevant.

Simply put, a firm has reached break-even when the money it makes from its sales is sufficient to cover all of its costs, both variable and fixed. From that point forward, provided that sales are maintained and expenses and costs not increased disproportionately, then the business will be in profit.

In most cases, a business will require some form of financial investment before beginning operations – in stock or machinery, for example. And, even once a business has started, it can take some time before its sales are such that it is no longer operating at a loss. When the business is no longer loss-making but has yet to be profitable, it can be said to have reached the break-even point.

The break-even point is not only important for the business as a whole but is relevant for calculating the viability of any new business or product line, or potential source of revenue. If that new business or product has a break-even point far-off in the future, or requires substantial additional investment before it can be reached, then small business owners should consider deferring or cancelling the project altogether, because it will dilute the profitability of the existing business.

In determining the break-even point, it is important to distinguish between the different types of cost for a business. Fixed costs are expenses that stay the same, irrespective of the level of sales. These might include the rent on a building, management or administrative salaries, or subscription costs. Regardless of the level of activity, these costs will remain constant, at least in the short-term.

Fixed costs are difficult to reduce, except in the longer-run. An office cannot just be vacated; rent will need to be paid for several months whilst a notice period is served and new premises located. Salaries can normally only be radically reduced if there is a headcount reduction programme which many have legal and other ramifications, as well as additional cost implications, such as compensation and redundancy payments.

Variable costs, on the other hand, are dependent on the level of sales. These might include materials, shipping or production labour costs in a business which produces goods, or travel and advertising costs in a service industry.

When calculating the break-even point both the variable and fixed costs need to be taken into account (a fact sometimes forgotten by the unwary!).

The calculation of break-even itself is quite simple.

First of all, deduct your variable costs from your revenue to determine your gross profit (or gross margin). Then deduct your fixed costs. If the net result is positive, then you have broken-even and are profitable. If the net figure is negative, you have not broken-even and are trading at a loss.

Based on this formula, you can also determine what level of sales you need to achieve – assuming that your variable and fixed cost assumptions are right – in order to achieve break-even.

This can be very important in determining price and marketing initiatives – for example, offering promotions or price discounts to increase sales – without endangering the longer-term profitability of your business.

There is more than one way of achieving break-even – for instance, raising prices to increase the gross margin. or reducing expenses. By knowing what your break-even point is, you can judge the relative impacts these various strategies will have on your business.

From the viewpoint of an investor in a business, the break-even point is a key indicator. When they invest they want to know not only what the return on their investment is likely to be, but also when it will be realised. The further the break-even point is in the future, the greater the risk that a business will fail to achieve it, and the less likelihood there is of somebody being willing to invest in it. And, if they do invest, they will demand a greater return on their investment as a risk premium.

Break-even then is an important metric for a business; for the operation as a whole, as well as for any new product or service which it intends to introduce. Business owners should know how to calculate their break-even point, and what strategies to adopt in order to achieve this benchmark as quickly as possible. Furthermore, for those looking for outside investment, it is crucial to be able to tell would-be financiers what the break-even position is, and to keep them regularly informed as to progress in reaching that level.

 

 

The term business continuity refers to the set of activities required to keep an organisation running during a period of displacement or interruption of normal operations.

According to a 2016 study by the Business Continuity Institute, the top ten global threats to business continuity were:

• Cyber attacks
• Data breaches
• Unplanned IT or telecoms outages
• Terrorism
• Security incidents
• Utility supply interruptions
• Supply chain disruption
• Lack of available key skills
• Health and safety incidents

Although terrorism and security incidents may grab the headlines, the risk of cyber attack, data breach or an IT outage is actually much more likely. It is estimated, for example, that cybercrime costs the global economy US $450 billion a year, whilst audit and consulting giant Deloittes have reported (https://dupress.deloitte.com/dup-us-en/deloitte-review/issue-19/loss-of-intellectual-property-ip-breach.html) that the impacts of such an attack go way beyond the known problems such as reputational damage and compliance issues. They note that the true cost of such an attack can take several years to surface, and may include “hidden” effects such as increased insurance premiums, the devaluation of trade names and Intellectual Property (IP), and a loss in customer relationships.

Another study by The Ponemon Institute found that, in 2017, the likelihood of a business suffering a data breach was as high as 1 in 4, whilst airlines, banks and phone companies, as well as public bodies such as the National Health Service, are just a few of the industries which have been hit by massive IT outages in the past few years.

One common misconception is that it is only the large organisation or business which is the object of cyber attacks, and data breaches, or which suffer IT outages. Nothing could be further from the truth.

It may be that these are the organisations which grab the headlines but, in reality, all businesses are vulnerable and, arguably, a small business is more like to suffer than a larger enterprise. They have less redundancy built-in to their processes and systems, are likely to have less rigid data protection and security protocols in place, and have less ability to withstand a serious attack. The financial impact on them can also, in relative terms, be more severe, in some cases threatening the very viability of their business.

Yet the importance of business continuity for a small business is often overlooked. This is a mistake. Having a process in place to manage a devastating attack or disruption to operations can be the difference between business survival or extinction.

A key defence in the event of a major attack or disruptive event is a disaster recovery plan. Such a plan should include, at a minimum, the necessary steps which would need to be taken to restore business and IT systems to a state which can support the business after a disaster. Whilst such a plan in the past may have been messy and cumbersome for a small business to implement – involving, for example, backing up data to a tape or floppy disk and storing offsite – this no longer need be the case. The advent of cloud applications and storage now offer a cost-effective means of storing data “outside” the office or business environment, whilst allowing easy retrieval whenever anybody needs to access that data. There are a range of cloud-storage options now available which can suit any budget, so it is simply too risky not to consider, at least, putting some some of data back-up system in place, simply hoping for the best instead.

However, although related, disaster recovery and business continuity plans are not one and the same thing. A disaster recovery plan helps a business rebuild after a disaster has taken place; a business continuity plan allows it to maintain operations, even in the event of unexpected disruptions.

Such a plan would identify who was responsible for overseeing and implementing it, outline the process for managing, reporting and communicating key incidents and the business response, and capture important information such as key staff, customer and supplier details.

Whilst such a plan can be as detailed, or as scant as the owner of a small business wants, or feels that they have need for, one consideration to be borne in mind is the old adage “fail to plan; plan to fail”. This means, in essence, that the more steps and processes which are documented in advance, the easier they may be to follow when needed.

When a disaster – cyber attack, data breach or major IT failure occurs – there will often be confusion and panic whilst people struggle to identify the cause and implications of what has occurred. Having a detailed continuity plan in place can provide clarity, guidance and reassurance during what can be a stressful and distressing time.

Businesses are more vulnerable than ever before to global threats; whatever your size of business, it would be foolish to ignore the potential consequences such events could have on you. To counter this, it is recommended that a business prepare a Business Continuity Plan which outlines the key processes to follow and steps to adopt if such an event occurs. These would include implementation of a disaster recovery plan, but also should include broader strategies of ensuring that not only can business be recovered, but to allow operations to continue as normal.