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.
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.
With business leaders adopting clever business strategies, facing up to the recession has created unexpected opportunities for organisations. A focus on international trade, reshaping culture, outlook and getting innovative about financing has led to companies creating more efficient ways of working.
Research from HSBC Commercial Banking has found businesses with smart finance strategies are both more likely to be predicting growth over the next two years and projecting a growth in exporting- with access to finance, such as using trade and invoice finance being central.
Steve Box, HSBC Head of Trade and Receivables Finance Europe, participated in a webTV show where he answered questions about smarter ways of financing your business. Key topics covered include: How to form formal and informal alliances; maximising cashflow and how to free up working capital and investing assets for growth.
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!
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.
When starting a new business, the way that you spend your limited resources is critical to your chances of success. There are places where you can’t afford to scrimp, and there are places where you simply must not waste. You need to keep the chance of failure down by spending what you have very wisely.
It sounds easy, which it isn’t. However, following these tips will increase your chances of success. Good luck.
In her latest video blog, Marcela of Rico Mexican Kitchen asks questions about business finance.
Marcela in Fishbowl Two has never started her own business before. Nor has she seen anyone else start a business. And, being one of the first businesses to feature on inafishbowl.com, she has never had the opportunity to learn from the experiences of others.
In this video, Marcela asks how the finances of early stage businesses usually work during the first two years, and how she should be going about raising more finance.
You can find out more about Marcela on the new interactive business website www.inafishbowl.com
I would like to look at an aspect of starting a business that isn’t often considered. Mostly discussions are about finance, marketing, recruiting a great team, VAT, legals and all of the other stuff of start ups. But most people need the support of family, friends, and partners. Start ups are hard, and you must be sure that everyone is with you, everyone is supporting you, and everyone understands what you are doing.
My decision to start a new business was made jointly with my wife. Although she’s had limited involvement in the management, she was a full participant in the original decision. And as a result, she has supported me in every up and down since then, which has been a real help. Similarly, my sister and a friend both lent me money when we had an early cash flow crisis. They wouldn’t have done this if they hadn’t been taken on the journey beforehand.
And that’s the rub. If people close to you aren’t with you, they may be a source of discouragement. In the extreme, broken relationships can greatly increase the chance of business failure. I’ve actually seen this with a friend, where they ultimately ended up with nothing. On the other hand, constant encouragement and reassurance can be a real help – as can financial support.
If you start a business, it won’t only affect you, it will impact those close to you as well. They deserve to be told what that will involve and to be consulted for their opinions. Do this, and you will increase your chances of success significantly.
Most mums with businesses are serious and committed, but don’t always find it easy to turn this commitment into big bucks.
Many women need to change the way they think about money and how they feel asking for money. Research has shown that women are less comfortable to ‘name their price’ than men, and women in ‘helping’ professions are less comfortable than, say, women working in IT. Say how much you want for your service out loud: are you comfortable saying this or do you feel a bit apologetic? I know I do.
When I run courses the majority of women attendees are in business to HELP in some way. You can only be truly effective as a helper if your business is strong and making a profit will allow your business to grow and help more people.
If you are in the position of running a business that doesn’t make enough profit you could:
Follow these tips, stay in control of your finances and you will see your business grow.
Entrepreneurship is all about making things happen and turning ideas into a profitable business. However, it’s impossible to have all the skills and attributes in one single individual- no matter how motivated or how working one can be, to turn an idea into a long-term profitable proposition requires a team of people who complement each other.
I realised a while ago that I could do with bringing into the team someone who has the skill sets to help me really get the numbers behind the forecasts right, and to help me negotiate with banks, funders and other possible stake holders. Someone who can help me turn the forecasts into a reality; in other words, an experienced, trustworthy financial director.
It was time for me to call in the experts. I came across an organisation which offers the services of a “virtual” or part-time FD who will work with a company for a minimum of 1-2 days per month and helps with all the financial strategic stuff. I met with the regional director of that organisation and my FD-to-be if we will take things further. It was a pleasant, purposeful meeting, and I felt I could trust the guy. They call it the “barbecue test”, in other words, would you invite the person to a barbecue. We will go to the next step and meet for a full day to discuss the business past, present, future and financial strategy.
I think this model will be the affordable way to bring an experienced helping hand to complement my winning team and turn my proposition into a reality.
You can find out more about Marcela on the new interactive business website www.inafishbowl.com
The election messages continue to dance around reality. I did arithmetic at primary school, but did the politicians?
Here’s my maths. The government spends £400 for every £300 it receives, spending half our national income. If the country earned £800 per annum, the government spends £400, of which £100 is borrowed. Total government debt would be £500, rising by £100 per annum. This is less than six years away from going down the pan like Greece.
If we protect health, the government would have to cut a third of all spending to balance the books. That is an unimaginable level of cuts implying public sector pay falling by a third, which in turn would depress GDP severely making things even more difficult.
If GDP grows, it will be better. But we live in an uncertain world, with huge financial risks still lurking all around. Still all of the talk is about additional spending and what will be protected.
We have a financial crisis worse than anything seen in our lifetimes. Why are the politicians playing dumb and not getting totally real with the electorate. Maybe we still don’t want to hear?
Chris Barling, SellerDeck
Perhaps controversially, I believe that too much emphasis and, indeed, money is spent on encouraging people to start their own business. In my opinion, resources should be restructured to offer more help to people once they have actually taken the plunge.
I believe people should be shown that business is a genuine career option, and I am a strong advocate of Young Enterprise. But I’ve seen too much money wasted on national campaigns encouraging Joe Bloggs to start a business while someone who has a great small business cannot get to the next stage because of unnecessary barriers.
A prime example of a product which should help but which doesn’t is the Government’s Small Firms Loan Guarantee (SFLG). The idea behind this is that the Government covers some of the risk of the loan in order to allow banks to lend more easily to small businesses.
This was re-launched last year as the Enterprise Finance Guarantee Scheme and the Labour Party’s manifesto tells us it has helped 9,000 businesses. Writing as someone who has first-hand experience of the SFLG, I can tell you that if I was to start the process over again, I certainly wouldn’t bother. In the end we gave over so many of our own guarantees that the entire point was lost; despite whatever their PR says, the banks are simply not ready and willing to lend on this scheme.
In a nation of more than 60 million, 9,000 people on this scheme is not a claim to fame but an admission of failure. The figure should be tenfold. The Government needs to seriously and quickly address this issue and they should not be putting forward a scheme which the banks may or may not promote. They should be telling the banks that if a business comes in and meets a set of criteria, then they must allow them finance under a scheme where the risk of the loan is partially covered by the Government itself.
Adam Ewart, Karacha
I was up until til 2:30am cooking to fulfil orders and make samples. I am feeling hyper and excited, with that butterflies-in-stomach feeling about what lies ahead and the opportunities that I have. I am equally overwhelmed about what to do next and I'm tired. Whatever I do, it means that I’m not doing something else that is equally important.
The bookkeeper came this morning and we are getting our new system in tip-top condition. It required my attention because we are changing to a new accounting system and I need to know how it works. So I couldn’t make the follow-up sales calls I needed to do, or pay the bills, or organise tasting sessions, etc. I also teach Spanish on a Wednesday and I haven’t prepared yet.
More orders are coming through, but I'm not able to cook tomorrow because I’m at a “Meet the Buyer” event. I hope the buyers do buy! So it looks like another 2:30am bed time tomorrow, as my kids are in a local panto and I won’t miss their debut!
Wish me luck, I’ll keep the coffee flowing...
You can find out more about Marcela on the new interactive business website www.inafishbowl.com
Cashflow is the lifeblood of any organisation. Getting it wrong means that your business will fail, but getting it right at a time of economic uncertainty is a significant challenge.
Having a healthy cashflow is crucial for all companies, but can have a massive impact for start-ups. A new business can only survive for a short time with a negative cash flow, and ultimately the business will end up insolvent. Start-ups must adopt processes to help manage their cashflow from the moment they are set up.
Late payments are a significant problem for entrepreneurs to deal with. Half of the small businesses polled by Sage in its monthly Omnibus said they had been impacted by late payments over the last twelve months.
For start-ups waiting to improve their business cashflow, there are a number of steps to take, including:
Know where your money is – It sounds simple, but a lot of small businesses will fail because their owner doesn’t keep a close eye on the funds coming in and out of the business. That visibility is best achieved by maintaining regular updates on your cashflow forecasts.
Know your customers – Many businesses have a set date for paying invoices, learn when these are for your customers and record the date. If the date passes and you are yet to be paid, then there is a good chance that something is not right and you can follow up with your customer.
Set-up an online automated contingency plan – This will help you actively manage your cashflow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur good management can ensure the late payment does not have a damaging effect on the overall cashflow. These are all aspects that business accounting software can help you get to grips with.
By implementing theses correct processes a start-up will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues. By following these guidelines and implementing the right software, businesses can make sure they remain strong and cash positive.
Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland.
I had always thought that the word “entrepreneur” sounded so glamorous. The truth is that you are “it”, from key decision maker and strategist to garlic peeler. When people ask me what my position is in my company I laugh - I’m the CEO and the cleaner.
If you decide to start your own business without your finances completely sorted and you can’t afford staff, you are in for a difficult time trying to do everything. Even if you have a business plan that maps out incomings and outgoings, there is always that extra marketing opportunity that you don’t want to miss, or that packaging that you had to buy etc... spend, spend spend. I left my job early on in the planning of the business to throw myself fully into the project - maybe I should’ve been more patient and kept my salary for a bit longer.
Having said that, somebody said to me at the very beginning of my business journey that I should just go for it and borrow £100k from the bank. Thank goodness I didn’t do that. Yes, life would’ve been so much easier, I'd have a budget for machinery and packaging, maybe one or two part-time staff and a salary, but I wouldn’t have known how to spend it as well as I do now. Now, I have proved a concept, I understand which things worked or didn’t work and I know exactly what I need to do next. The only small detail missing is the cash itself.
So, this week has been about focusing on raising finances and boosting my sales. I'm looking after my key customers and revising my business plan so it reflects what I know now to allow me to get to the next stage. I’m off to the bank today and, hopefully, the bank manager will like it and believe that I can make it work. Hopefully I will be able to raise the finances and afford to pay a member of staff and the machinery I need. Feeling positive. I’m not superstitious.
You can find out more about Marcela on the new interactive business website www.inafishbowl.com
Ross (manager): “Welcome everyone, I trust you’re well. Item one: whether to invest in a company branded doormat.”
Ruth (marketing): “A company-branded mat will create a more welcoming entrance and make us look more professional.”
David (finance director; deep, gruff voice): “Make us look more professional? How exactly will a mat make us look more professional? Unless, of course, you intend the staff to wear it?”
Ruth (slightly squeakier now): “Professionalism is about the whole package, David.”
David: “How professional are we going to look when we go bust because you keep buying all this frivolous rubbish?”
Ruth (really squeaky): “If you don’t stop thinking like that, we’ll never go anywhere.”
Ross (calm, obviously): “Ok, David, can we actually afford the mat?”
David: “...........................(long pause)....................................... Er, yes”
Ross: “Ruth, do we need the extra gold tassels or will it still be fit for purpose if it’s bright pink and hardwearing?”
Ruth: “.......................(Not squeaky at all).................. Mmm… We don’t really need the tassels, no....”
Ross: “Right then, got there in the end, didn’t we? Let’s buy the mat.”
Of course, my company has but 10 staff, including me. We don’t have a boardroom or a marketing expert called Ruth or a finance director called David. I don’t know how other business owners make decisions, but when it comes to cost-benefit analysis, this type of things usually works for me.
Ross Campbell, The Exercise Club
Last month we talked about starting a business on very limited resources. This time, I would like to think about the problem of having too much time or money.
Having too many resources can distract you. In contrast, when money is tight, you’re focused on just doing what is truly important. In any start up situation, you should only care about discovering two things:
Cracking the above two points and then becoming cashflow positive is the surest route to business success. Failing to focus on this is the surest route to failure, whatever the bank balance. I speak as someone who has not only started their own company, but who has invested in a variety of start ups, some with tremendous success, and one that has been an abject failure.
Two of my investments (actually the ones with the most potential and both of whom have raised millions), are also teetering on the brink of failure. The reason? Too much money, with one having raised more than £10m over several funding rounds. Having too much money encouraged both to try and tackle multiple markets before they had fully established themselves in one. It made them feel that becoming cash positive was an optional extra. After all, they could always raise more capital. And they seem to pay enormous salaries, far above what I pay for higher caliber staff in my own business.
In my opinion the lesson is simple. Focus your efforts on providing what is wanted. Then deliver it at a profit. Don’t do anything else. Becoming profitable as fast as possible makes long term success much more likely.
My first blog post on setting up a business at home proved popular - I thought I would follow it up with some tips on the regulatory side to working from home.
I'm always looking for new topics to blog about so if you have any suggestions - do get in touch or leave a comment below.
If you have an idea for a business and want to progress it, you are probably thinking in earnest about your business plan. If you are looking for outside finance, you are no doubt keen that the business plan will be a great marketing tool for your idea to banks or other investors.
Years ago, when private equity was still called venture capital, I was involved in funding start-ups. I would look through countless business plans, trying to sort the ‘possible’ from the ‘dream-on’ varieties, with a view to investing in the best. Some plans were back-of-the-envelope affairs, with enthusiasm but no financial viability analysis; some described in depth inventive products, but showed no realism with regard to cost of production; others assumed world domination in a few months.
But what really put me off was the business plan that plainly had been written by someone other than the people who were going to make the idea happen. However slick the document, with every possible detail carefully analysed in beautiful spreadsheets, if the words do not reflect the essence of the entrepreneur – his enthusiasm, her conviction the idea will succeed, their commitment to the project – then the proposal will lack that essential ingredient that is the reason for making an investment. The basis of our decisions was mimicry of estate agents’ ‘location, location, location’ replacing the key word with ‘management’. Yes, of course we wanted to see that the projections made sense, and that the amount of investment required was adequate and would be wisely spent; that there was indeed a market for the product or service, and that it would be sold appropriately. But the key was always: is this the right person to make the proposed business succeed?
So if you do use professionals to help compile your business plan, make sure that the final result is imbued with your DNA, and that it convinces the reader why you are the one to turn the plan into the success you describe.
I once interviewed a highly successful and experienced business owner from Northern Ireland. He was a lovely, intelligent man, senior in years, who swore by his “Five Per Cent Plan” – something he said could make a tremendous difference to the profitability of any business. It goes something like this…
Look closely at all of your business expenses and try hard to reduce each one by just five per cent – a reasonably small and achievable figure. That might involve cutting out more waste, using less or driving a harder bargain with your suppliers (many will gladly say yes, if it means hanging on to your custom).
A five per cent saving can be achieved in many areas quite easily, he reckoned, especially when you’ve been in business for a number of years, by which time many inefficiencies can build up. You never know, you might even be able to make greater savings. If a cost makes no tangible contribution to your business, you should eliminate it altogether, of course.
If a five per cent saving isn’t possible, you should aim for four, he advised. If not four, then aim for three. If not three, aim for two. If not two, then just one, but never settle for no saving unless there genuinely is no alternative.
Our friend from Northern Ireland was a plain speaker and a realist. He smiled and conceded that reducing costs, even by just one per cent, would not be possible in every instance. But at least the exercise forces you to seriously consider what you spend your money on, what contribution it makes to your business and whether you’re getting maximum value for money. Continually monitoring expenditure and cutting unnecessary costs are both excellent habits to get into.
Time to focus on your prices. Good knowledge of your customers and competitors is vital, of course, but consider whether at least a five per cent increase is possible on some or all of your prices. Many businesses unnecessarily leave their prices set for many years for fear of losing customers, but this can mean needlessly throwing away profit. If you can enhance your product or service, you might even be able to achieve a greater price increase, providing you can explain how this gives your customers greater value.
Our friend from Northern Ireland recommended employing the “Five Per Cent Plan” at least every six months. Even a seemingly measly five per cent reduction or price increases here and there can seriously improve the profitability and well-being of all businesses, he said. That seems especially important in times like these. I’m sure he’d tell you that.
Start-ups, are you looking into angel investment as a finance option? You need to ensure you’re EIS compliant...
If you are raising capital for a start-up business and you plan to use angel investment, the investors will probably want to know whether the business will be EIS compliant.
The EIS is a government backed scheme that gives tax breaks to investors.
The benefits of investing in an EIS compliant business are principally two-fold:
There are a number of rules about the trade you will carry out and the investors who can make the claim. You accountant will be able to explain in more detail or take a look at the HMRC website for further information http://www.hmrc.gov.uk/eis.
If your planned start-up business ticks the boxes for EIS, make sure that you sell this to potential investors. The investors will feel more secure in the fact that it limits their downside risk and that they won’t have to pay capital gains tax when the business succeeds.
If I can help you further, I will - do get in touch.