BUSIN

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1 0 / SMALL BUS INESS

HOW I MADE IT

TAX CAN BE SAVED EVENIN A RENT-FREE PERIODSGwrites: I ammoving to newbusiness premises and have beenoffered a rent-free period. The leaseis for five years and the landlord hasofferedme the first year free. I willhave some refurbishment costs, butmy overall costs in the first year willbemuch lower. Is there any specialtax treatment?

Incentives on leases are normallyspread across thewhole term up tothe first break clause,writes JonDawson, partner at Kingston SmithLLP. This will give you an equal rentcharge over the first five years youoccupy the new office.The effect of spreading the

rent-free periodmeans that the rentcost is recognised in your first-yearaccounts, even though youwill payout nomoney. This is a tax deductiblecost and does not need to be adjusted.In subsequent years youwill paymorecash than the rental charge stated inthe accounts.The refurbishment costsmight

attract different tax treatment,depending on their nature. Broadlyspeaking, they are broken down intothree categories:0 Repairs andmaintenance costs areexpenses and you claim a normal taxdeduction against profits;0 Equipment qualifying as plant andmachinery is subject to capitalallowances, with up to £500,000available as a full tax deduction in thecurrent year;0 Structural work is normallyineligible for a tax deduction.You should also consider the terms

of the lease as it may require you toreturn the premises to their originalconditionwhen you vacate them. Ifthis is the case, you should obtain anestimate of costs from a surveyor andstart to build a dilapidation provisionover the next five years. This willcreate an additional cost in youraccounts. However, it is a taxdeductible expense as you have anobligation under the lease.

DON’TTRIPUPWHENDISCIPLININGSTAFFCPwrites: I have never conducted adisciplinary hearing. Are there anycommonmistakes to avoid andwhathappens if an employee disagreeswithmy decision?

Disciplinary proceduresmay appearonerous to someonewho has never

conducted one but they are anecessary part of running an effectivebusiness,writes Peter Done, managingdirector of Peninsula. Never instigatinga disciplinary proceduremeans one oftwo things: either your employees areperfect and never cause any problemsor you are failing to look after yourbest interests.Minor breaches of rules will usually

not warrant a formal disciplinaryprocedure but repeatedmisdemeanoursmay require theemployee to be formally dealt with. Adisciplinary hearing does notmeanthat the employeewill be found“guilty”. It just means that there is acase to answer and youwant toconsider it formally. So you need toenter the process with an openmind.The Acas code of practice on

Disciplinary and GrievanceProcedures sets out some principlesfor how a disciplinary procedureshould be conducted. The code is notthe law, but a tribunal will take it intoconsiderationwhen decidingwhethera dismissal was fair.Before the disciplinary hearing

even starts, you need to carry out athorough investigation into theallegedmisconduct. This is an areawhere employers commonly trip upbecause a robust investigation onwhich to base your facts is essential.Letting employees see the evidenceagainst them before the hearing isalso necessary to give them a goodopportunity to prepare their defence.Once the hearing has finished, it is

advisable to adjourn and considerwhat the outcomewill be rather thanmaking a decision straight away. Themost important concept to rememberis that youmust act reasonably at allstages. Rash decisions can ruin anotherwise reasonable procedure.Another essential element is the

provision of an appeal if you findagainst the employee. Gooddisciplinary procedures will allow theemployee to question the gravity of asanction or to bring in new evidenceto strengthen their case.

Business doctor

When Laura Greenwanted to starther own ven-ture, she bor-rowed someoneelse’s idea andbecame a franchisee.“I hadn’t owned a business

before, so the ideaof anapprovedmodel worked for me,” saidGreen, who had been employedas a personal assistant at a con-struction company.Last year she signed up as a

franchisee for Home InsteadSenior Care, an American carefirm with more than 1,000 busi-nesses around the world. Green,26, opened an office in Kidder-minster, Worcestershire, and isnowoneofabout160Britishfran-chisees. She has 22 staff.“Starting something from

scratch can be daunting so it’sgood to know you have a fran-chiser that is well-established,”she said.Support is alwaysonhand, she

said. Through an online forumand quarterly meetings, Greenconnects frequently with otherfranchisees. “There’s a wealth ofexperienceandthenationalofficehas provided me with supportfrom the start,” she said. “Youcanalwaystapinandtalktootherfranchisees.”For thepast twodays, budding

franchisees and franchisers haveflocked to the British & Interna-tional Franchise Exhibition, anannualshowcaseevent.Thecele-bration is justified: according tothe British Franchise Association(BFA), 90% of Britain’s fran-chisees have reported profitsevery year for the past 20 years.Brands such as McDonald’s,

Domino’s Pizza and Costa Coffeeare among the big players. Lastyear, thesandwichchainSubwaybecame the largest franchiser inBritain, with 2,000 sites.In the main, though, Britain’s

1,000 franchise operations (60%of them home-grown), withcombined revenues of almost£14bn, are small and medium-sized enterprises.Those hoping to become a

franchisee must consider manyfactors. Pip Wilkins, the BFA’s

head of operations, said: “Youcan’t franchise an idea. You needsomething that has been tradingin Britain for a year or so, so youknow it’s a successful model.“Some people come to us and

say they run coffee carts in rail-way stations and now they wantto franchise high street coffeeshops.Youhavetofranchisewhatyou have actually done.”The association’s research

suggests franchisees are, onaverage, in their mid-forties,though in the past two years theproportion of under-thirties hasrisen as the diversity of brandshas increased — now, theyaccount for more than one fran-chiseeinfive.In2013,thenumberofpeopleemployedbybusinessesin franchising topped 250,000.Those hoping to work from

someone else’s business model

should speak to the experts first,said Wilkins. “You have to knowwhat you are buying into and askquestions of the franchisers. Askabout training and support andtalk to franchisees. Ask whentheystartedmakingmoneyandifthey are getting the support theywere offered. Then you are notbuying into a concept wearingrose-tinted glasses.”Theassociationoffersadviceto

newcomers through its websiteand events. Wilkins said becom-ing a franchisee can be a simplerway to get into business.“Because of the training andbackground you get, you don’tneed experience in the businessyou are buying into.”The rules for refunds if things

fall through vary from contractto contract. “If a franchiser takesa deposit from a franchisee it

should be fully refundable unlessthey have spent money ontraining and support. It’s aboutlooking at what you sign.”For 25-year-old Lorna Rogen,

becoming a franchisee resultedin a £12,000 loss. She talked tobudget gym operator EnergieScotland about setting up herown site. “I did some research,went to an open day and set up ameeting. After I signed all thedocuments and handed over themoney it all fell apart.”Rogen signed up in May 2013,

paying an initial fee, and beganhunting for a site that would besuitable for a gym. About 18months later, when she hadfoundone,shewasrefusedabankloan. She then pulled out of hercontractwithEnergieandlostherentire investment.She says she felt misled by the

Energie Scotland website, whichtells potential franchisees it canhelp them“raise finance throughthe banks’ national franchiseunits, often when previousattempts have failed”. It says:“Energie has forged strong part-nerships with major banks,helping franchise owners to raisematched funding.”Rogensaid:“Theysaid I signed

the agreement and because Iwanted out and they technicallyhadn’t done anything wrong, Iwas breaking the contract.”Jan Spaticchia, owner of fran-

chiser Energie Group, a MiltonKeynes gym business with 30staff, a £26m turnover and 90franchise sites, said: “We worklike other franchisers: we intro-ducethefranchiseestothebanks.What we can’t ever do is guar-antee the loans.”

Most franchiseesmake profits yearafter year. But doyour researchbefore signing up,warnsKiki Loizou

Franchises take awaythose start-up jitters

On the rack:Lorna Rogen’s brushwith franchisingcost her £12,000

WATTIE CHEUNG

Victory in mountain race put myrunning shoe firm on fast trackKNEE-DEEP in snow in the mountains ofAlaska, Wayne Edy could not believe hisluck. A woman wearing shoes designedby him had just won the World MountainRunning Championships.“The champion hadn’t brought foot-

wear to cope with the snow,” said Edy.“Shehadborrowedmyshoes froma juniorrunner in the morning and after the raceheld them up, saying they had helped hertowin.”It was a golden start for Inov-8, the

footwear brand Edy had founded threemonths earlier in 2003. He began by sell-ing his specialist running shoes from apick-up truck at off-road races aroundthe globe. The medal success in Alaskaspeeded up growth and the companylaunched in America the following year.“Mountain running wasn’t big enough

in Britain to have a sustainable business soI decided to sell my product overseas asquickly as possible,” said Edy.Today Inov-8 sells clothing and acces-

sories as well as shoes in nearly 70 coun-tries, with three-quarters of its £17.5msales in 2013 coming from overseas. Salesfor 2014 are expected to be nearer £19m.This pace-setting performance earnedInov-8 a place on The Sunday Times FastTrack 100 league table of the fastest-growing UK private businesses last year.Inov-8 designs, tests and distributes

its footwear from its headquarters inStaveley,nearKendal,Cumbria.Thecom-pany has 80 staff and sells about 500,000pairs of shoes a year. In Britain they retailat between £60 and £130.With the exception of a fewaccessories,

all the products are made in Asia. “Therearenocountries inEuropethatcouldmakeour shoes,” said Edy, 52. “Our combi-nation of rubber compounds and the typeof sole we design is very specialist — webelievewehavethebestgripinthemarket.“Our products adapt to different ter-

rains and are in tune with the naturalmovements of the body. It’s all about thefoot controlling the shoe, not the shoecontrolling the foot.”The founder has invested tens of thou-

sands over the years. Early in 2003 he soldhis share portfolio and several propertiesto fund the first shoes. “One container-load of themcost£40,000. That’swithoutthe moulds, the man-hours and mate-rials,” he said. “It was a huge investmentand extraordinarily risky but I was deter-mined not to fail.”Edy was born in Rhodesia, now Zim-

babwe, the second of four brothers. Hisfather ran a printing company and hismother was a building society manager.His siblings still live in Africa.Edy attended Gifford High School in

Bulawayo, Zimbabwe’s second city, and

Wayne EdyFounder of Inov-8

Thornhill High in Gweru, in the centre ofthe country. At 17 he enrolled at BulawayoPolytechnic, where he studied technologyin the hope of becoming an engineer.While there he completed a six-monthplacement at Bata Shoe Company. “Ibecame more interested in the process ofmaking footwear than I was in engi-neering, so I switchedmy career.”After completing his exams, he took a

full-time post with Bata, helping it toestablish a chain of sports shops calledAthletes World. “They put me through afast-trackmanagementcourse,” saidEdy,who opened five stores and negotiated alicencewith Adidas.He left in 1988 to join G&D Footwear,

where he was promoted to developmentdirector. “I was instrumental in fuellingits growth,” he said.Frustrated by Zimbabwe’s political and

economic climate, Edy quit and moved toBritain in 1992. He was 29. After severalmonths he secured a job as general man-ager of sevenCo-operative stores inWear-dale,CoDurham.“Ihadanunproventrackrecord in Britain so it wasn’t easy getting

settled,” he said. “After a year I wasmissing the footwear industry.”Two years later he took a managerial

position at Berghaus, the Sunderland-based outdoor clothing and equipmentbrand. In 1996 he became managingdirector of Brasher Boot Company. “Thebusinesswasgoing througha lot of changeand struggling to get into profitability,”he said. “I accepted that challenge andturned it around.”He left after two years to set up his

first company, Innovate Associates, whichdeveloped and sourced specialist footwearfor Brasher and other outdoor brands,including Musto and Gill. It was wounddown in 2004 because of the rapid successof Inov-8,where Edy is today themajorityshareholder.Theprivateequity firmLivingBridgeinvestedanundisclosedsumin2012.He met his fiancée Maria Leijerstam at

an extreme sports event sponsored byInov-8.In2013shebecamethefirstpersonto cycle to the South Pole from the edge ofAntarctica, taking just 10 days to do it.“Thatwasanamazingachievementand

it was a great experience to support her,”he said. “I did all the photography andvideography for the trip.” The couple livein the Vale of Glamorgan, south Wales,where her parents own a deer park.Edy’s advice to other entrepreneurs is:

“As overwhelming as itmight seem, if youhave vision and you believe you have aunique product, then go for it. You needto take risks and accept that you will notsucceed every time but that’s part of theprocess. When it comes right, it’s anamazing journey.”

Hattie Williams

Wayne Edy’s love of extreme sports brought him sales of £17.5m — and a fiancée

Kingston Smith LLP, the charteredaccountant, and Peninsula, theemployment law firm, can adviseowner-managers on their problems.Send your questions to BusinessDoctor, The Sunday Times,1 London Bridge Street,London SE1 9GF. Advice is givenwithout legal responsibility.

bizdoc@kingstonsmith.co.uk

EmploymentLawExperts

More of the business eliteread The Sunday Times

than any otherBritish newspaper.*

*Source: IPSOS Business Elite Europe Survey, 2014