Blog posts in Financing a business

How to maximise your turnover

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:

Define your proposition

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.

Recognise the value

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.

Identify your market

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.

Route to 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.

Make sales

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.

Seven steps to recovering commercial debt

Infographic provided by Green Door Debt Recovery

What will it take to kick start small business lending?

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.

So how is it going?

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.

Could bridging loans offer your business a funding solution?

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

How to set up your business on a tight budget

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.

• Written by First Choice Business Systems, a leading document management and print solutions providers for a range of businesses.

How Lean is your business?

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?

• More focus on experience being designed, with less focus on deliverables.
• Questioning and testing your assumptions.
• Evidence-based decision-making.
• A collaborative approach to designing products.
• Better outcomes as a result of regular iteration.

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.

In summary

• Learn often, fail fast and get out of the building!
• Fake it before you make it.
• Start small then scale up.
• Keep iterating.
• Don’t lose sight of the vision.
• MVP: minimum awesome not awful.
• The web is your lab, keep testing and measuring.

Now it's over to you...

Laurence McCahill is a digital product designer and co-founder of Spook Studio, a “product innovation studio by the sea”. He also writes a popular blog about Lean.

Why prevention is better than cure when it comes to getting paid

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.

Starting-up the Irish way

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.

How to raise money for your small business in a tough economy

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:

• Write a well-constructed, comprehensive business plan. Begin by formulating your objectives clearly in your mind, and then translate them into a document that will engage investors.

• Prepare realistic financial projections. The three most important measures potential lenders will want to discuss are: profit and loss statement, cash flow forecast and balance sheet.

• Maintain a healthy credit score to achieve low interest rates on any loans that you successfully secure. Be savvy with your budget and do not extend credit terms to customers unless you are confident they can pay your invoices on time.

Funding options to consider:

• Form strategic partnerships – be creative and look for business partners. Forging mutually beneficial relationships can open lots of doors and requires little or no funding.

• Join the information superhighway – the internet has become the fastest and most efficient means by which a new business owner can research funding options and eligibility criteria.

• Investigate equity financing – selling a share of ownership of your business to a venture capitalist or angel investor. A good option if you are seeking a loan that can be re-paid over time as your venture becomes profitable, but not suitable if you aren’t prepared to lose autonomy over your business.

• Turn to friends and family – one option to raise capital quickly and without lots of red tape, although be prepared for the interested parties to desire input in every company decision!

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.

10 top tips for avoiding bad debts

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

How much do you really know about your debtors?

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:

• the name of the business
• whether it’s limited or not
• its registered number (if a company)
• its registered and trading addresses (if a company)
• Business SIC code (which will tell you the nature of the business)
• Contact telephone numbers
• Account contact name
• Names of company directors (if a company – preferably with their dates of birth)
• A signature
• Trade references (optional)

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.