The Start-Up Loans Company, part of the government’s solution to help kick-start enterprise in England and create more jobs for 18-30 year olds, is being championed by tech whizz kid and serial entrepreneur Josh Buckley (@joshbuckley), CEO of gaming giant MinoMonsters. Although born and raised in Kent, in 2010 Josh moved to Silicon Valley to start up MinoMonsters, aged just 18.
Now a web veteran at the tender age of just 21, Josh already has a decade’s wealth of experience behind him, and now he is looking to help other young people like him realise their potential by becoming their own boss.
Josh started freelance coding at the age of 11 after his family bought a computer. He sold his company first company, Menewsha, a virtual world, for a six-figure sum at the age of 15. Josh then went on to create the global kids phenomenon MinoMonsters in 2011. This gaming venture has been called “the next Disney” by many commentators. Buckley raised $2m for the company at the age of 19 from leading venture capital firms.
Leading entrepreneur, former Dragon and Start-Up Loans Company chairman James Caan is hugely impressed by Josh’s business journey and believes it will inspire other young would-be entrepreneurs across many sectors. And with more than £100m to give to young people across England, such aspirations can find the financial backing it needs.
Caan believes that Josh’s story shows that business success is achievable for people of all ages, providing you have a good idea and the passion to make it work. He is delighted to have Josh’s support to help inspire young entrepreneurs in England.
The Start-Up Loans Company has already backed numerous tech enterprises, including a wide range of app developers. Now is a fantastic time to turn your passion into a business. With the help of Josh Buckley and James Caan, The Start-Up Loans Company is in an even stronger position to help young aspiring entrepreneurs to achieve their dreams. Apply today at www.startuploans.co.uk.
All businesses are different, whether it is size, sector, location, or speciality – there is always an element that sets one apart from the other.
But there is one thing that is common to every business in every country and sector around the world – finance. It determines the income coming in and the expenditure going out, inputs and outputs, the size of an organisation, and more importantly if it will be financially successful and sustainable.
Before making the decision to branch out and step into the unknown, it’s important to understand the role the finance functions play in the world of business. It forms the basis of effective business management and will ultimately affect the bottom line.
Many businesses that succeed don’t make a profit for the first couple of years. If you are hoping to get rich quick, you may need to think again.
Consider a short course on the fundamentals of finance. Training will be one of the best investments you’ll make and you’ll find yourself using your new skills and knowledge on a daily basis.
Tax legislation changes at a never-ending pace and it’s important for new businesses to keep up. For example, the new reporting system for PAYE (RTI) introduced in April this year will affect the way employers submit tax information. These are the types of issues you’ll need to be aware of.
Implement an accounting system and make sure it works. The law requires all businesses to have proper accounting records. By doing this you’ll manage your business better and help stimulate business growth. Startups that don’t do this put themselves at a serious disadvantage.
Train up and read as much as you can but at the end of the day – don’t be afraid to ask for help from a professional accountant.
Tom Kelman has been director of finance and corporate resources at AAT (Association of Accounting Technicians) since July 2005. He has worked in finance for more than 28 years, covering both accountancy practice and industry and commerce.
Most business people have one aim when they launch a company – generate enough turnover to produce a profitable business. No matter which path they choose to achieve this, they will need to grasp the basics of their business in order to maximise their sales effort.
If you are preparing to set up a business, first do the following:
Before approaching anyone else with your business idea you need to fully understand your business proposition. This sounds obvious; it’s your idea, after all. However, if you can’t verbally and succinctly convey your offering (in what is often called the elevator pitch), how can you communicate it to potential customers? It happens again and again. Entrepreneurs have great ideas, but wordy websites and offerings that are overly complicated and difficult to understand turn potential customers off.
You know what you’re selling - now you need to consider why you’re selling it. What value does your product or service add that no other business does? Start by listing your differentiators and then think about how you can best explain your “value-add” to your prospects.
Your business may be amazing to you, but you’re not the customers. You must identify your position in the market and consider the size of your prospective customer base. This will help you to assess the potential and viability of your offering. You need to be realistic. If your plan shows you signing up more than 10% of your target demographic in the first year, you are likely being overly optimistic. If your plan depends on this to be viable, it’s not too late for you to go back to defining the proposition and start again in order to identify your market.
Now you have the basics in place, begin thinking about your route to market. How will you communicate the values of your offering to the prospective customers you have identified? You can do this in a number of ways, depending on the type of product or service you’re selling. If you’re retailing products, you can open a shop in a location with a good concentration of prospective customers passing your shop front. If you intend to sell products online, you will need to develop a marketing plan to drive prospects to your site. Whatever you decide, make sure to do your research before committing any money.
It’s time to make some sales and build your turnover. None of this messaging and communication will be worth anything if it doesn’t lead to converted sales, so be determined in your pursuit of leads and execute your sales well.
A word of warning – maximising turnover is not always best for your business. You need to ensure that your sales are profitable and convert to cash quickly. However, if you get the above basics right, you will be in the best position to succeed.
Clive Kahn is CEO of CardSave, supplier of card payment services to small businesses in the UK.
Invoice finance benefits small businesses by: allowing business growth; protecting cashflow, because late payments and increased credit terms are no longer an issue; providing an alternative to overdrafts and loans that can be difficult to secure at appropriate levels.
This can be seen with two of the fastest-growing industries using invoice finance today. The construction industry has enjoyed an increase of 138% for construction businesses taking up invoice finance from 2007 to 2012, particularly affecting small builders' firms who find it most difficult to secure an overdraft at the levels they need. The manufacturing industry has seen a similar increase in adopters of invoice finance, with an increase of 120% from 2007 to 2012. So why are these industries choosing to take invoice finance as their funding solution?
Invoice finance is flexible; it requires little collateral and takes into account that customers do not always pay invoices on the date of the invoice’s creation. These are especially pertinent reasons for the construction industry, because these businesses are often paid 60 to 90 days after the job is complete.
Invoice finance provides them with a cash advance of any invoices created. By allowing the business to fund projects with the money they would have previously only secured once the job is complete, they can now pay costs such as wages and purchase raw materials, which are required throughout a project’s lifetime.
Banks are unwilling to lend to what is often seen as a risky industry for late and non-payments. This is probably due to construction projects being easily halted by problems such as bad weather, or simply because the job has not been finished to the customer’s satisfaction. These problems can be seriously harmful to cashflow, because the banks are looking predominantly at historical financial data to assess whether a business (particularly a small business or startup) is worth lending to.
Construction businesses that are turning a corner and are in fact profitable, have responded to this by seeking out alternative forms of finance – invoice finance, where funding is judged on the future income of a business rather than its historical records.
Two other extremely popular adopters of invoice finance, according to data from Touch Financial, are recruitment businesses and those in wholesale and distribution. Wholesale and distribution often suffer from late payments, and the nature of the wholesale business means they need a quick stock turnaround in order to maximise income and profits. In no other industry does time mean money more than in wholesale, and invoice finance allows protection against late payment, while strengthening cashflow to allow the purchase of further stock as quickly as possible. This gives the safety and flexibility smaller businesses benefit from the most.
Recruitment is a sector where invoice finance also appears to be thriving. Contractors often require payment before the customers settle their bills and invoice finance provides the working capital to achieve this. Recruitment companies often have few high-value assets, which makes securing a bank loan or overdraft difficult, particularly earlier on in the business’s life. Invoice finance provides cash you are to receive in the future through the invoices you generate today and usually requires little other assets to secure - something an overdraft cannot provide.
Late payments, poor credit history and a lack of assets are all common reasons for small businesses being unable to grow to their full potential. 2013 is likely to see a further increase in the amount of construction and manufacturing sector businesses moving towards invoice finance, while wholesale/distribution and recruitment SMEs should continue to benefit from the flexible funding that invoice finance has provided them throughout the years.
Written by GrahamTripp on behalf of invoice finance provider Touch Financial
Last year, Business Secretary Vince Cable floated the idea of a new business bank, a financial institution whose raison d'être would be to support the UK’s freelancers, contractors and small businesses.
Time after time, official figures prove it’s SMEs that are driving the UK’s recovery, so it only makes sense to support them in every way possible, while the wider economy lumbers back to its feet.
The main function of the business bank will be to help small enterprises raise funds and give them access to credit - something the high street banks are still monumentally failing to do.
There is a fundamental problem with Cable’s proposition, however. Back in September he promised £1bn in funding, plus a matching contribution from the private sector. Hang on a minute, you’re probably thinking, won’t those private sector contributors be the same institutions currently denying credit to small businesses up and down the high street? Quite possibly, yes.
If this new bank is to have private sector involvement, there is a danger the same risk-averse attitude the big banks have adopted will find its way into this organisation, rendering the whole exercise pointless.
As well as being easily accessible, any loans offered by the business bank must be available fast. I have seen many businesses disappear while waiting for loans to make their way through the maze of bureaucracy that blights most financial institutions.
Set up a scheme that allows access to funds within 30 days, guaranteed. Not only would this allow businesses to start up faster, it would allow owners to plan their spending accordingly, with a guarantee that funds will reach them by a certain date.
The government desperately needs to avoid another costly and under-subscribed business stimulus initiative. Past failures such as National Insurance holidays, and more recently the Funding for Lending scheme, will hopefully have given the Department for Business, Innovation & Skills a feel for what works and what doesn’t.
Details are still fairly sparse as to what form the business bank will eventually take, but with a bit of luck Vince Cable will listen to business owners and put together a sensible and useful establishment - and not one that exists solely to turn a profit for its commercial backers.
Written by Darren Fell, managing director of Crunch Accounting.
It’s a central plank of the Government’s policy to stimulate economic growth — supply cheap money to banks and building societies to encourage them to lend. It has come in many forms — from lower interest rates and quantitative easing to schemes like Funding for Lending (FLS), Project Merlin and the National Loan Guarantee scheme.
Not great, it has to be said. Recent data from the Bank of England reveals that lending to businesses and individuals in the final quarter of 2012 dropped by £2.4bn. Lloyds Banking Group reduced its lending by more than £3bn in that time, more than any other bank.
Dr Vince Cable called the results "deeply disappointing” and said that the scheme may need to be “adapted”. Critics argue that banks are simply taking the cheap money and using it for their own needs. But the aim of this scheme and others like it was not to prop up the banks — it was supposed to kick start the economy.
Meanwhile, apologists for the Funding for Lending scheme say things would have been worse without it and they urge us all to give them more time. But is time running out for small firms that cannot get the funding they need?
The British Bankers Association, representing the major banks, says many businesses are choosing not to borrow. A spokesperson actually said: "It is more of a demand issue than a supply issue.”
Try telling that to Mike Benson and thousands like him. He runs a business in Worcestershire supplying parts for air compressors and exporting to countries such as the US and Chile. The business was described in a BBC article this week as “quietly profitable for the past 15 years” — like many UK small firms that are just getting on with the job.
Mike wanted to borrow £10,000 to put towards the purchase of a new van. Knocked back by the Bank of Scotland, Benson wrote to Sir Mervyn King to tell him of his woes and got a “delightful” letter back that was full of sympathy.
The Governor of the Bank of England did have one piece of advice for Mike — try one of the UK’s new banks such as the Swedish firm, Handlelsbank. It echoes Vince Cable’s comments this week on BBC Radio 4's World at One programme when he said the Funding for Lending scheme is working “with some of the new banks” such as Aldermore.
But the majority of small firms bank with the big names and, according to the Federation of Small Businesses (FSB), a staggering 41% of small firms were refused finance by the high street banks in the second quarter of 2012.
Something’s got to give. We’ve been watching the Budget with interest. Over to you George.
Rachel Miller is the editor of Marketing Donut.
There is no shortage of start-up business advice out there that is anti-travel. We’re told to work online and use technology to bridge all kinds of gaps in our operation.
While this is sound advice for keeping costs down, there are still limits to what many businesses can achieve without travelling anywhere. If you cannot travel, you may be unable to deliver your product or meet your customers and suppliers, to build relationships and grow.
Transport is an inevitable expense for many businesses, but if you want or need to use a vehicle (or vehicles), you’re going to have to spend a lot of money up front, and factor in the depreciation of the asset into your ongoing operation.
This inevitably involves compromise: you’ll opt for the cheapest van you can run or scale back your aspirations elsewhere to afford a nicer car.
Getting a loan to pay for your vehicle is risky. You might stand to lose more than the car if you fail in your repayments. Unless your business has the cash in its account, you may be looking at dealer finance, and paying absurd total repayable amounts in the long term, with a large deposit and monthly payment in the short term. Thankfully, there is an alternative.
Vehicle leasing allows you to pay only for the years you use. Take out a two, three or four-year lease on a brand new vehicle and you’ll pay a low deposit with low monthly payments to follow. You might even get road tax and breakdown recovery as part of the package. Lower monthly costs will obviously appeal to start-ups, allowing them to afford to run new vehicles that take up less space on the balance sheet – vehicles that cost less in terms of liability and risk.
Leasing does mean that you won’t own the car or van that you drive, of course, but many businesses may find that this is a positive. Leasing companies are left to worry about the vehicle’s depreciation, so it never becomes a factor in the valuation of your business. You can even opt for plans that give you the option of purchasing the vehicle at the end of your lease period. Otherwise, as a more mature business you will be free to continue saving with leasing, or to purchase a new vehicle outright, if that fits your financial plan.
Stephanie Wood of Nationwide Vehicle Contracts
As more bridging loan lenders enter the market, the cost of borrowing short-term capital has fallen dramatically. This has allowed firms to borrow to buy stock, ease cashflow, expand and a host of other things.
Put simply, a bridging loan is a way to give individuals access to credit easily and quickly, by using assets such as personal or commercial property to release equity.
Primarily used in the property market, bridging finance can prevent buyer chains collapsing when other financial arrangements were in place. In the literal sense, it allows you to bridge the gap between shortages in capital. The majority of bridging financiers function solely online, allowing clients based anywhere to find them easily, making the market open and competitive.
The speed at which cash can arrive in your account is the greatest advantage of bridging loans, often being a very personal service that takes a matter of days. They will also be sure that bridging finance is the best option for you, because lenders want to be sure they will get their money back!
You can expect to pay an arranging fee, which covers all of the checks the financer has to make, such as application, legal and valuation costs. Lenders will offer varying rates of interest dependant on your circumstances (usually between 1 and 2% per month). However, if you have a lot of value in your assets and are not classed as high risk, you could see interest rates as low as 0.5% a month.
A good bridging lender will find out exactly what you are spending the capital on. They will then assess the resource that you are borrowing against and send an independent surveyor to value the asset. This will make up the loan to value (LTV) ratio that you receive, which can be anywhere between 40 and 80%.
Bridging finance is for short periods of time and can become an expensive option if you do not replace the bridge with a long-term financial option. This could be selling other assets, streamlining your business or refinancing with another loan.
If your business needs to raise money quickly to buy stock to meet a surge in demand, a bridging loan may be a perfect way to quickly get the money you need. However, if you are experiencing cashflow problems due to a high wage bill, unless you put a restructure in place, allowing funds to be available within months, a bank overdraft or other financing means may be more beneficial for you.
Overall bridging loans may not be for every business need, especially if you do not know how you can pay back the loan. However, in times of cashflow crisis, where you have assets with equity, they can offer you the breathing space to put longer-term financial options in place.
Written by Jonathan Dempster of bridging loan specialist Balmoral Bridging
The business plan is going well, your idea seems to have feet but you face a major problem. You need money to get your new business off the ground.
Securing funding is one of the most common start-up problems. There are various ways to raise finance, which is a good thing, but many people are unaware of all of the options available to them or are unsure about how they work. Do your research to find out how you can raise the funds you need in a way that best suits your business. Here are the pros and cons of some key start-up funding options.
Banks and building societies
Venture capital trusts
Crowd funding and peer-to-peer lending
By Erin Walls of Ward Williams Chartered Accountants
Setting up a business in the current financial climate can be a challenge, particularly for those with minimal funds. However, the recession has opened doors for many entrepreneurs looking to take advantage of gaps in the market to try and offer something different, while competitors flounder. Here are a few tips intended to help you set up your business if money is tight.
1 Keep borrowings to a minimum
It’s much better for your business’s long-term prospects if you don’t have to borrow to get off the ground. Your new venture is meant to provide you with a new source of income, not become a millstone of debt around your neck. However, there may be instances where you need to take on the right kind of debt, with a realistic plan of paying it back through the success of your business.
2 Only buy essential equipment
Put aside any thoughts of a fancy office space or the latest hi-tech gadgets. You should only buy what you need to carry out your day-to-day business. Much can be achieved with basic internet and telephone connection, a reliable computer and essential software.
3 Work from home
Why waste money on rent if you don’t need premises? Many start-ups can now be successfully operated from the comfort of the owner’s home. If necessary, you could even operate from a virtual office, perhaps with a more attractive business address.
4 Online marketing
You might be able to market your business online without paying a single penny if you’re clever. With powerful social media networks such as Twitter and Facebook you can reach out to potential customers and network with customers and possibly suppliers using online forums.
5 Keep it in the ‘cloud’
The last thing you want as a new business is to lose sensitive business information that is crucial to the day-to-day running of your start-up. A loss of data may also affect levels of customer service and cause embarrassment that could tarnish your reputation before you’ve even started. Cloud computing is a relatively new concept that enables users to rent storage space on an external server to guard against data loss in the event of natural disasters or crime.
Having your own business is difficult but going through the investment route makes things a lot more difficult. Here are my eight tips for getting investment into a business.
1. Do your research
When looking for investment, you will need to do your research. If you haven’t looked into potential investment organisations, such as LBA (London Business Angels), I suggest you do immediately. There are also a lot of ways to help secure investment, such as going through the Seed Enterprise Investment Scheme, which is what I did.
2. Have a great business plan
You won’t find investment for your business if your business plan is flawed. It is worth spending time and money on getting your plan right before approaching investors. The last thing you want is to build negative awareness before even securing any investment.
3. Be transparent
When approaching Investors, you need to be transparent. There is no point going in there and avoiding difficult questions, they will see this as a weakness. If you don’t have the answer, tell them that, but also say you will be able to give them one. When answering negatively, give them a positive to work off, too.
4. Be realistic
Going back to the business plan, predicting your business worth at £1bn after two years isn’t going to appeal to investors. They will see this as overly optimistic and unrealistic. Give them numbers you can deliver.
5. Look at your team
One of the reasons why Gloople received investment is because we have a solid team. We have our whole team in-house and outside mentors who offer sound advice when needed. The investors need to see that your business has stability – which should include having a good accountant and lawyer.
6. Be prepared to negotiate
Going down the investment route, you need to be willing to change your outlook on your business. Take Dragons’ Den for instance; entrepreneurs go in looking for £150,000 but want to give away only 5% of their business. If they are lucky enough to get an offer, it, without a doubt it will be at a higher percentage than the business owner initially wanted to give away. This is an extreme case, because it is a TV programme, but you will have some hard decisions to make when negotiating with investors
You will find that some investors have a lot to say. You will need to sit there and listen. It is a great quality to have and will be looked at as an advantage when an investor feels their views are being taken onboard.
8. Risk over reward
An investor will be putting their hard-earned cash into your business, which is a huge risk. Make sure this risk is worth the reward. They will need to be able to see that their investment is being used to benefit the business.
I hope my eight tips will help you find investment for your business. I would love to hear about any investment success you may have had.
If there’s one thing the Japanese know a lot about, it’s effective car production. And that’s where the term “Lean” comes from. It all began at Toyota, when the car manufacturer found a new, more efficient method of producing cars. The principles learned at Toyota became known as Lean, and they are now more of a management philosophy that can be applied to almost any business.
At its core is the principle of creating value by reducing unnecessary risk and waste. More recently the term has become synonymous with start-ups, thanks to Eric Ries and his Lean Startup movement.
So what makes Lean lean?
OK, so how do I apply it?
Learn about your customers
A key component of Lean – customer development – is a method to help you find ‘product-market fit’, with the aim of delivering a product that people love. The best way of doing this is through interviews with prospective customers, conducting surveys, landings pages with email sign-up forms and demos to test various aspects of the business model (eg pricing, positioning, segments, and so on).
Build something to show them
Create your ‘minimum viable product’ (or MVP in Lean Startup jargon), which is the first version of your product that will enable you to learn the most. Perform regular testing with users, iterate and improve as you go. Make changes when there’s less risk and when you’re not too precious about what you’ve created.
Measure the response
Focus on metrics that really matter such as sign-up conversions, payments, referrals, returning visits and NOT vanity metrics such as total number of hits.
Rinse and repeat
Keep learning, building and measuring. It’s this feedback loop that ensures you get to where you want to be.
Some useful tools to help with running your Lean projects can be found here.
Lean in practice
We work with many start-ups and often get approached by entrepreneurs with a great idea, however, more often than not they have no validation to show that theirs could be a successful product or scalable business. It can be a painful lesson for many, that after spending lots of time, energy and cash – there's simply no demand for what they've built.
Our approach at Spook Studio involves exploring all aspects of our clients’ business models to ensure that we test out ideas at an early stage where there’s less at stake, which helps to reduce risk, create value and ultimately a better return on investment.
Now it's over to you...
As the retail sector suffers ever more and empty shops on the high street become another pop-up project, we may at least take some comfort from the crowdfunding phenomenon that is spreading like wildfire.
From projects on art to Zulu history, it seems nothing is taboo for this method of funding. Even ‘adult services' are now offered via some crowdfunding platforms.
Are there any business models that are not appropriate for crowdfunding? Not in my opinion. Now this doesn't mean automatic success for the campaign or the project leaders. But with the four main crowdfunding models now well established the concept is open for business and incremental shifts in our socio-economic patterns are beginning to emerge.
This isn’t a call for all start-ups to get online and find the most appropriate platform, but it is a call for deeper consideration of the model in any stage of a business.
Warnings have been issued by the Department for Business, Innovation and Skills over the potential for funders in the equity model to invest blindly in businesses that stood no chance of success. But is this simply another instance of the government playing catch-up with market trends and forces?
Across the pond these issues are coming to the fore under the aptly named JOBS Act (Jump Start Our Business Start-ups), where again the issues of risk are being cited as a reason to attempt to limit the market on behalf of the consumer.
Our government shouldn't be given an easy time on this issue. We are talking about a minority of people in the population who would be willing to seek out and invest in these kinds of opportunities. Even if these numbers increased significantly, each individual would probably only be investing relatively small amounts.
Guidelines are certainly needed but guidelines are different from enforced restrictions.
Chris Buckingham is a PhD candidate on crowdfunding at University of Southampton and has taught crowdfunding and entrepreneurship at the University of Winchester at both undergraduate and postgraduate levels.
When do you start chasing a late payment? When the work has been supplied? When the payment terms have passed? When your cash starts drying up?
Too many businesses believe invoice collection should begin when they are overdue. However, when some customers respond only to final demands the time between job completion and payment collection can stretch cashflow to breaking point.
Too many businesses delay collection because they are worried that asking customers to pay will drive them away. It is possible to cause offence if you go about it in the wrong way, but you could enhance the relationship if you remain professional.
Here are some credit-control tips intended to help your business:
1. Decide on payment terms with clearly defined terms and conditions and stick to them. As long as they are communicated to your customers, they’ll be expecting you to follow up on any overdue invoices. If you are unsure what terms to use, seek expert advice.
2. All new customers should sign a credit account application form. The signatory should be a duly authorised person who should sign below a statement requesting explicit acceptance of the terms, with particular reference to prompt payment. Any prospective customer who refuses to sign could provide a useful early warning for you.
3. Check out the new customer with a reputable credit reference agency and set your larger customers up for monitoring so that any abnormal activity is spotted at the earliest point. This can help you avoid a bad debt. If an actual or potential problem arises, talk to your customer about how it affects your trading relationship.
4. Every priced document (eg price lists, quotations, etc) should contain a direct reference to ‘prices subject to payment within our terms’.
5. Don’t be afraid to reference prompt payment at the start of every new job or contract. At this point any customer-requested deviation from your standard terms should be confirmed in writing before work starts.
6. It is good business practice to adjust your application for credit each year and send out a new copy to all of your active customers to sign, ensuring that you always have an up-to-date agreement signed.
7. Avoid being subject to the buyers’ terms as printed on any written order by sending an order acceptance ‘subject to your terms of sale’. The last document that changes hands before performance of the contract becomes the contract document.
8. If you are sending out a large invoice telephone your customer shortly afterwards to confirm receipt and acceptance of the invoice to highlight any problems early on. If there are no problems you can confirm the payment date and their intention to honour their agreement. Telephone such customers shortly before the payment is due and seek confirmation it is being processed. If a query or dispute is raised, deal with it promptly and ensure that the customer accepts your response, thereby removing a potential block to payment.
9. If an account does go overdue, ring the customer immediately, ‘We can’t trace your payment, can you confirm it has been sent?’ is less confrontational than ‘Your account is overdue’, but still requires a specific answer.
10. If your best efforts to obtain payment produce no results (and two broken promises to pay is a good indicator) consider what you need to do to protect your investment in that contract. When the terms, as detailed on your invoice are exceeded, send an account overdue letter. Seven-days later send a final demand and seven days later initiate full recovery. Maintain constant communication in between these steps.
Effective collection of money you are owed is vital, no matter how large or small the customer. Ultimately your first responsibility is to protect your business. The consequences of not acting for fear of losing a customer could end up seriously harming your business. It is how you go about it that can make all the difference. Consider your own reactions when suppliers chase you for overdue accounts. If they are rude or offensive you might seek to take your business elsewhere but, if their approach is at all professional, your main reaction may well be ‘What can I do to pay that?’
Christopher Moore is a credit management consultant at ICSM Credit.
At a time when money is tight and resources are dwindling, it might be difficult for start-ups and small businesses to locate the funds they need to thrive and expand. It’s a disheartening situation for those that want to get and keep their businesses on the right track. But even in such times, there are still many institutions, organisations and individuals willing to finance small businesses, from banks to businesses, government bodies and the EU. Impossible? Not quite!
1. There are grants and funding opportunities out there
There might be grants you could qualify for that you never even knew about. Although you might think that having a small shop in a rural area would not be significant enough to secure grant funding, you could be an excellent candidate for a regeneration grant – the opportunities are out there, you just have to find them! For example, have you considered that funding programmes like the ‘Rural Shop Improvement Scheme’ exist? You might not know about the many grants and funding opportunities you could apply for, but dedicated funding websites provide a free searchable database of small business funding opportunities.
2. Don’t be afraid to apply
Although you might have heard that grants are difficult to secure, they are worth trying for. Nothing ventured, nothing gained. If you are passionate about your business and think you have a great reason to secure grant funding, you only need to translate your enthusiasm onto paper. Effort is required, but it might be more than worth it. Moreover, there are resources out there to help you write your grant funding applications, and review them. Free resources exist online to help you with your grant applications, like j4bGrants 10 Steps to Successful Grant Applications. There are also special services whereby funding professionals will take a critical look at your proposal and help you write the best possible application you could submit.
3. Stay positive
The fact that so many funding opportunities exist in the midst of a recession means you have as good a chance as any other business of getting the boost you need. Grant funding could provide you with amazing benefits, whether you are an established business or just starting out.
Searching for grants might be time-intensive, but luckily free resources exist to help busy business owners locate funding quicker and more effectively. j4bGrants.co.uk has been re-launched with a new-look website featuring thousands of opportunities for business funding. The site is completely free following registration, and allows you to search by business type, size or location, providing access to information that is constantly updated by a team of researchers who do the time-intensive searching for you. The opportunities are out there – you just have to find them!
Ireland has always had a pro-business attitude characterised by low taxes, investment in growth through innovation and the hub of tech and life science behemoths such as Dell, Johnson & Johnson, Google, IBM and Cisco reflects that. But now Enterprise Ireland (EI), the Irish government body responsible for supporting the development and growth of Irish enterprises, is pulling that into a sharper focus with help for UK start-ups willing to come and join us.
If you’ve read the papers recently, you’d be forgiven for thinking that global interest in Ireland has been tempered and the Celtic Tiger roar is more of meow these days. In fact, the recession plus the fall in the Euro has made Ireland a very cost-competitive base for internationally focussed start-ups with low-cost rents and access to a lower cost but highly skilled workforce.
That’s exactly why the Irish government set up EI’s Overseas Entrepreneurship team. We have a remit to attract what we call High Potential Start-Up (HPSU) companies from the IT, financial services and life sciences sectors to relocate to Ireland. One of our big focuses is the start-up fund, which offers up to €500,000 of funding from a pot of €10million for existing start-ups who relocate.
We don’t provide all the funding to get your business off the ground and would want you to invest a significant proportion yourself or raise funds from commercial sources. But we can help with advice and introductions to other investors in Ireland. And unlike many other investors we do not normally take a Board seat or take more than 10% of the ordinary equity so you retain control.
We also know it’s about more than money and we’ve found direct assistance works well. The Irish government provides direct long-term strategic support for entrepreneurial start-ups that come to Ireland to grow. Our goal is to actively support start-ups with advice and access to a network of contacts, mentoring, training and our universities to aid research and development. Schemes such as our Internet Growth Acceleration programme (iGAP) - where companies can apply for a six-month intensive management development programme aimed exclusively at high potential internet/games companies – have flourished.
One UK company that has used EI start-up support is the now VC-backed Digit Game Studios. Its co-founders, Richard Barnwell and Martin Frain, have a rich heritage in triple-A games and are working on a new IP for hard-core social games, developed for cross-platform support. Crucially, the appeal for Digit wasn’t just our support, it was Ireland’s ecosystem. Digit found that it could employ locally because most people had transferable tech skill that were perfect for the gaming industry and Ireland’s intertwined IT community helped them to get noticed. The Digit co-founders are already thinking about expansion, using the influence of the big US tech giants in Ireland as leverage for growth, particularly as we are one of the two Eurozone countries that speak English and the closest to the North American market.
It’s this commitment to start-ups and next-generation technologies – even during the global recession – which we believe will help UK entrepreneurial and dynamic start-ups and give them the support network to thrive.
With the reduction in small business loans offered through high street banks in these times, news of a possible Coalition scheme to offer start-ups the financial break they need, may sound like a bonus to many bank managers.
Hopefully, the Tory business bank will be offering nice promotional gifts like high street branches of Lloyds, Halifax or TSB have to incentivise the customer. At the very least they could hand a silvery pen out of it as they sign your business up for more of the government’s borrowed money from the IMF.
Chancellor George Osborne’s claim that it is "all the alphabet soup of existing schemes” should spell “the Tory way of tidying away bitterly disappointing incentives one to one giant kid’s meal, the kind that lacks XYZ of investment capital for genuine high-street money lenders at a time when the UK economy is in recession, without beans”.
The UK economy has statistically been suffering under the weather from a cloud of uncertainty forecasted by the so-called ‘big-four’ high-street Banks. A sector-based approach is a new way in which the Tories can withhold currency and lending to the banks, while having a stronghold in the business investment market and sell assets to small businesses and provide them the breakthrough that has been waiting in the wind.
Ahead of the speech, at Imperial College, London, Cable said that there was a "real shortage" of the "long-term patient capital" needed by businesses to grow. Larger businesses were "by and large" capable of raising short- and long-term finance via capital and equity markets. Meanwhile, the latest SME Finance Monitor showed that in the last 12 months, 33% of businesses that applied for loans were rejected.
Maybe it is along the path but this is still only in initial talks, meaning that the government need to open a tin of beans on-cue and finalise on its structure and offering to selected sectors, choose smaller ‘challenger’ banks and non-bank sources to take on the so-called ‘big-four’ and perform more like a business.
When Vince Cable addressed the public, the follow up indicated that it could shop around to find the tin. Smaller banking providers such as the Co-op, German lender Handelsbanken and Aldermore, are all contenders. By and large Aldermore sound like front-runners. In March, they announced their intended participation in the Government's National Loan Guarantee Scheme (NGLS) providing small businesses to borrow at a lower rate. The partnership would, Cable said, boost these smaller banks' lending capacity as well as round up existing co-investment and guarantee schemes.
Hopefully, this would lead to relief from this financial gasp and finally you start-ups out there will have the power to fulfil your destiny and have the financial backing you needs.
Recession continues to provide the backdrop for the UK economy, directly impacting the financial health of small businesses. Research shows that small businesses are more in debt now than at any time since the late 1990s. Those with a turnover of up to £1 million now owe around £1.60 for every £1 of turnover, compared with £1.17 debt per £1 of turnover ten years ago. Furthermore, the most recent figures from the Bank of England show that in the three months to May 2012, the total lending stock shrank by £3bn.
The credit crunch and recession has made securing finance tougher for small businesses, but that doesn’t mean that raising money is impossible. Banks, investors and business angels are always open to the suggestion of backing well-run businesses with a strong sense of direction and good management team.
How to prepare for funding success:
Funding options to consider:
The overall message to take away is this: whether you’re looking to acquire additional capital or fund the launch of a new company, do not give up! Achieving investment requires a little creativity and a lot of perseverance and determination, so set realistic goals and be prepared to explore several options.
BCSG creates, distributes and supports value adding products and services to small businesses through financial institutions.
I have just read an article claiming that 10% of companies that America’s top ten venture capital firms or VCs [ie private equity firms] invest in actually succeed. This correlates exactly with the yardstick that VCs and seed corn capitalists I know use. 10%!
One chance in ten. We know that only 10% of small businesses actually make it to year five, so it could be reasonable to suggest that anything greater than 1:10 (10%) odds would be better than you get from starting a business. Just 10%.
So, is it worth it for a 10% gamble? Well, to put all this in perspective, here are the chances of winning at the casino:
Slot machines 32%
Horse racing 41%
Here are some conclusions (if you are in any way rational).
Do not gamble at small business unless… Unless what?
Since the credit crunch first began to bite, some UK businesses have had to extend their agreed payment dates and terms, which means that some firms now face waiting as long as five months for payment. The average time it takes for businesses to settle their bills after agreed terms has also extended. Consequently, businesses must ensure their billing process is effective when it comes to overdue payments.
By addressing issues such as cashflow or order book problems early enough, businesses can stop them from escalating. But what action should you take and when do you need to start? Many businesses are too wary of being over-zealous when chasing payment so as not to upset a customer, but avoiding the issue could have a catastrophic effect. Here are ten tips for what to look out for and what steps to take:
1 Know your customer
Whether the customer relationship is new or long-standing, regular credit reports are essential. They are quick and cheap and enable you to be fully informed of any changes with the business. Perhaps you could use a particularly large order as a trigger to run a check or simply implement one every quarter or six months. As well as granting peace of mind it limits your exposure. The next stage is to identify and weed out any high-risk business prospects.
2 Assess payment behaviour
Keep an eye on changes in payment patterns, times and delays, as well as a move from BACS to cheques. These small factors can indicate something is happening behind the scenes. It doesn’t hurt to call the customer and have an informal chat, just to make them aware of your interest. These checks can also indicate how long you will be waiting for payment. Also be aware that bills being settled later and later each month is a key indicator of a business’s deteriorating cashflow.
3 Introduce changes
Your customers may just have a culture of late payment but to combat this, steps should be taken to encourage faster payment, such as direct payment methods or more creative collection strategies. Also monitor CCJs, because these can be a trigger to exercise some caution and review the relationship before extending credit.
4 Carry out checks
Regular company credit checks will also highlight small but possibly significant changes, such as who is on the board and any alteration in the addresses of those members. Also for smaller and newly formed companies, cross reference consumer and business information to build a picture of the personal and wider business interests and the track record of those running the business. Knowing what happened in the past creates confidence in future co-operation. When financial details are limited this can be the best indicator of a business’s commercial integrity.
5 Revise regularly
The validity and worth of credit reports lies in their frequency, which could be related to the value of business done, the importance of the account or the volatility of the market they are in. There is no point running one at the start of a working relationship and believing that will ensure there is no risk.
6 Be aware
Be mindful of external economic pressures because if you are feeling them you can be sure your customers are, too. The warning signs these present can be more effective than any internal procedures and controls. There is help - use the credit community, it's what it's there for; share information about your debtors and listen to what other industry people have to say.
7 Be accountable
Often businesses with poor trading results tend to delay submitting their accounts as long as possible. Experian research has shown the late filing of annual returns, which is a statutorily required list of directors and shareholders, is a characteristic of failing companies and at the very least can indicate a level of management inefficiency within the business.
8 Keep talking
Keeping communication lines open is key. As long as businesses are talking to their customers, resolutions can be swiftly and easily achieved without the need for legal action that can prove costly.
9 Take action
Don't delay. It’s tempting to wait and hope the payment will be made, but if the process is not started immediately, resolutions will take longer, putting cashflow under greater pressure and leaving you more vulnerable.
10 Call for help
While a business that can demonstrate a clear action plan is in place and was adhered to will more likely achieve a successful outcome, don’t be afraid to ask for help and advice. A quick chat with an adviser could help you identify the next most appropriate step. For example, a legal letter might be enough to bring the matter to an end.
Christopher Moore is the Marketing Manager at ICSM Credit
With all the Olympic hype in the media you may have missed a less glamorous initiative that got off the starting blocks on 1 August.
The new flagship Funding for Lending (FLS) scheme was launched to replace the National Loan Guarantee Scheme. The FLS is another attempt by the Government to encourage banks to lend to growing businesses.
In its March 2012 budget, the Coalition announced that it would be setting up a new credit-easing plan called the National Loan Guarantee Scheme. The NGLS was designed to help businesses access cheaper finance, by reducing the cost of borrowing under the scheme by 1 percentage point. It guaranteed £20bn worth of loans. Since March, only 16,000 loans were applied for, equalling a total of £2.5bn. This has been declared a failure, and so the Treasury has sidelined that plan and come up with another bright idea in the form of the FLS.
Loans worth £80bn have been pledged for the FLS. The scheme will run for the next 18 months (1 August 2012 to 31 January 2014) and then it will then be assessed. Under the scheme, for every £1 of additional lending made by a bank, it will be able to access an extra £1 of cheap funding from the FLS. Those banks that reduce lending will have to pay higher fees to use the scheme.
According to the Bank of England, the FLS is "designed to incentivise banks and building societies to boost their lending to UK households and non-financial companies". Under the initiative, commercial banks will be able to exchange collateral, such as existing loans, for pieces of paper known as “Treasury bills”, on which they will pay an interest rate of 0.25%. They will then be able to use these bills as backing with which to borrow cash cheaply on the wholesale markets, money they can then lend to businesses and homeowners.
The purpose of the Bank of England's scheme is not just to inject some life into the moribund property market, but also to make cheaper loans available to small and medium-sized firms who are outside the financial sector. SMEs have complained for several years that the banks are hoarding cash rather than lending – even to relatively safe borrowers.
Official figures show that lending to non-financial firms has indeed been falling, a trend that the Bank of England would like to reverse. In the past four years the stock of outstanding loans to such companies has shrunk by 17% from its peak, to £420bn in June this year. At the start of August, the RBS group (which includes NatWest) announced that it will take advantage of the new scheme and cut £2.5bn off the loan interest charges it expects to make available to SMEs.
If this means that start-ups and SMEs are able to access the funds that they have been desperate for since the banking crisis of 2007/8, then we should award the Government a gold medal for providing an impetus for business growth.
For the majority of SMEs, offering trade credit is essential, but it leaves you vulnerable to debt. Are you often left wondering how much you really know about your debtor when they go beyond your agreed payment terms?
Generally, you’ll know how much they owe you and you should know their trading address, but when a company owes you money you want to know everything about them.
This year, in May, ICSM had to write off almost £100k worth of debt on behalf of its members, many of which could have been avoided if the correct company or debtor identities had been known.
If your business offers credit, you should have a robust credit management system in place. This starts with getting your customers to complete a credit application form. You’ll need to ensure your form collects all the information needed to set up a credit account. You need to know:
Offering credit to non-limited companies has its own implications and it’s important to remember that the liability of any debt incurred by such a business will fall directly on the proprietor(s). Before even considering offering credit to a non-limited company (ie sole trader business), you’ll need to know the owner’s name, date of birth and address, which will enable you to credit-check them. To do this you are legally obliged to gain their permission, so it’s important to include a paragraph in the form requesting consent to run the credit check.
Try to avoid allowing your people to ‘pre fill-out’ the credit application form on behalf of your customers. It will only result in words being crossed out, mixed handwriting and you receiving incorrect information. Your customer should fill out the entire form, not just sign it. It might add up to two minutes onto their day, but it will save you a lot of hassle.
Christopher Moore is a credit management consultant at ICSM Credit.
An investigation into the state of the British business banking market by CashFlows (of which I’m founder and CEO), suggests that small businesses are collectively spending more than £2.3bn a year on transaction charges and fees to run their business banking, while simultaneously not being offered the ability to earn interest on their business accounts.
The study exemplifies why changes in the services available to small businesses are in need of urgent review to help British business in their efforts to rebuild the economy.
According to the study, which was conducted by YouGov for CashFlows, 24 per cent of small businesses surveyed pay an average of £1,792 on business banking charges every year, such as transaction fees. Perhaps unsurprisingly, more than half of businesses (52%) would move their business current account to another provider to receive lower cost business banking services.
There is widespread demand for a change in the way that businesses are served by the existing financial services industry. Our research clearly demonstrates that there is a considerable gap in the business banking services currently being delivered by British banks and the services that customers actually require. There is a real need – and an ability – to simplify and reduce fees and charges to give businesses transparency and competitive choices.
One of the ways to reduce some of these fees and get to a position where interest could be paid is by consolidating a range of services into one current account.
Here is our infographic that provides the headline findings of the YouGov survey (Click to expand)
By Nick Ogden of CashFlows
A report published last year by Banks automated clearing system (Bacs) suggested that half of all SMEs are experiencing late payments and waiting an average of 28 days beyond agreed invoice payment dates.
Poor cashflow is the biggest reason businesses cease trading, so we’ve put together ten key tips on chasing late payments.
1 Know your customers
Running credit checks on new customers may sound underhand but it could save you valuable time and money in the future. It’s now possible to run quick checks online. This isn’t confined to new customers – if you have reason to suspect an existing customer may have problems paying their invoices, checking their situation may also be prudent.
2 Be clear about your payment terms
Make sure your payment terms are included on every invoice you send and keep them consistent. Additionally, outline your terms verbally to new customers. Be clear about timeframes, costs associated with late payment and acceptable payment methods.
3 Avoid cheques
Encourage customers to pay using cash, electronic transfer or Direct Debit. hearing ‘your cheque’s in the post’ won’t help your cashflow.
4 Choose the right people
Make sure people on your credit control team are equipped for the task in hand. They should be firm but polite, resilient and organised. It’s also important that they enable, rather than impede, future sales.
5 Make a courtesy call
If you’ve issued a customer with a large invoice, call them up before payment is due to make sure it has been received and there is no query. This is good customer service and pre-empts any possible delay in payment.
6 Start chasing right away
Don’t delay in chasing a late payment from the day after it was due. The longer you leave it before you contact your customer, the further down the queue your invoice will drop.
7 Claim interest
You have a statutory right to claim interest on late payments at 8% over the Bank of England base rate. Additionally, you can claim compensation for debt-recovery costs. Letting your customers know this as early as possible may encourage payment.
8 Be flexible
On large, outstanding amounts be prepared to offer flexible payment terms. Whether this means regular installments or simply splitting a bill into two manageable chunks, in some circumstances it may be your best chance of payment.
9 Don’t let the problem escalate
If you haven’t received payment, stop supplying the customer immediately. If the customer needs your product or service to run their business, cutting the supply may be exactly the leverage you need to secure payment.
10 Use a debt collection agency
As a last resort, employ a debt recovery agency to act for you. Agencies will often work on a no recovery no fee basis, however if the debt is large the percentage commission can be substantial.
By Gareth Underwood, of Sage software