Numerous small companies: why?

[Leftie]

I have had recent dealings with a book company. I did our usual company house checks and find that they are the holding group with another 5 or 6 companies on their returns, and the sole director for all these companies is shown as having 18 other directorships. I downloaded some of the accounts and each company seems to have a turnover of about £80,000 and show profit of about £10,000.

It may be that they have formed a limited company to run each of their book shops? Is this a liability or taxation issue?

What are the advantages in doing that? The cost of accountants for half a dozen ( or 18) companies must be more than enough, let alone employers liability etc. They all have wages shown being paid in each company (around £11,000).

Before I do work for them I am a bit concerned that something isn't right, but not sure what it is. They have all been trading about 4 years.

[steviebee]

It depends on how the business(es) are set up.

It may be a case of the director of the main business investing in other smaller business but letting them retain a higher degree of independance than would be the case if he owned them outright . Thus, his risk is limited and allows managers to control the seperate shops and be part of the business themselves. This is quite common - I know several people that have many fingers in many pies.

[Leftie]

steviebee said:

It depends on how the business(es) are set up.

It may be a case of the director of the main business investing in other smaller business but letting them retain a higher degree of independance than would be the case if he owned them outright . Thus, his risk is limited and allows managers to control the seperate shops and be part of the business themselves. This is quite common - I know several people that have many fingers in many pies.

Th sole director seesm to be the sole director in all of the shops. I suppose he may have managers in the shops (thus the £11000 a year in wages which seesm every low). There is no sign that they have dividend shares or anything like that.

[srebbe64]

Could be ring-fencing potential liabilities. So if one's in trouble it won't drag the rest down.

[Leftie]

srebbe64 said:

Could be ring-fencing potential liabilities. So if one's in trouble it won't drag the rest down.

So what is the purpose of the 'holding company? Is the holding company exempt from the liabilities of the samler ones, even thought it owns them? I can see anadvantage there: accees to profits I guess whilst limiting liabuility ( I noticed the holding company had been carrying some cost in leases ( £16,000PA).

[tinman0]

Leftie said:

What are the advantages in doing that? The cost of accountants for half a dozen ( or 18) companies must be more than enough, let alone employers liability etc. They all have wages shown being paid in each company (around £11,000).

iirc if the company has only one employee that is the director himself he doesn't need employers liability. also, i'm pretty sure if the turnover is under a certain level, you don't need an accountant. (its something like £250k).

[Eric Mc]

You don't "NEED" an AUDITOR for any limited company accounts where the turnover is below £5.6 MILLION.

Like the situation with sole-traders and partnerships, non-audit companies are not required to use accountants at all. Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

[Leftie]

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

[srebbe64]

Leftie said:

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

Your accountant should advise you as to the most Tax efficient way of extracting the cash, be it dividends, bonus, etc. If you're not getting that then change accountants!

[Eric Mc]

And under Gordon Brown, the tax rules surrounding company tax and tax on dividends has been fundamentally changed on four separate occasions in the nine years since he became Chancellor.

Edited by Eric Mc on Wednesday 8th November 08:32

[Leftie]

srebbe64 said:

Leftie said:

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

Your accountant should advise you as to the most Tax efficient way of extracting the cash, be it dividends, bonus, etc. If you're not getting that then change accountants!

I have done all that, but the actual accounts are , to me, just a jumble of numbers. I never know which ones are important in assessing company health (cash at bank, capital assets, net profit etc, balance sheet, comparions with last year). I wish they would highlight the key numbers .

[Eric Mc]

Have you actually asked the accountant to explain what the numbers mean?

What limited company accounts look like is set out under Company Law and all the additional disclosure notes are required under various sections of the Companies Act. The accountant actually has little say in how the accounts are presented.

Edited by Eric Mc on Wednesday 8th November 08:35

[srebbe64]

Leftie said:

srebbe64 said:

Leftie said:

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

Your accountant should advise you as to the most Tax efficient way of extracting the cash, be it dividends, bonus, etc. If you're not getting that then change accountants!

I have done all that, but the actual accounts are , to me, just a jumble of numbers. I never know which ones are important in assessing company health (cash at bank, capital assets, net profit etc, balance sheet, comparions with last year). I wish they would highlight the key numbers .

Well if you want me to take a look at the numbers for you I could give you an objective view of your company's strengths and weaknesses. It's pretty much what I do for a living!! Email me if you want to take me up.

[Leftie]

srebbe64 said:

Leftie said:

srebbe64 said:

Leftie said:

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

Your accountant should advise you as to the most Tax efficient way of extracting the cash, be it dividends, bonus, etc. If you're not getting that then change accountants!

I have done all that, but the actual accounts are , to me, just a jumble of numbers. I never know which ones are important in assessing company health (cash at bank, capital assets, net profit etc, balance sheet, comparions with last year). I wish they would highlight the key numbers .

Well if you want me to take a look at the numbers for you I could give you an objective view of your company's strengths and weaknesses. It's pretty much what I do for a living!! Email me if you want to take me up.

That's a very kind offer that I may well take you up on Srebbe once I have our 2005/6 accounts done. We are just ending our 2005/6 year this month, so I only really have 2004/5 as 2003/4 was an 'exceptional' year and turnover/profits were 20-30% higher than we might normally have expected.

My focus has tended to be on the net profit after CT, and the margin we get (again after CT) but it is all the other stuff I am unsure about (like retained profit BF, fixed and current assets, deferred taxation, tangible fixed assets).

[srebbe64]

Leftie said:

srebbe64 said:

Leftie said:

srebbe64 said:

Leftie said:

Eric Mc said:

Although anyone who thinks they can complete a fully compliant set of limited company accounts without the help or assistance of a suitably qualified accountant is taking a massive risk.

I agree, I can't even understand them even when they are done. I can just about find the bit that tells me how much corporation tax to pay, and I always have my own calculation on that (just like to see if my acountant has earned his fee as the difference betwen my calculation and his should exceed his fee ny by reckoning!).

Is there a web site somewhere that explains how to read simple company accounts?

Your accountant should advise you as to the most Tax efficient way of extracting the cash, be it dividends, bonus, etc. If you're not getting that then change accountants!

I have done all that, but the actual accounts are , to me, just a jumble of numbers. I never know which ones are important in assessing company health (cash at bank, capital assets, net profit etc, balance sheet, comparions with last year). I wish they would highlight the key numbers .

Well if you want me to take a look at the numbers for you I could give you an objective view of your company's strengths and weaknesses. It's pretty much what I do for a living!! Email me if you want to take me up.

That's a very kind offer that I may well take you up on Srebbe once I have our 2005/6 accounts done. We are just ending our 2005/6 year this month, so I only really have 2004/5 as 2003/4 was an 'exceptional' year and turnover/profits were 20-30% higher than we might normally have expected.

My focus has tended to be on the net profit after CT, and the margin we get (again after CT) but it is all the other stuff I am unsure about (like retained profit BF, fixed and current assets, deferred taxation, tangible fixed assets).

OK feel free to email me when you want me to take a view on them and I'll give an opinion. Because I see so many (probably 20 per month) I have a reasonable "point of reference" as to what's good and what's not. I'll also let you know what half dozen things are the most important to look for in your particular sector.