​It won’t happen to sME…will it? by Bryce Paling

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Many smaller businesses are gambling their future by having no insurance against sickness or death of key staff.

Owning our own business is surely about feeling empowered, increasing personal wealth, and having an element of control over our own destiny. Being a director/shareholder, partner or a sole trader can be a great place to be with the right professional advisers supporting you.

Whilst creating wealth is one thing, holding on to our wealth can be another. It is understandable that as business owners we concentrate on growing our businesses but do we stop to consider whether our business or family would be at risk if we, or any of our key employees were to die or become seriously incapacitated and unable to work?

The loss of a key person could leave our business without vital skills and knowledge, making our business vulnerable to the following:

·         Sales could fall

·         Loans may be called in

·         Suppliers may demand immediate payment

·         Customers could go elsewhere

·         Recruitment costs (including paying for a temporary replacement) are likely to be high

Serious illness not uncommon

Given that a serious illness, such as cancer or a heart attack, affects one in four women and one in five men before retirement age, potential scenarios like these are not uncommon.

Protecting profit

The sudden loss of a key employee can leave a business without vital skills or knowledge. Replacing lost profits, covering expensive recruitment costs, or paying penalties due to the non-delivery of goods and services is costly.

Paying off debt

Many businesses borrow money to start up or expand, and the ability to repay a loan could be impacted by the loss of a key person. Additionally, directors may loan the company money (known as a ‘director’s loan account’) via undrawn salary, dividends, or actual loaned money. This would need to be repaid if the director died or took early retirement (because of a serious illness).

Sole traders

Consideration should be given to sole traders who are personally liable for business debt. If a sole trader dies unexpectedly, any debt would be inherited by their next of kin.

Professional financial advice

Having the correct protection and ensuring this is regularly reviewed and updated to reflect business changes is a particularly onerous and daunting task for time-hungry entrepreneurs.

It is one which is best left to a wealth management specialist to help protect the business from a wide range of risks and ensure business owners meet their aims while concentrating on managing their company.

We can carry out an assessment that will help you to quickly understand whether a financial risk exists and, if so, how to provide effective, tax-efficient protection against such risk.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Bryce Paling on 01403 824192 or email bryce.paling@sjpp.co.uk

​- Bryce S Paling MBA DipPFS

  Director of BP Wealth Management Ltd

 

Forensic Accountants: the CSIs of Finance

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What does a forensic accountant do?

As forensic accountants we deploy accounting, auditing and investigative skills when conducting an investigation. Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. Forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation.

A forensic accountant is often retained to analyse, interpret, summarise and present complex financial and business related issues in a manner which is both understandable and properly supported.

Forensic accountants can be engaged in public practice or employed by insurance companies, banks, police forces, government agencies and many other organisations. They can be involved in:

• Investigation and analysis of financial evidence

• Development of computerised applications to assist in the analysis and presentation of financial evidence

• Communication of their findings in the form of reports, exhibits and collections of documents

• Assisting in legal proceedings – including testifying in court as an expert witness and preparing visual aids to support trial evidence.

In order to perform those services a forensic accountant must be familiar with legal concepts and procedures. In addition, the forensic accountant must be able to identify substance over form when dealing with an issue.

What should a legal professional consider when retaining a forensic accountant?

The issues to be considered include the experience and qualifications of the forensic accountant. They should also be retained as early as possible in order to obtain the maximum benefit. The assistance a forensic accountant can provide early in the process can be significant in reducing the overall cost and maximizing the benefit. If retained early, they can assist with the ‘examination for discovery’, identifying additional areas of damages, assisting with settlement negotiations and providing a preliminary assessment of the quantum of damages.

If the forensic accountant is being engaged as an expert witness, then they should be given access to all of the relevant documentation. If restrictions are imposed upon the scope of the investigation, there may be an impact upon the acceptance of the findings.

In situations where counsel is involved, the forensic accountant should be retained by counsel, so the privilege that exists between client and counsel will be extended to the work produced by the forensic accountant.

What are the main areas of litigation involving the work of the forensic accountant? 

Criminal investigations and fraud: A forensic accountant may be retained by local police forces, or by organisations such as the Law Society, in relation to criminal investigations. Their report is prepared with the objective of presenting evidence in a professional and concise manner.

Connected to that area are investigations into business or employee fraud. Business investigations can involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence reviews.

Employee fraud investigation often involves procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator. These investigations often entail interviews with personnel who had access to the funds and a detailed review of the documentary evidence.

Employee dishonesty or infidelity can also figure in the investigation of insurance claims, which may also cover business interruption and property losses.

Insurance claims and business losses: Insurance policies differ significantly regarding their policy conditions, so these assignments involve a detailed review of the policy, to investigate cover and the method of calculating the loss. A forensic accountant can be asked to assist from either an insured or insurer’s perspective in the settlement of the case.

Other examples of assignments involving business losses include contract disputes, construction claims, expropriations, product liability claims, trademark and patent infringements and losses stemming from breach of non-competition agreements.

They may also arise from shareholder or partnership disputes. These assignments often involve a detailed analysis of numerous years’ accounting records to quantify the issues in dispute. For example, a common issue that arises is the compensation and benefits to be received by each of the disputing shareholders or partners.

Where claims of professional negligence are involved, the investigations are often approached from two different but complementary perspectives. These are the technical investigation – has a breach of generally accepted accounting practice or auditing standards or other standards of practice occurred – followed by the quantification of loss.

If the professional in question is an accountant, then we are often involved with both perspectives. If the matter involves some other professional the forensic accountant will normally be retained to perform only a loss quantification.

Personal injury and matrimonial claims: A forensic accountant is often asked to quantify the economic losses arising from a motor vehicle accident. They therefore need to be familiar with the legislation in place pertaining to motor vehicle accidents. Cases of medical malpractice and wrongful dismissal also involve similar issues in the calculation of the resulting economic damages.

Matrimonial disputes from a forensic accounting point of view often involve the tracing, locating and evaluation of assets. The assets to be evaluated and valued may be businesses, property or other assets.

Financial matters for the terminally ill

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Terminally IllLiving with or caring for a person who is terminally ill can put a strain on finances.

Firstly, is the ill person in receipt of a salary or benefits from their employers? If not, have they or their representative notified the benefits office? Also talk to citizens advice bureau, as the DWP (Department of Working Pensions) are not the only Government Department paying out for terminally ill people. If the application for support has been turned down; claim again, or challenge the decision. Goddards handle some 50+ cases every year and in 75% of the cases DWP get it wrong.

Also look at the “Social Care” entitlements. These are managed by the local council, under the newly implemented “Care Act 2014”. Unfortunately local councils still do not fully understand the act and their legal obligations under the Act. Again, if refused help, appeal.

If one is terminally ill; the benefit cap doesn’t apply.

Again one may be eligible for council tax support (or Council Tax Reduction).

In addition the people who are caring for the terminally ill person may be entitled to benefits and support from social services.

And finally, bereaved family members may be able to get financial support from the government through a bereavement payment, bereavement allowance or widowed parents allowance.

The best support for all these areas is “Marie Curie” whose website covers all these problems and their solutions.

Automatic enrollment

Automatic Enrolment by Bryce Paling

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Many small employers remain unaware of their automatic enrolment pension obligations.

Automatic enrolment started in 2012 and is now halfway through a process which obliges every employer to automatically place their employees into a workplace pension scheme. But despite its success so far, there are concerns that the biggest challenges are yet to come.

More than five million workers have so far joined the scheme. But that figure doesn’t tell the whole story – as these are from the largest companies, only 3% of employers have so far automatically-enrolled their staff.

The huge majority of employers are still to go through the process. Between now and 2018, over three million more workers will be enrolled by smaller employers.2 Ros Altmann, the government’s pensions minister, has warned, “It will be a much tougher ask to make auto-enrolment work for everyone.”

“Qualifying” Registered Pension Scheme…, not just a Registered Pension Scheme!

The starting point is that nearly all UK ‘jobholders’ including someone who would otherwise be self-employed with an employer who are not already members of a Qualifying Scheme are eligible and must be auto enrolled.

·         The employer can choose not to enrol workers if they are under the age of 22 or over State Pension Age.

·         Individuals below the age of 22 or between State Pension Age and 74 can ask to be admitted, in which case the employer must contribute if the individual’s earnings are £5,824pa or more. (2015/16)

·         If a worker earning less than this asks to join, the employer is not obliged to contribute.

·         The employer may also exclude workers earning less than an earnings trigger in each pay reference period.

·         Depending on the structure of pay reference periods, the earnings trigger will be £192 if workers are paid weekly, £833 monthly and £10,000 annually for 2015/16.

The worry stems from concerns that many ‘micro employers’ are unaware of their pension contribution obligations. Whilst similar to an employer’s responsibility to deal with National Insurance and Income Tax, many smaller employers remain confused as to their automatic enrolment duties.

If you employ anyone, even just one person and pay them at least £192 a week or £833 a month, you will need to comply with automatic enrolment rules. Failure to follow the rules could lead to a £400 fine; and continued failure to comply has already resulted in daily fines of between £50 and £10,000 depending on the severity of the breach.

There is a real danger of many people leaving it until the last minute before taking action micro employers should start preparing for automatic-enrolment now and be seeking professional advice in good time if they are unsure of their new responsibilities.

Penalties and Fines

The Pension Regulator will have the ability to impose penalties and fines if an employer does not comply with their staging date and ongoing duties. These include:

·         A fixed penalty of £400 where an employer fails to respond to a warning notice. A warning may be given (for instance) where an employer is accused of offering inducements to encourage members to opt out or leave the scheme.

·         An escalating penalty of £50 to £10,000 per day (depending on the size of the employer) for example where an employer fails to pay contributions to the scheme on time (i.e. by the 19th of the following month).

·         A fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the scheme.

Automatic enrolment is here to stay for the foreseeable future but rather than a bureaucratic pain, once the system has been set up, focus can return to issues like profitability, efficiencies, customer relationships, economics, existing markets, new markets, cash flow, financial goals, and of course the Christmas party!

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Bryce Paling on 01403 824192 or email bryce.paling@sjp.co.uk

 

– Bryce S Paling MBA DipPFS

  Director of BP Wealth Management Ltd

Power of Attorney

Power of Attorney

By | Goddards Accountants | No Comments

With more and more people living longer, there is an increasing risk that they become unable to make financial decisions or manage their affairs.

Since October 2007 it has not been possible to form enduring Power of Attorney, this had been replaced by Lasting Power of Attorney.  It is possible to have joint attorneys to manage over affairs. Lasting Power of Attorney should be applied for before the “Donor” losses his or her facilities; and the Donor and at least 3 of their relatives must be notified of the intention to request the LPA.

The normal priorities would be:

·         Donors Husband/Wife/Civil Partner anticipates

·         Donors Children

·         Donors Parents

·         Donors Brothers and sisters

There are others relatives who may be required to be notified if there are no immediate family members.

In addition when making out the Lasting Power of Attorney; the proposed Attorneys should also ensure that the power has an up to date will.

Goddards Accountants Disputes Division can assist with all these matters.

Forensic Accounting

What is Forensic Accounting?

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What is Forensic Accounting?

The integration of accounting, auditing and investigative skills yields the specialty known as “forensic accounting” which provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution. Forensic Accounting encompasses both Litigation Support and Investigative Accounting.

As forensic accountants, we utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting. Forensic accountants are trained to look beyond the numbers and deal with the business reality of the situation.

What does a Forensic Accountant do?

A forensic accountant is often retained to analyse, interpret, summarize and present complex financial and business related issues in a manner which is both understandable and properly supported.

Forensic accountants can be engaged in public practice or employed by insurance companies, banks, police forces, government agencies and other organizations.

A forensic accountant is often involved in the following:

·         Investigation and analysis of financial evidence;

·         Development of computerized applications to assist in the analysis and presentation of financial evidence

·         Communication of their findings in the form of reports, exhibits and collections of documents.

·         Assistance in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.

In order to properly perform these services a forensic accountant must be familiar with legal concepts and procedures. In addition, the forensic accountant must be able to identify substance over form when dealing with an issue.

What should you consider when retaining a Forensic Accountant?

The following issues should be considered on retaining a forensic accountant:

·         The experience and qualifications of the forensic accountant.

·         The forensic accountant should be retained as early as possible in order to obtain the maximum benefit. The assistance that a forensic accountant can provide early in the process can be significant in reducing the overall cost and maximizing the benefit. If retained early, the forensic accountant can assist with the Examination for Discovery, identify additional areas of damages, assist with settlement negotiations and provide a preliminary assessment of the quantum of damages.

·         If the forensic accountant is being engaged as an expert witness then he or she should be given access to all of the relevant documentation. If restrictions are imposed upon the scope of the investigation there may be an impact upon the acceptance of the findings.

·         In situations where counsel is involved, the forensic accountant should be retained by counsel so that the privilege which exists between the client and counsel will be extended to the work product of the forensic accountant.

Criminal Investigations:

Forensic investigations often relate to criminal investigations on behalf of police forces. For example, a forensic accountant may be retained by local police forces and organizations such as the Law Society.

A forensic accountant’s report is prepared with the objective of presenting evidence in a professional and concise manner.

Shareholders’ and Partnership Disputes:

These assignments often involve a detailed analysis of numerous years’ accounting records to quantify the issues in dispute. For example, a common issue that often arises is the compensation and benefits received by each of the disputing shareholders or partners.

Personal Injury Claims / Motor Vehicle Accidents:

A forensic accountant is often asked to quantify the economic losses arising from a motor vehicle accident. The forensic accountant needs to be familiar with the legislation in place which pertains to motor vehicle accidents.

Cases of medical malpractice and wrongful dismissal often involve similar issues in the calculation of the resulting economic damages.

Business Interruption / Other Types of Insurance Claims:

Insurance policies differ significantly as to policy conditions. Accordingly, these assignments involve a detailed review of the policy to investigate coverage issues and the method of calculating the loss.

A forensic accountant is often asked to assist from either an insured or insurer’s perspective in the settlement of the case.

Examples of these types of assignments include; business interruptions, property losses and employee dishonesty (fidelity) claims.

Business/Employee Fraud Investigations:

Business investigations can involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence reviews.

Employee fraud investigations often involve procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator. These investigations often entail interviews of personnel who had access to the funds and a detailed review of the documentary evidence.

Matrimonial Disputes:

Matrimonial disputes from a forensic accounting point-of-view often involve the tracing, locating and evaluation of assets. The assets to be evaluated and valued may be businesses, property or other assets.

Business Economic Losses:

Examples of assignments involving business economic losses include; contract disputes, construction claims, expropriations, product liability claims, trademark and patent infringements and losses stemming from breach of non-competition agreements.

Professional Negligence:

These investigations are often approached from two different but complimentary perspectives, these being:

·         Technical – has a breach of Generally Accepted Accounting Principles or Generally Accepted Auditing Standards or other standards of practice occurred;

·         Loss Quantification.

·         If the professional in question is an accountant then we are often involved with both perspectives. If the matter involves some other professional the forensic accountant will normally be retained to perform only a loss quantification.

Loss of Profits vs. Business Value

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Loss of Profits v Business ValuationsIf a business is damaged as a result of wrongdoing, there are two ways in which the plaintiff’s damages can be measured.

The First way is to calculate the plaintiff’s annual loss of profits; and the Second way is to calculate the value of the plaintiffs business at the time of loss; that being the amount that the plaintiff could have sold the business for at the time of loss.

Using the loss of profits route, the Accountant would forecast the annual profits for the damaged business based upon the industry and actual conditions applying at the time, and up until the date of the trial, and on into the future. This valuation should also take account of the fact that the projected profits were by no means “riskless”.

Using the business valuation route, one would calculate as if the defendant were “purchasing” the damaged business from the plaintiff at a “fair market value” at the time of loss. This valuation would be equivalent to the present value of the cash flows that would accrue to the owner of the business over its lifetime. A risk adjusted discount is then applied to convert the projected annual cash flows to a single lump sum.

Where the claim is for personal injury, it should be noted that significantly higher damage claims can be made under the lost profit method than under the business valuation method. This is because the business valuation method imagines that the plaintiff would have sold the damaged business immediately prior to the damage happening; thus attempting to estimate the proceeds the plaintiff could have received at that point in time. To the extent that no sale was actually contemplated; a loss calculation based on the value of the business can in those circumstances lead to an amount far different then would have been achieved by the plaintiff but for the loss had they continued to operate the business.

Indeed relying solely on the business valuation approach can be risky if there is any doubt as to the permanency of the loss. In these circumstances, the preparation of a detailed lost profits calculation on a year by year basis is essential. It should be noted that the business valuation and lost profits approaches often yield similar damages calculations. When they do not, it is usually due to the factors noted above. H.M. Courts may also subjectively prefer one approach to another. Experts should consider calculations under each of the above methods; and adopt the approach that best fits the facts of the case.

Commercial Fraud

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Commercial FraudIt is surprising how rarely people look behind the obvious and ask the awkward questions.

I dealt with a case of fraud where the accounts clerk managed all the finances for a business which operated from four sites. She was such a nice person, visiting every branch daily to collect the cash and bank it. She was so kind and even allowed the staff and the partners to stay for free at her villa in Puerto Banus in Marbella. Everyone, including the partners (and possibly the auditors), were fooled by her apparent willingness to assist and ‘put herself out’. No alarm bells rang over the daily visits to the branches and visits to the bank. No one checked to see if any accounting procedures or controls were missing.

Not surprisingly she defrauded the business of some £2 Million over 10 years. She was found guilty, but unfortunately it did not stop there. HM Revenue & Customs sued for under declarations of VAT on these scams and the senior partner stuffed a fatal heart attack.

In another case, the accounts clerk for a travel agency was accused of fraud and I was asked to defend her. On checking the allegations, I found that the controls over cash had been non-existent. When I asked to visit the travel agency, the finance director fiercely opposed my visit, alleging that the procedures manual that he had supplied was adequate. The judge agreed with me and insisted that I be allowed to visit the firm and carry out tests on the old and new procedures.

When carrying out my tests, I found that not only did the revised procedures still allow for fraud, but more importantly, that fraud was still continuing despite the sacking and prosecution of the accounts clerk. The finance director disappeared on a one way ticket to Rio and the case against the accounts clerk collapsed.

Another case involved a large timber importer whose accounts clerk was allegedly raising false suppliers invoices. The prosecution was being assisted by a major accounting firm who put a couple of university graduates onto the case. They had gone for the obvious apparent frauds, without checking the movement of the timbers from import off ship through the delivery to customers. Unfortunately for them, these were smoke screens and I was able to show the jury that the goods were genuine, had been received and sold to customers who had paid for the goods.

As a result my client was clearly not guilty of the charges laid against him. Had the university graduates delved deeper thy would have found that behind the smoke screen the clerk had ‘robbed’ Peter to paid ‘Paul’ and so was guilty of fraud, but had not been charged with the correct offences.

Budget blog

Budget Highlights

By | Goddards Accountants | No Comments

1. Personal Allowances Increase

The Personal Allowance will increase from £10,600 in 2015/16 to £11,000 in 2016/17 and £11,200 in 2017/18.
The 40% high rate threshold will increase from £42,385 in 2015/16 to £43,000 in 2016/17 and £43,600 in 2017/18. The National Insurance upper earnings limit will increase in line with the higher rate threshold.

2. Zero Tax Rate on Savings 2015/16

As reported a year ago, there will be a zero rate on the first £5,000 of investment funds salary from 2015/16 onwards. Nevertheless, note that this will just give full advantages to those with assessable salary between the fundamental rate band £10,600 and £15,600.

3. £1,000 Interest Income Tax Free 2016/17

Starting April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be brought in for the interest that people acquire on savings. If you are a higher rate taxpayer and earn between £42,701 and £150,000, you’ll be eligible for a £500 tax-free savings allowance, but those with income in excess of £150,000 a year, will be taxed in full on their interest income. On the other hand, if you are a basic rate taxpayer and have a whole income up to £42,700 a year, you will be eligible for the £1,000 tax-free savings allowance.

4. Buy to Let Landlords

The relief on interest costs will be restricted to the basic rate of tax (20%), and will be phased in over the 4 years starting from April 2017.

From April 2016, the “Wear and Tear” allowance will be replaced with a new relief that will allow the Landlords to deduct the cost of replacing any furnishings.

5. Rent a Room

The Allowance for rent a room schemes will increase from £4,250 to £7,500 in April 2016.

6. Inheritance Tax

Major changes will occur that should bring personal residences worth under £1 million out of IHT. For more information, please phone us on 020 8941 2187 for a discussion.

7. Employment Allowance

This allowance which is currently £2,000 per company is being increased to £3,000 per company from April 2016.

8. National Living Wage

From April 2016, the NLW will be set at £7.20 per hour for employees over 25; rising to £9.00 per hour by 2020. (Both this and the Auto Enrolment Costs need to be costed into businesses from April 2016)

9. Corporation Tax

The rate of Corporation Tax will be reduced from 20% to 19% in 2017 and 18% in 2020.

10. Annual Investment Allowance

The permanent level of AIA will increase to £200,000 for all qualifying investments in Plant and Machinery made on or after 1st January 2016.

11. Goodwill

Corporation Tax relief will now be restricted for the cost of goodwill acquisitions on or after 8th July 2015.

12. Care Homes

The Government has delayed, until April 2020, the implementation of the £72,000 limit on “Cap on Care Costs” contributions towards Care Homes costs.

13. Funding

With the economy now coming out of recession, clients should remember that more businesses go bust coming out of recession than going into or during recession.

Goddards have linked up with Finance Houses in order to assist clients in raising funds for Invoice Discounting, Plant & Machinery acquisition and Stock Funding.

In addition we can prepare Business Plans, Budgets and Cash Flows for third party investments into a business. Why not phone us on 020 8941 2187 to discuss your needs/requirements.

Problems Facing Business to Business Marketing

By | Goddards Accountants | One Comment

Business-to-Business problemsMarketing well is the most important thing that a business can do, we market our business to try to generate a steady flow of customers and eventually gain a strong, trusted customer base.

One of the ways that smaller business owners try to market their business is through Business To Business marketing. This would include exhibiting at business exhibitions and networking events such as business breakfasts and lunches in the hope to connect with other businesses and as a result do further try to generate sales or gain a client.

Business To Business marketing has its advantages for certain companies, but there are also problems that it is facing such as:

Business To Business having a limited market

Business to business has its downfalls, one of them being that you as a business are only reaching a limited market. By limiting the amount of potential clients you are reaching, your chances of gaining a customer or client as a results decreases. If you are reaching a wider potential market, you will find that you will have a better chance of gaining more clients.

Slow Sales Process 

Another challenge Business To Business faces is the slow sales process that it may take to gain a client. Some businesses may decide to oppose Business To Business as it is too time consuming, and focus on building a solid marketing structure in which it may take less time to gain clients. Some smaller business owners and entrepreneurs don’t have the time to go to 3 meetings in a week to follow up leads from a Business To Business Exhibition, which may not guarantee any business.

E-Commerce Taking Over

E-Commerce has been the main challenge facing Business To Business Marketing, and with the progress in technology helping smaller business to market them online, the Business To Business Model has been seen as a more expensive and a less successful way of marketing. Some business however like companies which are based more about necessity and compliance may feel that the Business To Business model is something integral to their marketing plan, As Accountants we believe that Business To Business marketing is important as we deal with compliance that all businesses need to do, whereas more leisurely companies may not believe in the Business To Business model and would use E-Commerce to find more customers and generate more sales.