Adventures In Micro-Business: How to go green and approach angels

Each month Professor Russell Smith answers your queries, and profiles a small business facing a big challenge
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The Independent Online

Q. I need to employ my first member of staff. What essentials of employment do I need to know?

A. You should consider what you want the new post to achieve and then draw up a job specification. Compare the cost of an employee with the additional revenue that your business will generate to determine if you can offer a competitive salary. If the numbers add up, ask your accountant about running Pay As You Earn (PAYE) on your behalf. Talk with an independent financial adviser about insurance and pension schemes. As a first-time employer you do need to be aware of how to stay legally compliant but employment law is mostly common sense. The Business Link website ( www.businesslink.org.uk) is an excellent source of useful information as is the Health and Safety Executive website ( www.hse.gov.uk).

Q. How do I go about reviewing my current suppliers and selecting better ones?

AA good place to start would be to visit the website of the Buying Support Agency ( www.buyingsupport.co.uk) and download their free Purchasing Healthcheck diagnostic tool.

Q. Is it true that new business fire safety rules came into effect recently?

A. New rules were introduced in October 2006 and they will almost certainly apply to your business. The key aspects are that you need to carry out a fire risk assessment, eliminate or reduce the risk of fire and create a plan to deal with any emergency. Contact your local Fire and Rescue Service for specific advice or, for a good overview, visit www.communities.gov.uk/fire.

Q. Where can I find out more about making my business activities green?

A. The Carbon Trust website ( www.carbontrust.co.uk) would be a good place to start. Their new report "Advanced Metering for SMEs" describes how small businesses can save money and reducing carbon usage.

Q. Where can I find out about possible grants for my business?

AVisit the Business Link website ( www.businesslink. gov.uk) and go to their Grants and Support Directory page. Another very useful website for finding grants can be found at www.j4bgrants.co.uk; from this website you can register for e-mail alerts with news about grants tailored to your business.

Q. I have been advised to seek equity finance from one or more business angels. What does this process involve?

AEquity finance comes from selling shares in your business and is therefore only possible for a limited company. It is usually the case that equity finance is sought when a business needs funds for start-up, product development or business growth. Selling shares in your business is not something that you should do without advice from your accountant and your lawyer. Business angels are wealthy individuals who invest in private companies that they consider able to grow substantially. Remember that an investment isn't a loan - the investor will want to sell the shares in your business at a later stage and at a profit. For more general information visit the website of the British Business Angels Association ( www.bbaa.org.uk).

Profile: Sowing the seeds of success

In his previous life as an IT business sales consultant, Dominic Shadbolt, 38, enjoyed a high-flying career that took him around the world. But taking a call from his wife Lucy to say that she was going into labour, while he was in Moscow, was something of a wake-up call. "To give them credit," says Shadbolt, "British Airways did get me back within 10 hours. But the experience made me stop and think about what I wanted to do with my life."

As someone who loves to cook, Shadbolt had frequently complained about the lack of an organic vegetable box scheme in his village. So much so, that his wife challenged him to start one himself. And so he did. Although not as a producer but as a "processor" of organic food. This is an important distinction and requires certification of the business by The Soil Association ( www.whyorganic.org). The role of the processor is to source organic produce and to distribute it to their customers. Only Organic sources food primarily from within a 50-mile radius of Long Crendon in Buckinghamshire and has a focus on vegetables, fruit and eggs.

"The business is essentially one of logistics," explains Shadbolt. And perhaps not surprisingly for an IT expert, Only Organic has invested heavily in its website and its supply/delivery processing system. It is that system which helps to manage the challenge of sourcing organic produce of sufficient diversity to make up interesting boxes for weekly delivery. " It would be easy to fill up the boxes with potatoes", says Shadbolt, "but customers want a healthy selection of both staple and interesting food."

Delivering "interesting" food can be a mixed blessing when customers are unfamiliar with the produce and so the company provides a weekly e-mail service to alert customers about what they will be receiving. The website provides lots of recipes, especially for more unusual vegetables such as kohl rabi. "In the end," says Shadbolt, "it's all about the quality of the organic produce."

The business is going from strength to strength and, in its second year of trading, looks set to triple the turnover achieved in its first year. This is quite a remarkable achievement, especially for someone with no prior experience of the organic food sector except as a consumer. But it's even more remarkable when you learn that Shadbolt was diagnosed with multiple sclerosis 12 years ago.

Only Organic ( www.onlyorganic.org; 01844 238064).

Jargon buster

Equity Finance

Equity finance involves selling a portion ("shares") of a business to raise finance for growth. It is only available to limited companies with high growth potential. Private limited companies usually sell shares initially to wealthy individuals known as "business angels" who then sell them later, hopefully at a higher price. If your business is predicted to come into profit quite quickly, then you should consider debt finance as an alternative, since profitability will enable a loan to be repaid.

Dividend Payment

When a company makes a profit, after all expenses and taxation, that profit can be distributed among shareholders as a "dividend". Small businesses may have shares held just by the founders and so this mechanism is a way of sharing profits. More mature businesses may also have shareholders following the sale of shares in the business to raise equity finance. For a rapidly-growing business, shareholders may elect to retain the profit to help drive growth or reduce future borrowing needs.

Questions please

Send your questions to Russell Smith at independent@businessboffins.com. Selected questions will be answered each month. Answers are for the general guidance of owner-managers only; always seek professional advice. Professor Smith is the founder of Oxford-based Business Boffins Ltd which, in collaboration with Oxford Brookes University Business School, delivers support programmes to small businesses nationwide. Independent and Independent on Sunday readers can enrol on the university-accredited programme at a discounted rate; see www.businessboffins.com/independent.

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