It’s always a pleasant surprise when clients tell you that they need a bit of help because their business is expanding rather than contracting. That’s because one of the trends in this industry over recent years has been consolidation, not just at the level of the (ever-fewer) major oil companies, but also at group operation level of individual petrol forecourts. There are still successful forecourt retailers out there who are increasing the size of their networks, but sometimes they start to wonder just what they’ve let themselves in for. The following are just a few of the questions that we’re asked when clients see expansion opportunities:
Should I be operating as a limited company?
The decision on whether to incorporate an expanding business ie trade under a limited company rather than as a sole trader or partnership is a major one, and is influenced by many factors, including:
Long-term continuity of business limited companies continue despite changes to directors/shareholders.
Taxation implications of changed business status not only possible tax savings from future operations, but any tax losses in the historic business that may need to be utilised while they’re still available.
Protection from creditors albeit often restricted by personal guarantee requests from many lenders.
External requirements some oil company retail operations are designed specifically and exclusively for limited companies.
External restrictions your lenders may not be prepared to grant the same facilities to a new company as they do to you at the moment.
Administrative complexity basically there is going to be more paperwork involved if you operate a limited company.
Accounting compliance requirements limited companies may require statutory audits, for example, if turnover exceeds £6.5m.
Only careful consideration of individual circumstances will enable the correct advice to be given, but as a very general observation, the formation and administration of limited companies does not need to be as complex and expensive as many people fear.
More management or just more administration?
Businesses that have operated successfully for years can usually cope with incremental change. An example would be taking a second forecourt, but faced with a sudden, large expansion (say, an extra two or three sites at once) they are suddenly inundated with apparent problems and headaches. Quite apart from the additional owner/ management time needed just to keep the sites stocked, secure and staffed, suddenly the volume of paperwork becomes an issue in itself. One early manifestation is in the number of staff needed to cope with the extra volume of purchase orders and invoices, bank transactions, payroll, etc.
Do they work out at the individual sites, or should they all be in one place?
If it’s the latter, how many forecourts have the additional office space available? What’s the cost of extra back-office clerks, PCs, desks, chairs, telephone lines, and all of the other overheads associated with administrative and clerical staff? And that’s before the cost of employing those additional back-room staff.
What about the accounting?
There’s no getting away from the fact that extra sites will almost certainly require additional accounting and reporting, regardless of whether or not the business is incorporated.
One of the essential requirements for any multi-site operation should be the ability to identify financial performance down to individual site level. After all, not every site may prove profitable. This is why site-specific management accounts (quarterly or monthly) are a standard recommendation.
Similarly, accurate VAT returns depend on being able to identify sales and purchase transactions correctly down to site level.
Conversely, there’ll be a need to put all of those individual accounts together into a consolidated set of results for the business as a whole certainly for year-end and tax purposes.
But also they will quite likely be needed for major lenders, such as the bank, who may wish to see the overall picture more than once a year particularly if they’re funding a large part of the expansion.
Is there an alternative through technology and/or outsourcing?
By utilising modern technology and management methods, expansion needn’t be accompanied by huge additional costs.
Investment in modern technology can pay huge dividends. Having all sites suitably set up to report to a central back-office function enables much of the paperwork and accounting to be taken care of at one location.
The great bonus that’s arisen from the advent of web-based systems is that the ’one location’ doesn’t even have to be yours, or staffed by your own employees.
It has become quite common to outsource the accounting and administrative functions to a central provider which then supplies each user with the information they need, when they need it.
Likewise, the sheer hassle of administering a large payroll can be easily and cheaply outsourced. With the relative cost of technology falling almost continually, we’ve been able to advise many clients on how to implement efficient business expansion and take advantage of outsourced solutions.
If you’re in the happy position of having the chance to expand, don’t be daunted by the prospect of having to restructure how you’re set up. Taken one step at a time, there are many things that can be done to minimise any additional overheads and headaches, and to leave you doing what you do best being an entrepreneur!