The concept of working on a business versus working in a business is an important consideration for any entrepreneur wishing to both develop their operations and ensure that they run effectively.

Whilst the phrases are very similar in their presentation they in fact highlight two very distinct duties a business owner must contend with.

The hypothesis surrounding working in a business is concerned with the entrepreneur subsuming themselves within the daily functions of running the business operations. Typically these would include: proving customer support, employee supervision, individual sales conversations, stationery ordering and some of the other numerous tasks necessary for the business perform on an ongoing basis.

Working on a business has the contradictory approach of absolving the day to day running of the enterprise to others and adopting a more strategic perspective of the organisation; one which is designed to further its overall objectives.

Simplistically, working in a business facilitates the sales of this week, whilst working on the business focuses on generating sales for next year.

Both functions have their own importance but it is the latter which is frequently overlooked and is staved of the appropriate amounts of resources.

During a typical commercial life cycle, at the point of starting a business the entrepreneur spends most of their capabilities working on the business; that is, developing contacts with suppliers, looking at aspects of marketing, creating financial budgets and drawing up their grand vision of what the business will become.

When the plan has been implemented and sales and revenues begin to appear, the business owner’s attention is slowly drawn away for the development side of the operations and more towards the vicinity of satisfying these orders.

The balance of attention continues to shift gradually until the business is so much in demand that the entrepreneur is completely immersed in working in the business and on the daily functions of achieving an efficient operating unit.

At this point they spend very little time working on the business and become a mechanism of an event driven and reactionary organisation.

At some point under this regime business growth ceases as no efforts are devoted to generating further commercial development. It is usually at the point of business decline that suddenly the entrepreneur realises that the undertakings which resulted in the initial business growth are no longer be considered or initiated.

The point in the business life cycle this fact is realised will determine the levels of corrective action that are necessary to stem the decline and redress the strategic versus operating balance.

Having a defined locality from which a business operates can however be used to gain a competitive advantage. By appealing to customer’s loyalty based on their locality a small business can attract orders by focusing its marketing efforts within the designated area.

With the growth of larger businesses the ability of smaller local enterprises to compete effectively has diminished as bigger entities are able to undercut the prices, provide nationwide support and offer a more extensive range of good and services.

A potentially potent and free method of advertising within a specific locality is through word of mouth. Neighbours and communities frequently discuss and exchange comments on purchases made and commissions undertaken by businesses and will hold views on whether to recommend a supplier or to steer others away from that establishment.

As part of the business planning process, a sole trader, partnership or limited company can construe a specific local geographical area in which it wishes to concentrate.

Their resources, whether marketing, customer services or networking can then be applied so as to gain advantage and full benefit from the release of these resources.

There is a philosophy in business when viewing a particular industry which states that only a proportion of any particular market can ever be won; that no single business can cater for the needs of all customers.

In this vein, the local business need not attempt to compete with regional or national enterprises as if it was successful, it would simply be replacing income earned in one area with revenue gained in another.

The principles of competitive advantage therefore mandate that the local business should use its strongest advantage, i.e. its locality to achieve its share of the market.

Expenditure incurred in the pre year end period is allowable for taxation purposes in that year. Therefore it is generally advisable that where expenditure is scheduled to be undertaken and it can be made either before or after the business’ financial year, it should be made before the end of the year.

This would ensure that the tax benefits of that expenditure are gained sooner in the current year rather than in the next period. In situations where the business is VAT registered it is often to case that the VAT reporting periods and the financial year end of the business are coterminous.

Therefore as well as achieving tax advantages in terms of corporation tax (for companies) or income tax (for sole traders and partnerships), the business can also benefit from the cash flow improvement gained from the extra element of input VAT.

At one extreme, there are businesses who might purchase substantial quantities of goods and services in their pre year trading period in order to inflate their expenses and thereby reduce their profit chargeable to taxation.

Whilst this might appear to benefit them, the resultant creditor balances and the negative effect on cash negates any short term advantages gained via a lower tax charge and reduced VAT liabilities.

Whilst the principles of lowering tax charges through incurring pre year end expenditure generally holds true, the manner in which it is implemented must be in accordance what the business can afford and whet is deeded to be sensible.

For example, purchasing a years worth of stationery might create additional storage problems which removes any taxation gains. There might also be the issue of year end stock which of course is added to profit.

Significant amounts of unused materials or prepayments for services would normally be removed from the profit and loss account as expenses to be allotted to the period in which they are actually utilised.