The state of your personal finances says a lot about you. Do you ensure that your debts are well documented, filed logically and always paid on time? If so, you are probably a dependable person who is easy to do business with.
On the other hand, maybe you are messy, disorganised and constantly pay bills late? If so, you most likely will have a hard time keeping other aspects of your personal life in order. Friends and family might characterise you as unreliable – and even untrustworthy.
It's not just friends, spouses and family who may judge you based on the way you conduct your financial dealings. Banks and other credit providers are likely to question whether to lend you money based on your past history with other lenders.
For some, this assessment is nothing to fear. But if you have a shoddy record of unpaid bills and a trail of angry debtors, it is certainly cause for alarm. Your inability to get credit can wreak havoc on your personal life and prevent you from buying a home, taking a vacation or planning your wedding.
While the hindrances to your life that poor credit can cause are annoying, many people do not realise that the mistakes they make with money in their personal accounts can also have massive repercussions on their business. Small time entrepreneurs who have a brilliant business idea may be left frustrated and regretful when they realise poor money and finance choices from the past now prevent them from starting their own business.
Credit is crucial to any small-business owner struggling to get started. There is no doubt that banks will look at your past personal credit when determining if they should give you business credit, and without these loans it may be impossible to buy stock, rent premises or hire staff. Your dreams of starting your own business may be dashed before you even get your idea off of the ground.
If you're planning to start your own business, it's never too early to start focusing on the health of your personal finances. Here are some of the first steps you can make to assess your viability as a potential borrower:
Once you have started on your journey from credit zero to hero, you will increase your chances of receiving credit from banks and lenders when the time comes to start your own business.
Sponsored post brought to you by Experian, © 2015
When you are running a business, most of the time you are focused on three things: getting more customers; increasing sales; and earning more profit. So when, for example, sales are not really happening, I find at The London Coaching Group that most business owners start "reacting" and implementing activity to get more customers. "Let's run an email campaign", or maybe "Let's do some SEO" or "Let's get on the phone and call some customers."
A lot of random approaches start creeping in to their marketing activity – and it starts to get messy. What needs to be understood here is that these three things are important, but at the time of setting goals – when you are clarifying and planning the destination for your business.
From a day-to-day and marketing point of view, however, these are not what you should be focusing on. The really important considerations are the items that lead to these outcomes. "Of course" most people say, but I assure you, most businesses do not focus on the right variables on a weekly basis.
The main thing you need to get into the habit of is measuring and managing the Five Levers that lead to these outcomes:
You can download a one-page PDF of these Five Levers of growth here, with an explanation of each one. You should print this out and stick it up on your wall to constantly remind you of where your focus should be.
But the real key to managing these figures is to ensure you have a weekly business dashboard where you are gathering and monitoring these important stats. There are two main reasons that I believe almost every business owner should have a weekly business dashboard:
If you do not have a weekly business dashboard, then the truth is that you are not staying on top of what is happening in your business. This may be ok, because your business is operating fine right now, but as soon as something is not operating properly, instead of catching it at the start, it could become a major problem before you even know it is happening.
Here are a few of the must-have elements on your weekly business dashboard:
You will notice that this list does not include things such as conversion rates, which lend a deeper, richer analysis. That is because the weekly dashboard is not intended for that, you should be using those in your monthly dashboard. On a weekly basis, you want to review these eight pieces to get a quick overview of what is happening, and ensure you are on track.
Ideally, you should be measuring these against targets, which you should determine at the beginning of the year, or the quarter, as a part of your strategic planning. Creating a weekly dashboard is one of the first exercises I do with new business coaching clients. Not once have I had a business come back to me and tell me that keeping that dashboard maintained was a waste of time.
On the contrary, I have had multiple clients that have come back to me years later to let me know that they still use their weekly dashboard, as it really is the perfect way to keep on top of their business.
With the coming of age of a few businesses dashboard specialist companies, which allow data in businesses to be measured and reported event on a real-time basis, there is really no excuse today to not have a dashboard in your business.
Whether you become a sole trader (ie are self-employed) or set up a partnership or limited company, starting your own business is relatively simple, quick and inexpensive, which partly explains why so many people continue to do it. Last year, a record-breaking 581,173 new businesses were registered at Companies House. Per capita, more new businesses are started in the UK than in the USA.
However, the survival rate for new businesses remains low. About half of all new UK businesses fail within three years and 90% are gone within 10 years. And only 4% of start-ups achieve a million-pound turnover after three years. For those who survive the three-year test, achieving significant growth remains a huge challenge, with many small firms staying more or less a similar size.
Some small businesses are restricted by business models that can't be scaled, while others are run by people who simply don't have the know-how, experience, drive, vision or leadership skills to grow a business. Some businesses fail to attract the right people or find the right strategic partners to enable growth.
For most businesses, organic growth by reinvesting profits will only take you so far, usually at a much slower pace. Without doubt another reason why some small businesses fail to grow is lack of funding.
If you really want to take your business to new heights, external investment or funding can unlock the door. I co-founded ezbob in 2012 and since then funding from institutional investors and the UK government-supported Angel CoFund has enabled us to grow our business so that, alongside our sister company, Everline, we've now provided more than 6,000 business loans and lent more than £60m to fellow UK small businesses.
Business angel or private equity investment might not be available or preferable (not everyone wants to concede ownership or control in exchange for investment). Grants from public sector organisations exist, but they're few and far between.
You might think you could turn to your bank for a loan to help fund your growth ambitions, but there are no guarantees your application will be approved. That's partly why 'alternative sources' (ie not from banks) now supply 25% of lending to UK SMEs, according to an FT.com report in February, which also said that many smaller businesses are discouraged from applying for bank loans as a result of previous rejections or the cost implications.
The most suitable business growth funding option for you will be determined by how much money you need, when you need it, your turnover, whether you're prepared to put up any assets as security or concede any ownership or control. These are all key considerations.
Trying to grow a business inevitably involves some risk and it takes time and a lot of hard work, but the results can make it worthwhile. Above all, you need to ensure you get the funding you need to match your circumstances and ambition.
Every business manager will know what a struggle money can be and one of the most difficult decisions can be how to get the funding needed to help your business grow. The banks aren't always an option and many people don't want to give up control of something they've worked hard for, but being the most obvious choices – what else is left?
When it came to starting Taxicode, co-founder Nigel and I decided the best option would be to fund it ourselves. This meant control of the business was not split between investors; big loans were not hanging over our heads; and while growth has been slower compared to our externally funded competitors, it has all felt much more ours and we've been able to act out our vision as we intended. This is not for everyone, of course, but as we had finances built up from previous business ventures, it worked for us. Several years on and we're generating decent turnover and achieved £2m in bookings last year.
Many of us will be familiar with the concept of crowdfunding by now. It allows members of the public to put money towards a project, usually receiving something back in return depending on the amount they've put forward. Technology, video games, community projects, events and films have all found funding this way. Crowdfunding also helps build audience engagement with your brand early on, something not necessarily true of other options.
Peer-to-peer and peer-to-business lending work in a similar way to crowdfunding, but for a loan rather than to raise equity. This means that larger sums of money can be raised in one go, instead of waiting for individuals to put the money forward.
Business managers can also make the most of the resources they already have. Invoice finance allows business to raise finance against any invoices they have waiting, drawing down the balance when customers pay, whilst pension-backed lending allows business owners to unlock the value of their own personal pension to finance the company.
These options can help to create a steadier cashflow for the business – while pension-backed lending is more suited to those that have already spent several years building up their finances, these options can be used throughout the business's life cycle to combat any financial struggles encountered.
Whatever route you chose, there will inevitably always be risk, but business managers should not feel deterred just because traditional options don't appeal. There's something out there to suit everyone's needs.
Copyright © 2015 Jonathan Kettle, co-founder and director of nationwide online taxi-booking service Taxicode.
Start-ups in the UK are booming, with Tech City now the third-largest technology start-up cluster in the world after San Francisco and New York. Start-ups also provide the main source of recovery growth in the UK and Europe. The European Commission knows this and has set aside billions of Euros for innovative small businesses. However, very few businesses in the UK seem to know about this pot of gold.
The EU’s new research and innovation programme, Horizon 2020, was launched last year and has €80bn to spend over seven years. Some 15-20% of this is earmarked for innovative businesses, either on their own or in collaborations with universities and other businesses. The grants are prestigious and can open doors, as a House of Lords report noted: “We believe that EU R&I programmes represent an excellent financial and networking opportunity for UK businesses”.
The Horizon 2020 ‘SME instrument’ will provide €3bn over the next seven years to small and medium-sized businesses that develop products and services. This covers everything from feasibility assessment (€50k grants), to development and demonstration (up to €2.5m) and then access assistance to risk capital.
The €100m ‘Fast Track to Innovation’ pilot opened in January 2015. Frustratingly, you won’t find Horizon 2020 opportunities on Innovate UK’s main funding page; they are displayed through a separate resource centre called Horizon 2020 UK.
A much broader source of money opens up if you collaborate. The Eurostars programme, which boosts competitiveness and open markets, is for groups of innovative small businesses. However, the lion’s share of Horizon 2020 funds is available for big multi-national collaborations of universities and small businesses teaming to deliver solutions to societal challenges. More than 70% of projects funded so far have at least one SME partner.
To enter such collaborations you need to be in networks that enable you to find the right partners. If they have previous experience, that helps a lot. One such network is the Vision2020 Horizon network, which I work with. It has nearly 40 universities and more than 100 SMEs, all seeking to cluster into groups to target Horizon 2020 funding. Another network is the Enterprise Europe Network. EU grants and University-business networks are a great way to put booster rockets on your innovative start-up.
Copyright © 2015 Dr Mike Galsworthy. Mike is a consultant in research and innovation policy. Follow him on Twitter.
It isn’t just personal current account customers who can take advantage of the free Current Account Switch Service to swap between banks, because small businesses up and down the country can make the most of the service, too.
Launched by the banking industry in September 2014, the service ensures that existing payments such as direct debits or standing orders will be moved to the new account automatically, and any transactions that do go through to the old account will be redirected to the new one for 13 months, so payments won’t go missing.
The company making or taking the payment using the old account details will also get a message instructing them to update their records with the new account information. On top of that, the service is backed by a guarantee that means that if something should go wrong during a switch, any charges or interest will be refunded.
Until the service was brought in, changing from one account to another could be a lengthy process, typically taking between 18 and 30 days after the new account had been opened. That was a huge hurdle for cashflow-reliant small businesses, with worries about invoice payments ending up in the right account or suppliers not being paid according to terms, with the possibility of late payment charges being incurred.
But that time’s been reduced to seven working days from the day the switching process starts to when the switch takes place.
One of the drivers behind the Current Account Switch Service has been to increase competition between banks and make it much easier for small businesses to vote with their feet when it comes to picking the account that works best for them.
So, is it time for you to look at whether you’re getting a good deal with your business banking? Here are the things you should consider…
If your business is a limited company you must have a business account. If you are a sole trader or partnership, you could use your personal current account, but that can make your finances messy. Keeping personal and business accounts separate is the better option.
Some banks charge a fee for business banking services, some don’t. Other costs are transaction-based, such as fees for cash withdrawals, cheques, Bacs transfers and overseas payments. Think about what you need to use and check the charges for each service. Some providers offer free banking, either for a set time or with limits on the number of transactions per month. Look at the penalties for exceeding those limits, and any charges that kick in when the free banking period ends.
Costs can be quite high but will vary between banks. Check interest rates, set-up fees and the amount you can borrow this way.
Many business accounts come with these facilities, but ask to see if you’re eligible for a debit card – and a cheque book, if you need one – before changing to an account where you might not qualify.
With the new Current Account Switch Service you can change your provider again, quickly and easily.
Not as long as you repay any outstanding overdraft with your old bank or building society. If there are any problems with payments as part of the switching process, your new bank or building society will put them right and make sure your credit rating is not affected.
2014 has been heralded as the year for crowdfunding. There are literally hundreds of platforms for people to choose from, but with share-based crowdfunding on the rise, consumers and small businesses are faced with a difficult choice.
Traditional crowdfunding platforms have huge user bases, tailored for product-based start-ups, which means that if you are lucky enough to make it onto the ‘Popular’ feed, your business idea will be viewed by millions. If, on the other hand, you don’t instantly capture the imagination of would-be investors, your chances of getting funded through these types of crowdfunding sites tends to decrease significantly.
While traditional crowdfunding platforms with product-based models might be good for getting consumer-focused propositions backed, they are less effective when it comes to B2B companies, which may have products and services that are less appealing to the traditional crowdfunding investor.
The biggest issue with well-established crowdfunding sites is the high commission demanded – typically between 5% and 10%. Bootstrapped start-ups need all the financial help they can get and this is one of the many reasons we and other small businesses are increasingly choosing to go it alone with DIY crowdfunding.
One of the greatest benefits of DIY crowdfunding is the information businesses receive about their backers. Where traditional crowdfunding focuses on getting the money through the door, you won’t know necessarily why or where your product adds value to those people.
By setting up your own crowdfunding site or even by looking for VC funding, that market research data is more readily accessible. Moreover, it enables the business to constantly better itself and innovate based on feedback from the customer, business or angel.
One of the biggest problems with most crowdfunding platforms that have recently been damaging start-up businesses is being over-funded. Although some of the most recently built sites such as CrowdCube are able to trade in shares, traditional product-based crowdfunding platforms do not. This means that businesses opt to give something else away in return for investment – usually the product itself.
This isn’t often an issue for most businesses because the funding provides the opportunity to scale production. However, when campaigns are grossly over-funded, this can cause problems with meeting the demand for products in exchange for funding, rather than focusing on ‘paying’ clients.
Examples of this can be found all over traditional crowdfunding platforms and can cause massive delays for the business. While some may view this as a justifiable sacrifice, there are risks involved with this that can impact on the successfulness of the business’ future. You can spend so long fulfilling those owed orders that you’ll never have time to fulfil any new ones.
The huge user bases of popular crowdfunding platforms still make them a very attractive option. That said, as fewer start-ups are willing to give up such a large percentage of their funding in commission it isn’t difficult to see a future in which start-ups primarily use their own platforms for serious funding.
In-house developers within tech start-ups make creating self-funding platforms a realistic proposition, particularly if it provides flexibility and information as well as funding. These DIY crowdfunding platforms also provide the consumer with a much more interesting investment opportunity: not only being able to buy the product, but also buy shares in it.
Perhaps the product-based crowdfunding model isn’t broken just yet, but with more and more small businesses creating self-funding platforms, to crowdsource more serious investment, it can certainly be argued that the writing may be on the wall – especially in the B2B space.
I have a Room 101 nomination. It’s media headlines and political comment telling us that 'businesses are unable to access funding from banks, we have to get the banks lending again, we need to make alternative funding available'.
This has been so noisy since the 2008 sub-prime bubble burst that I’m convinced it’s merely a default utterance when political parties sense that 'business' hasn't been in the headlines of late. The tone sounds so desperate at times as to imply an imminent hiatus if this matter isn't addressed. I’m not convinced that the need for bank funding is as important as we’re led to believe.
We accept as fact that since 2008 the banks have reined in their lending, as a response to previous over-lending. A good entrepreneur will secure investment from other sources, because they will perceive the banks’ reluctance to lend merely as a challenge to overcome. Other sources of funding may even be more appropriate, because some can bring additional commitment and proven commercial expertise.
Interestingly, among my local business community there is no issue around borrowing from banks, it's a message that you mainly hear in the media and from politicians – but why?
Historically we’ve been programmed to approach banks for finance. 2008 caused a paradigm shift and while those of us running our own businesses on the frontline are comfortable with this, the banks and politicians haven't caught up yet. There are two reasons – ego and economics. The banks and the City have always been thought of as the 'big boys' to whom us small firms should turn for support. They’re used to being in control – to dominating us.
However, 2008 showed that they aren't that great at managing their own businesses. Their validity to dominate has been undermined, but their ego has not been humbled yet. I’m not an economics expert, but I’d guess that the banks and the State are used to profiting from failing SMEs. Finding money from elsewhere takes away income from the 'big boys'. These are the real reasons for SMEs needing financing from the 'big boys' being in the headlines, it is their income streams that are being affected.
Our UK DNA as a nation of shopkeepers has prevailed and revealed its talent for resourcefulness and diversification. We don't need the 'big boys'. Question is – how long will it take them to adjust to their new relationship with us? Maybe we'll start asking for their investment once more when they’ve grown up and proved that they can run their businesses as well as they have expected us to run ours in the past.
In recent years, electronic payments have grown in popularity along with the demise of the cheque and fewer consumers carrying cash in their wallet or purse. Card payments have become the preferred method for payments, with shoppers expecting small businesses to accept debit and credit card transactions in a physical (ie offline) environment. The need for secure online payments has also grown as more merchants look to ecommerce services in a bid to drive sales.
E-commerce is becoming more accessible and affordable for even the smallest businesses, and complete end-to-end solutions for web design, shopping carts, online security and even virtual terminals are available in this increasingly sophisticated marketplace.
Fixed or mobile chip and PIN acceptance is ideal for physical trading environments, such as retail, hairdressing, accounting, hospitality and other business that processes transactions. For tradesmen on the move there is a whole host of new innovative mobile related payment technologies that are rivalling cash.
Methods range from devices that attach to a mobile phone and are capable of accepting card payments, to the digital mobile wallet and a portable chip and PIN device that runs off GPRS. All of which allow companies and sole traders to receive payment for goods and services on the spot.
When selecting a payments provider, merchants should consider options other than their bank. An independent supplier is more likely to offer a cost effective solution, along with support and benefits. What businesses need to consider is what method would best suit their customer base. And what methods is their customer base familiar with and happy to use.
Innovative digital payment options are great when it comes to the younger tech savvy customer, but merchants must also consider more mature shoppers. Overall security and industry requirements are a top priority and must be thought about when deciding on a digital payment method.
When selecting a payment option, SMEs should work with a third party that can provide not only the technology – online or physical – but guidance and a transparency of capital costs and fees, both monthly and annual. What many small business may not realise is that there are other options available to merchants that are more beneficial than simply using their personal bank.
Whichever payment method is selected, if an SME trades in both a physical and online environment, by joining up their payment offering they can gain an overall picture of transactions and the customer, which provides valuable insight for business decisions and strategy planning.
Blog supplied by Gareth Poppleton, managing director at Retail Merchant Services.
Does your business have a blog, website or video channel? If so, you could start asking people who visit your site to start donating Bitcoins.
Online currency, you can use it to buy things such as domain names, electronics, food and professional services.
The value changes a lot. In January 2013 it was only worth about £10, but by late November it had reached a high of £750.
There are many ways. You could start donating your computer power to help run the network (a process called ‘mining’) or you could sign up to an exchange such as MtGox.com and buy some with pounds. Unfortunately, both of these options can take time and effort and you might end up losing money. A safer and simpler bet is to start taking Bitcoin donations.
The Bitcoin community is very generous. Bitcoin users know that the more people who own Bitcoin, the more plausible it becomes as an idea. Also, because it’s really easy to donate, you might be pleasantly surprised by how much you could earn.
Here’s a step-by-step guide on how to start…
You’ll need a wallet to receive, send and store Bitcoins. There are three types of wallet: software, mobile and web. The Bitcoin website features a useful guide and a list of downloads to help you get started. For maximum security, we recommend that you choose one that doesn’t use a third party. To avoid cyber theft, you should always encrypt your wallet with a strong password. We recommend one at least eight characters long, using a combination of numbers, symbols and upper/lowercase letters.
Once you’ve set up your wallet you’ll be given a wallet address. You’ll need this so people know where to send donations. It will be a string of between 27 and 34 numbers and lower/uppercase letters beginning with a 1 or 3.
Accepting donations is as easy as posting your Bitcoin address on your blog/website. You may want to provide or link to some info about Bitcoin too in case users without any Bitcoins also want to donate. When you have a donor, your wallet will message you a notification telling you how much has been sent. Your Bitcoins are then free to save or spend as you wish.
Blog contributed by Nick Chowdrey, finance and accounting writer for Crunch, online accountancy firm for freelancers and small businesses.
With all the hype surrounding crowdfunding, knowing what the different options are and which specific benefits they offer can seem difficult. To help you remember you can use the acronym DREIM, which stands for:
Of the five models, donation is perhaps the simplest to understand. Basically, it’s a form of philanthropy, whereby people give money to a good cause. Donors are left with the warm feeling that comes from knowing they’ve done something positive by funding a project with social value.
Within the arts, this has traditionally been represented by the concept of a sponsor or patron of an artist or field of creative work. There are many of these in crowdfunding, perhaps the most well known being JustGiving, but others include Spacehive, which is dedicated to social or community causes, and Unbound, a special model where authors ask the crowd for funding to help turn an idea into a published book.
This is the model that most comes to mind when people think about crowdfunding. The crowd pledges money to a project and gets something in return, such as a poster or item of merchandise. The reward model is represented well on both sides of the Atlantic by the likes of Kickstarter and Indiegogo, but there are plenty of UK sites, such as Bloom Venture Catalyst and Crowdfunder, and these support projects ranging from artists to zoos.
This is where the project’s management (could be a business owner) offers a share of the profits to the crowd. Once money is made or the project is sold, the investors get a share (well, that’s the idea). This is risky, because start-ups often fail, so the likes of Seedrs, which specialises in this model, requires would-be investors to pass a test before they can invest. But the good news for investors (and entrepreneurs using this model) is the government has introduced the SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme), which offer tax breaks for investors. There are restrictions and the best place to learn more is by visiting the HMRC website.
Equity usually means giving away some control over a project or business, of course. This could be difficult for some people, which is why this model of crowdfunding needs careful consideration before you proceed. When you give away equity you will also need to seek legal advice, which costs money and takes time. Investors generally look for growth businesses they can scale up and sell in the future.
This model is similar to getting a bank loan except you get the loan from the crowd and it is on your terms rather than a banks. As with equity, you may find a lack of enthusiasm in your business unless you can prove its potential for major growth. Another problem could be higher rates of interest. The headline numbers might look the same as a high street bank, but you need to consider fees charged by the crowdfunding platform and the payment processor. This all adds up.
Mixed is just as it sounds – a mix of models. For example, the Crowdbnk platform offers reward or equity, which is why careful consideration is advised before crowdfunding your project. Plus, you need to check the provider is FSA regulated (Crowdbnk is), which will ensure you are covered should they go bankrupt or if you find out a campaign is fraudulent.
Blog supplied by Chris Buckingham, lecturer and founder of crowdfunding research agency minivation.
Running your own business can be exciting, draining, liberating, stressful and satisfying – all at the same time. Doing it without outside investment can be a risky proposition, but with risk comes reward. While some people might view having a small budget as a disadvantage when starting a business, in my experience it proved highly beneficial in the long run.
I started market analysis consultancy White Space with my business partner Nick using just our individual hard-earned savings and no investor support or bank loans. We’ve now been running for eight years, rent a large office in central Oxford and work for more than 70 of the world’s most recognisable companies. There are many positives to funding your own business, and here I’m going to share some of my experiences and provide practical tips on how to overcome any disadvantages.
As a business owner, you’ll be under constant pressure to make decisions that are critical to the growth and direction of your business. Make sure you are clear about your overall strategic direction by applying the following principles:
Self-funding your business will cause you to reassess and prioritise your personal expenses. In the early stages, you will be surviving off very little, without the comfort of a steady income. Many financial survival tips are obvious, such as ‘save money wherever you can’. Here are three that are less obvious, but just as important:
Despite wanting to conserve your cash without any major capital outlays, there comes a time when a business needs to accelerate. A steady growth model is far more scalable and allows you to fully test the market before expanding further. You are also much less likely to fall victim to the cycle of ‘boom and bust’.
The right time for growth is when your business is in the middle of a successful period, with a few strong months just gone and a couple more forecast to follow. Be aware that expansion will eventually require additional resources to succeed, including labour, equipment, finances and more micro-management.
My experience has shown that the old adage – ‘revenue and staff numbers for show, profit for dough’ – still rings true. It can be exciting to feel like you are expanding, but never take your eye off the bottom line. For the vast majority of start-ups that are not expecting to be the next Twitter, this is the only true measure of success.
Self-funding your business can provide many advantages, from enormous personal satisfaction to being able to take a greater share of the spoils when your business succeeds. Making sure you have the right business proposition, the passion to make it happen and being realistic about what you can and can’t achieve are key to a successful and scalable business start-up model.
Blog supplied by John Bee, managing director of Oxford-based market analysis consultancy White Space.
I ask every audience I talk in front of one key question: “What’s the most important thing to measure if you want to find out how well your business is doing?”
And, without fail, people always come back to me with the wrong answer! They call out ‘sales’ or ‘turnover’ or ‘profit’, but they hardly ever mention the right and probably only answer that really matters – ‘cash’.
In reality, it’s impossible to carrying on trading if you run out of cash.
In the current economic chaos there are plenty of casualties, the weak and vulnerable businesses will go bust. More worrying is the profitable businesses that go to the wall because they run out of cash.
So, how do you keep your head above water? In basic terms, sell something people want; make sure the difference between what you buy it for and what you sell it for is big enough; find a way to get people to buy from you, take massive action. And, of course, make sure you collect all the money you are owed:
As a self-confessed serial entrepreneur I hate the detail and intricacy of putting cash-flow processes in place, but you can’t afford not to.
Business costs continued to rise during 2013, with energy costs still the most commonly seen increase among small businesses, according to the national business group, the Forum of Private Business.
The Forum's Cost of Doing Business survey, carried out among its members, shows firms are still facing an uphill battle to make ends meet, despite positive signs of an economic recovery as the infographic below demonstrates.
The results showed that 94% of businesses saw an overall increase in their business costs. 87% of businesses reported an increase in energy costs, 83% in transport costs, 78% a rise in marketing costs, and 69% a rise in the cost of raw materials/stock.
Worryingly, the report also identified that 41% of small business owners admitted to being unable to pass any rising costs onto customers, forcing them to cut their own costs to keep prices static. Just 2% were able to pass on costs in full.
Alexander Jackman, the Forum's Head of Policy, said: "The major reasons for increases in prices were predominantly down to transport and energy prices rising, coupled with the continued weakness of sterling for importers. The economic outlook may be better but costs still remain an issue for our members and a key focus of our lobbying and support services.”
"Unfortunately, it doesn't look as if there is going to be any respite from energy hikes any time soon, despite the ongoing political pressure to take action to introduce more competition in the market, with many of the major players recently announcing significant increases and others expected to follow suit.”
While annual inflation continued to fall from 3% to 2.7%, the research also found that prices have continued to rise faster for micro, small and medium-sized employers at 6%, although this is less than the 6.7% figure reported by the Forum the previous year in research into business costs, suggesting things are improving – albeit slowly.
There was a significantly lower proportion of businesses concerned by credit restrictions last year, with a higher proportion seeing credit restrictions as having little impact on their operations. However, credit restrictions were still apparent, with 26% of businesses feeling they had less leeway in coping with business costs than they had the previous year.
81% of firms indicated that rising business costs had been detrimental to their business. 73% had cash flow issues as a result and it had a detrimental effect on 51% of firms when looking to invest. 51% also reported that it has been damaging for employment levels and 63% felt that it had inhibited their plans for growth.
Despite the recent positive news on the economy, rising business costs could continue to restrict the ability of many SME’s to take full advantage of the signs of recovery, with 83% of business owners quizzed expecting prices to continue to increase, and 16% expecting a significant increase.
The most frequently cited exacerbating factors were customers paying late (59%) and competitors offering products below cost price (51%). Excessive administrative demands forced on businesses by the government, banks and customers meant that 35% of businesses had not been able to focus on business activities. Changing payment terms had been a problem for 24% of businesses in dealing with suppliers, and 26% in dealing with customers.
“The findings suggest that significant action is still needed to tackle late payment, through strengthening the Prompt Payment Code to prohibit businesses from signing the Code if they have extended payment terms in the last 12 months. We would also like to see the government make it compulsory for PLCs to declare their annual payment time statistics in annual audits to support better payments.
“As well as positive action on late payment we’d like to see further steps to help small firms with business overheads. We’d like a freeze on business rates and small business multipliers in 2014. An extension of small business rates multipliers until the end of the current parliament would also be welcome and we’d like to see the government commit to undertaking independent research into business rates. While the Chancellor’s announcement of a fuel duty freeze at the Conservative Party Conference in 2013 was a welcome move, we feel that further action should be taken to investigate where further savings could be made across government to ensure that fuel duty is not raised again before the end of this parliament.”
What advice would I give to someone starting out in business who may be worried about funding? Today, I think people in need of funding and hoping to start a new business tend to approach the banks automatically, by default. Then, if they’re declined, the big question is – ‘What next?’
To those people, I would say that I think it’s never been a better, more exciting time to explore different avenues.
The difficulty with the banks and getting loans through conventional methods has meant other opportunities have had to appear through necessity. There are plenty of different models and lots of people actually looking to invest in new businesses – look at crowd funding, for example.
It can be worth considering friends and family, too, and approach them for investment, although you’ve got be careful that you’re very clear on the terms early on.
Which investment am I most proud of? I find it really difficult to pick a favourite investment. When I’m visiting a business or I have to be especially focused on one in particular it has 100% of my attention. It becomes all that I can think of, all that I can see and it becomes the one that I love the most. But when I walk out the door or shift my focus to another investment, that becomes the one I absolutely want to do.
I’ve got a portfolio of 19 businesses that I’m currently invested in. It’s been known to flux up to a maximum of 30 and down to ten.
There is one that I’m very pleased I got involved in and it was a cloth mill called Fox Brothers, which started in 1772. It was the last cloth mill left in the South West and it was dead – absolutely on its knees. I didn’t know that when I invested.
I’m pleased to say that now it’s doing well and I’m really proud to have been involved. I like to think that if I hadn’t found it, and it hadn’t found me, it would have died and a part of our heritage would’ve been lost.
This exclusive insight was taken from an interview conducted by cityindex.co.uk when Deborah recently participated in the city index celebrity trader challenge. Find out more about Deborah and her views by visiting her website.
According to research published recently by membership organisation the Forum of Private Business (FPB), business costs in 2013 in the UK have increased at a rate of “3.5% ahead of inflation”.
The FPB’s latest Cost of Doing Business survey, based on responses from its members, concluded that “firms are still facing an uphill battle to make ends meet, despite positive signs of an economic recovery,” says the organisation.
The FPB reckons 94% of businesses have seen an overall increase in their business costs in 2013, with 87% having to cope with an increase in energy costs, 83% with higher transport costs, 78% with a rise in marketing costs and 69% with higher raw materials/stock costs.
Margins continue to be squeezed, with two-fifths (41%) of respondents unable to “pass any rising costs onto customers, forcing them to cut their own costs to keep prices static” (just 2% were able to pass on costs in full, says the FPB).
"The major reasons for increases in prices are predominantly down to transport and energy prices rising, coupled with the continued weakness of sterling for importers,” explains Alexander Jackman, FPB head of policy. “The economic outlook may be better, but costs still remain an issue for our members and a key focus of our lobbying and support services.
"Unfortunately, it doesn't look as if there is going to be any respite from energy hikes any time soon, despite the ongoing political pressure to introduce more competition in the market, with many of the major players recently announcing significant increases and others expected to follow suit."
Although annual inflation has fallen from 3% to 2.7%, prices have continued to rise faster for businesses (6%), although, says the FPB, this is less than the 6.7% it reported last year.
Almost three-quarters (73%) of respondents have experienced cashflow issues as a result of rising business costs, which has had a “detrimental effect on 51% of firms when looking to invest”, while “51% also reported that it has been detrimental to employment levels” and “63% feel that it has inhibited their plans for growth”.
Despite the recent good news on the UK economy, increasing business costs could hamper many business’s ability to take advantage of recovery, with 83% of respondents expecting prices to continue to increase and 16% expecting a “significant increase”, says the FPB.
"Businesses, like consumers, are facing a lot of upward cost pressures at the moment,” notes Phil Orford, FPB CEO. “When looking at how to dampen energy price rises and other cost pressures for households, the government shouldn't ignore the fact that businesses are facing similar challenges. Political efforts to positively impact on the cost of living should not be funded through increasing the costs of doing business."
Mobile Chip & PIN payments are becoming more popular around the UK. This is mainly due to the fact that they are an inexpensive and modern way to increase profit.
For a while now, small-business owners have been unable to accept card payments due to problems with traditional card readers. This is due to the fact that they involve lengthy and expensive contracts, monthly fees and equipment that is bulky and hard to transport. Mobile Chip & PIN payments solve this problem by providing a non-contract service, with no monthly fees and a sleek modern design that fits with any business image.
There is no doubt that there are benefits to employing mobile rather than traditional Chip & PIN technologies, however, you may be asking yourself why it is necessary to even take cards?
One reason is that accepting cards gives your customers the option to pay by a variety of means. This might sound like a non-issue, however, one of the biggest reasons that merchants loose business is interrupting “customer flow”. Specifically in the situation where a customer wishes to buy a product, but has no cash on them, if the customer cannot pay by card they simply have no option but to leave. In this case, the merchant has not only lost out on a sale, buhas also lost a customer whose opinion is valuable to your business.
This brings us to the second benefit of accepting card payments – customer satisfaction. Most businesses strive towards providing excellent customer service, after all, for small businesses referrals are often the best advertisements of all. Disappointing the customer by not offering a convenient way to pay may come back to haunt you by damaging your reputation.
However, the direct benefits do not stop at the customer. Taking card payments means that your business does not have to run the risk of having large amounts of cash stored, it also saves on daily trips to the bank to deposit the money. Perhaps the biggest advantage to a small business owner, though, is that is allows for more efficient accounting. By accepting more cards and less cash, it means that your transactions are easier to keep track of, which is vital for financial planning.
Mobile Chip & PIN payments are secure, with all reputable companies required to pass rigorous security checks and verifications. They are also convenient for both customer and merchant, and are a great tool to increase profit. So why not find out more?
Blog supplied by mobile card payment solution provider payleven.
One of the earliest challenges faced by all start-ups concerns finance. No matter how great an idea you’ve had and no matter how well thought-out your business plan is, you’ll need to have enough funding to get your fledgling venture off of the ground.
Maybe you’ve pursued crowdfunding, borrowed money from friends and relatives, perhaps even turned to a high street bank for a business loan, or approached alternative finance providers for help. Whatever route you’ve chosen, before long you and your business will have to face the same daunting question – what to do when this money has run out?
Start-up funding is intended to give businesses a chance to get off the ground, of course. In the very earliest stages of a business’s life it’s almost guaranteed to be operating at a loss, and those expenses will need to be covered somehow.
You might need to invest in premises, staff, equipment and more besides, so start-up finance is a necessary step in order to see your business through those hard, frightening and exciting early months.
If all goes to plan, start-up funding should act as a stepping stone to help your business to become self-sufficient before the cash runs out completely. Very few start-ups operate at a profit for the first few years, but if you’ve played your cards right, you’ll be breaking even before your start-up funds are all spent.
It’s possible to pursue growth during the period when many fledgling firms find it difficult to compete, even when a challenging economy makes business opportunities difficult to come by.
Building momentum can be difficult at this stage, but if you’ve got the right people around you and have built a team of committed, hardworking individuals, it’s eminently possible to get moving in the right direction once more. Sometimes, however, it’s necessary to pursue another form of business finance if you are to move from stagnation to expansion once more.
The business world is built on finance, and until a business has reached the stage where it is sufficiently profitable to sustain itself and grow, it must rely on the assistance of small-business finance facilities instead.
Invoice finance providers offer facilities that can fund growth, based on your business’s internal sales ledger. Alternative lending options such as invoice finance and discounting are more flexible and thus more suitable for growing companies than traditional bank loans, so if you’re looking to move your business forwards without incurring additional debts, you’re likely to benefit significantly.
You could also look at peer-to-peer lending (ie the lending of money to unrelated individuals without going through a traditional financial intermediary), crowdfunding (ie the collective cooperation, attention and funding by people who pool their money and resources together to support other businesses or organisations) or possibly an overdraft.
The period immediately following your business’ first few months can be intimidating and confusing, and it may seem as though the last thing you want to do after your small business funding has all been spent is pursue yet more finance. Sometimes, however, it’s necessary to take the bull by the horns and actively pursue growth in order to spare your business from years spent merely treading water and making ends meet.
Blog provided by David Richards of Gener8 Finance Ltd.
Financing a business has traditionally meant asking a few people for large sums of money. Crowdfunding – one of the most talked-about funding channels in recent years – turns this idea on its head by enabling businesses to use the Internet to ask a multitude of potential funders for defined, comparatively small amounts of money.
The question of how to fund and share profit more creatively was hotly debated at this year’s Dell Women’s Entrepreneur Network 2013 event. Speaking at a pre-conference workshop on accessing capital, Springboard Enterprises president Amy Millman stressed the importance of getting the right source of credit, suggesting that crowdsourcing can provide an innovative means of becoming a more social, community brand in opening a company up to a broader and younger pool of shareholders.
And with funding options drastically reduced in the wake of the global banking crisis, small businesses are jumping at the chance to get their finance from ordinary people: the crowd. But with little regulation, is this young credit market really a safe and viable option for businesses looking to meet their growth ambitions?
Crowdfunding essentially means asking a crowd of people for a fixed amount of money for a business venture or specific project in exchange for a reward. As a relatively new market, the credibility and stability of crowdfunding needs strengthening – something increased regulation will help bring about.
Currently, just a limited number of platforms are regulated by the Financial Conduct Authority, meaning many crowdfunding companies are handling transactions without adequate protection – even if the UK Crowdfunding Association has a practice code in place to protect those involved. Few sites can ensure an investor won’t lose money in the event of the platform collapsing.
Ensuring potential investors have as much information as possible about a start-up is essential for informed decisions. That’s why any business looking for funding via these channels must be totally clear about why they need the investment, how it will be used, and how much they need to reach their growth and profit targets.
Unlike traditional pitching, potential investors are unlikely to have met the start-up, so must be made to feel part of the success story. A company needs to tie-in their crowdsourcing outreach with a social and media engagement strategy. Of course, the nature of both social media and crowdfunding means that entrepreneurs must be ready to receive feedback – both the good and bad – in a very public domain.
Ultimately, any business looking to raise funding through crowdfunding must do their due diligence before diving into these still largely untested waters. Not all crowdfunding platforms will be appropriate for the business or project in hand, so research is essential.
And it’s not for the faint-of-heart. It can be a lot of work to kick-start and maintain the momentum that will see a project through to its desired end. But crowdfunding can also provide a start-up with unique exposure and feedback from those who matter most – your target audience of ‘ordinary’ people.
Blog supplied by Sarah Shields, executive director and GM, consumer, small and medium enterprise, Dell UK.
Becoming a paperless (or near paperless) business isn’t something that can be achieved overnight. It takes time, effort and patience from every member of your team. It was reported by The Guardian that more that 80 million tonnes of paper is wasted every year.
Going paperless will certainly benefit the environment, but what are the business benefits? Not only can it clear away clutter and create more space, you can also expect increased levels of productivity and lower long-term costs. So how do you become a paperless business?
The road to becoming a paperless business isn’t an initially cheap one. If you want to see results in the future, you have to be willing to invest in new technology now. After all, if you’re intending on banishing printing forever, your staff are going to need paperless alternatives.
If you invest in second monitors for your employees, they will no longer require printed documents to refer to as they work. Productivity will also increase thanks to shorter queues around the printer and the ability to multi-task.
Tablet computers are fantastic for displaying presentations, taking notes in meetings and referring to documents side-by-side while you work at another computer.
If your filing cabinets are full to the brim, it may be time to start storing your documents in the cloud. All your files can be stored online and accessed anywhere, from any device. Services like DropBox and Google Drive allow you to save files online, eliminating the need for paper copies. You can also apply specific restrictions to the files, so that only certain documents can be accessed by certain people.
Finding documents becomes a lot quicker and easier too, because your employees can use the system’s online search tools. Staff members are able to access the files they need without leaving their desks.
It’s time to clamp down on all unnecessary printing. Make it clear to your people that documents should only be printed if absolutely necessary. This is a much trickier process if you haven’t put new technology and other alternatives in place.
Take the time to look at your printing habits to identify particular bad practices or repeat offenders. Remove a couple of printers from your office and insist that documents are printed in mono and double-sided at all times.
Print management software allows you to take control of your printing output quickly and easily. It usually allows you to set monthly ‘printing allowances’ for each employee to foster better habits.
Rome wasn’t built in a day, so it’s important to remember that this process takes time. Stay positive and you will begin to see progress every day.
Blog supplied by office supplier Viking.
A new report by “workforce management and SME support specialist” Optionis, based on a survey of more than 500 small-business owners, contractors and freelancers, suggests that only one-in-five small firms has received help and advice from their bank, with only one-in-ten regularly receiving “useful information about relevant products and services”.
When it comes to supporting growth, the research also found that respondents viewed receiving high quality advice from their bank as more important than finance, which is commonly held up as the area where banks fail to support UK SMEs. Indeed, high quality advice came second only to online banking in respondents’ list of banking priorities.
The research was carried out as part of Optionis’ Get on and Grow report, which set out to shed light on how banks could help support growth among the nation’s small firms. “Banks need to raise their game when it comes to supporting growth among emerging entrepreneurs and small and medium-sized businesses,” said Optionis managing director Derek Kelly.
He continued: “Emerging entrepreneurs and small business owners seem to be having an increasingly remote relationship with their bank. This is perhaps unsurprising, given the popularity of online banking. However, banks need to work harder to find ways to offer advice and support to [small business] customers, particularly on issues such as cashflow that are crucial to businesses survival.”
Respondents to the Optionis survey rated the current service they receive from their bank at a disappointing average of 4.6 out of 10. Bank charges were also criticised, with “fair charges” named as the third-highest priority for businesses, yet the current perception of fairness was a meagre 4.8 out of 10.
According to Optionis, the Get on and Grow report “tracks important indicators of growth relating to small enterprises in the UK. It tracks more than “7,000 freelancers, contractors and small businesses each month, looking at financial growth, entrepreneurial mobility, regional trends and gender variations”. The full report can be read here.
In July, the Bank of England announced that lending to small businesses in the UK had increased by £238m between May and June – the biggest monthly rise since statistics were first produced in 2011. The increase meant that UK SMEs borrowed £170.4bn in the year to June, however, compared with the previous year, lending had fallen by 3.3%. According to the BBC, UK businesses were borrowing “3.7% less than a year ago, and 1.3% less than in June.
In response, a spokesman for the BBA (“the voice of banking & financial services”) said: “In the current economic climate many businesses are building up their cash reserves and using this to fund activity rather than take on additional borrowing. Our own figures for small and medium-sized businesses show some £125.9bn is currently held in current and deposit accounts.
“Banks are currently offering some of the lowest interest rates in history and there should be no doubt that now is a good time for businesses to go and see their bank if they want to borrow. If you run a business with a good business plan and want funding, our message is apply to your bank.”
The Federation of Small Businesses (FSB) and the British Bankers’ Association (BBA) have collaborated during Small Business Advice Week (2–8 September) to give clear advice to small firms on what they need to do to get a loan.
With independent research showing that around three in 10 small firms are refused finance each quarter, the two organisations have joined forces for the first time to give top tips on what businesses need to do to give them a better chance of the bank saying yes to their application.
“The bank will base their decision on the information supplied to them, so making sure that it is robust is vital. Small firms need to give themselves the best possible chance to get finance so they can grow and help sustain the economic recovery”, says John Allan, National Chairman of the Federation of Small Businesses (FSB).
Here are John's top five tips:
A clear business plan is key, not just to get finance but for growing the business too. The plan should be a living document that evolves as the business grows and takes into account changes in the market as well as the financial situation of the business. A well thought-out, comprehensive plan will give the lender confidence in the projections made.
To have a successful credit application the business must be able to show they understand key numbers such as turnover, profits and existing debts as well as being able to show how the debt will be repaid.
When making a lending decision, the banks will look at how previous lending has been managed in the past — so knowing the credit ratings of the business owner as well as the business itself is vital as is having an understanding of what affects it.
Be upfront about how much money the business needs as well as what it is needed for. Underestimating how much is needed may affect the lender's confidence in the owner’s ability to manage company finances, and overestimating profits and revenue could affect the ability to repay.
Communication with the lender and getting feedback is important, as a 'no' now might not mean 'no' in the future. The lender should be able to advise how to change the business model to secure funding and what elements of the business plan could be more robust.
For those businesses still refused there is an independent appeals process which has been agreed by the main UK high street banks.
As John says, “Businesses that are refused finance can appeal the decision. The latest figures show that many firms that do appeal have the decision overturned which is great news. We would encourage more firms to look at the process.”
Irene Graham from the British Bankers’ Association supports John's advice. “If you run a business with a good business plan and want funding, our message is go and talk to your bank. There should be no doubt that now is a good time for businesses to go and see their bank if they want to borrow.
“The UK’s banks are currently offering some of the lowest interest rates in history. We hope these top tips will help businesses to be successful when they apply for finance.
“The independent appeals process is helping the banks to improve the service they give to customers and is also helping to educate businesses about the different finance options available and what they need to do to improve their chances of successfully applying for borrowing."
Accounts should be both a factual document – prepared in accordance with the relevant legislation (eg if a company, then the relevant Companies Acts) – and a sales document. If the accounts show a poor result due to the loss of a key customer, say so, but explain how this is being overcome.
Finance providers need to understand firstly why you need the money, how it is going to be spent, what contribution you and the company are making and most importantly how they will be paid back and over what period.
This really depends what you need the money for:
Your business plan should set out the following:
You must do this yourself – it is a hard soul-searching exercise but by the end of it you will know your business in more detail and, in particular, you’ll understand its strengths, weaknesses and their trigger points.
Blog supplied by Carol Cheesman, Principal of London-based Cheesmans Accountants.
It seems that all recent campaigns and attempts to get big businesses to pay their bills on time have failed and an outrageous figure of over £30 billion is owed to small businesses, meaning that they are providing funding to bigger businesses - that is just plain wrong!
The Business Secretary, Vince Cable, seems to think that the solution is to impose fines on businesses that fail to pay their suppliers on time, although that does rather seem like closing the stable door after the horse has bolted and provides little help to the cash flow of the small business with the outstanding and unpaid debt.
The problem seems to be that business culture has developed into one of accepting that 30 and 60 day credit terms are normal; and that has to change. We have moved far away from the days when it was commonplace for a sign to be hanging behind a shop counter with the words “please do not ask for credit as refusal often offends”. The time has come for small businesses to push back; they cannot afford to bank roll the cash flow of big businesses nor can they afford the overhead of a credit control function. And why should they?
There seems to be a fear that if credit is not offered then a sale will not be made to a customer, but is that fear really valid? Surely a customer worth having is one that buys a product or service from you and pays for it to the agreed payment terms. If they don’t pay on time then is that business you should really be chasing?
I run a business in a very traditional industry – accountancy. The norm is very much that the work is done and the invoice raised with the client paying some time in the future. The result is what is termed “lock up”; a large 'debtors and work in progress' balance. When I started my business six years ago lock up was something that I was determined to eliminate in my business model and I did exactly that with clients paying monthly fees. The result is that as we prepare and submit their annual accounts and tax returns the fees have already been paid. They're happy as the accountancy cost is spread throughout the year and we’re happy as we’ve been paid for the work done and do not need to worry about debtors and bad debts. In fact in the six years that we’ve been operating we’ve had only a handful of bad debtors out of nearly 2,000 clients; not a bad result given the recessional times we’ve just experienced.
Accountancy is an industry that changes very slowly but if the elimination of credit can happen here then why can’t it happen in every industry?
I recently came across an innovative solution to small business payment processing offered by People Per Hour (PPH) who “have a community of talent available to work, online, at the click of a button”. Simply put the web site provides a resource for buyer to meet sellers and transact. Once a sale is agreed a proposal is created and, if the buyer accepts it, payment is made with the amount being put into Escrow meaning that the money is held by a third-party, PPH in this case, on behalf of transacting parties. The funds are released to the seller once the sale has been completed, an invoice raised and the buyer agreeing that the work has been done. Funds can also be released if an invoice is overdue or as an outcome of a dispute resolution.
So all round it seems a rather good solution for a small businesses to ensure that they will be paid for the work that they’ve done as well as providing the buyer with an element of protection for shoddy workmanship or other disputes.
It seems obvious to me that the solution to businesses not paying bills on time is for an easy and free to use system of Escrow to be available to ALL small businesses in this country via Vince Cable’s new Business Bank. Rather than spend his time proposing a system of fines I’d like a call to action for him and the Government to really support small businesses in this country and make it compulsory for all sales to be paid on or before delivery or for the sale to be transacted via the Escrow system ensuring protection for both the buyer and the seller.
What objections could possibility be raised to such a common sense and practical solution?