Blog posts tagged Finance

Could vehicle leasing provide the best solution for your business?

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.

Lease is more

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

Funding options for start ups

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

• Amounts: Various depending on size of business and situation
• What is this: Application for a loan submitted to the bank, which then decides if it will lend you the money
• Pros: Tried and tested method with (usually) very transparent terms and conditions
• Cons: These days, vey hard to secure, financials and a good credit history required
• Tax incentives: No

Venture capital trusts

• Amounts: £200,000 per annum to qualify for Relief
• What is this:  Invest indirectly in a range of small higher risk companies whose shares and securities are not listed on a recognised stock exchange.
• Pros: There are VCT companies out there looking for companies to invest in and it is a tried and tested method offering the incentive of tax reliefs to potential investors
• Cons: Must be approved by HMRC and there are various conditions that have to be met
• Tax incentives: Yes -   no tax on dividends from VCTs, income tax relief of 30% of amount invested; capital gains relief  (very brief summary; there are rules & qualifications to note)

Crowd funding and peer-to-peer lending

• Amounts: Usually from £5,000 to 250,000 but can be for larger amounts
• What is this: Individuals or companies can put in their funds in return for a share of equity in your business
• Pros: Removes the risk of having one main investor, also the individuals investing may act as advocates and supporters of the business
• Cons: More admin involved, as more investors to communicate with
• Examples: Banktothefuture.com, Crowdcube, funding circle, Seedrs and Kickstarter, Zopa
• Tax incentives: Many of the projects may qualify for EIS or Seed EIS schemes and entrepreneurs’ relief

Business Angels

• Amounts: Various depending on the project and the Angel but usually below £500,000
• What is this: You offer shares in your company for money from an Angel(s)
• Pros: It can be a cheaper method and you could find an Angel with expertise in your industry who may add value as well as a  cash injection. They are likely to be much more ‘hands-on’
• Cons: Depending on the funds you require you may end up giving up a significant share of your business, which can cause issues with control and strategy. You may not want a hands-on approach from your investor
• Examples: Angel CoFund, Angelsden
• Tax incentives: Possible qualification for EIS, Seed EIS and Entrepreneurs relief

Grants

• Amounts: Various depending on type of project – industry and political agendas
• What is this: Government bodies and charity groups or industry bodies reserve funds for specific grants which individuals or businesses can apply for; usually focused around innovation, energy saving and job creation.
• Pros: Possible to obtain resources or funding at nil cost
• Cons: Hard to find, process and conditions can be complex and confusing
• Tax incentives: Depends on the type of grant

By Erin Walls of Ward Williams Chartered Accountants 

Eight tips on attracting investment for your business

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 

7. Listen

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.

Getting business funding when times are hard

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!

• Written by Kimberley de Jong from j4bGrants.co.uk

Spend wisely at the start

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.

1. For a business with any risk, forming a limited liability company is a must. Then if the business goes down, loans and debts owed by the company won’t follow you. So set up a company by searching for “Company formation” on Google. It’s unbelievably cheap.
2. There are other things to consider too. You need to keep all of your paperwork, including sales invoices and supplier charges, so that you will be able to do accounts and tax returns. But this doesn’t mean setting up a complex and expensive accounting system. It means employing a cheap book keeper for a few hours a week, or even keeping all of the paperwork in one tidy pile, so you or an accountant will be able to do the accounts when the time comes around.
3. Registering for VAT, the Data Protection Act and possibly other specialist health and safety laws are other start up activities. Do these at the minimum possible cost and effort. These are overheads, not keys to your business success. You can nearly always find out everything you need to know with a few hours of research online. Everything possible like this should wait if it can.
4. Don’t spend money on things that you don’t need yet. In a start up situation, tomorrow can take care of itself. The critical thing is to concentrate your money on getting your product right, making sure that your customers are happy, then selling like crazy. This is much more important than a slick operation. I’ve seen a number of people spend precious resources on preparing for massive success, only to have that success elude them because not enough attention was paid to sales growth.
5. When you have a growing business with satisfied customers, then it’s the time to get better organised. As you grow, you will need to invest in systems to maintain quality, and you should also be able to drive down costs as a proportion of your sales. But all of that is for later.

It sounds easy, which it isn’t. However, following these tips will increase your chances of success. Good luck.

In summary:

• Spend the minimum on being legal and decent
• Focus on getting something customers want, and make sure that they are happy
• With that core in place, sell, sell, sell
• With sales growing strongly, invest in operations to maintain service and reduce costs

Chris Barling is CEO of ecommerce software supplier Actinic

The importance of family and friends when starting a business

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.

Chris Barling is Chairman of ecommerce software supplier SellerDeck

Managing my business finances

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

Small business finance - so where’s the money, then?

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

Getting to grips with cashflow

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.

Notes from a ‘board meeting’ (9/2/2010)

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

How to set up a business at home - regulatory

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.

1. Decide whether to trade as a sole trader or to set up a limited company.
2. Incorporate a company using a formation agent (e.g. @UKplc) or an accountant. This is easy and you should not have to pay more than £150 - including disbursements.
3. As a sole trader, you will need to register as self employed with HM Revenue & Customs.
4. You will be able to offset a portion of your home costs against your profits. This is a great way of reducing tax.
5. VAT registration – this is compulsory if your sales are greater than £70,000. You can register voluntarily if wish to reclaim VAT suffered on purchases. It’s a complex area and you should seek the advice of an accountant. Make sure your accountant is set up to register and file returns online for you.
6. PAYE registration – you will need to do this if you plan to pay yourself and/or your staff a salary. Again, use an accountant and make sure that the accountant is set up to make all the necessary submissions online.
7. Home insurance – make sure that your building and contents policy covers you for working from home. Similarly, make sure that your car insurance covers business use. There should be no/minimal extra cost.
8. Liability insurance – if you need it, you might want to make sure that it covers Public Liability Insurance at your home, particularly if you plan to regularly host clients, suppliers and/or staff.
9. Business Rates – there is an element of scale to consider here – you on a laptop on the sofa is not a problem. Five staff turning up every day to work in the spare-room may be. If in doubt, check out your local council’s position.
10. Registered Office – if you set up a company, you will need to have an “official” address. If you use your home address, you will need to display the company name outside your front door. The sign can be business card size. Alternatively, use your accountant or virtual office service.
11. Make a note in your diary of the dates and deadlines that matter – particularly on the submission of official documents - because you get fined if you are late.

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.

Introducing the Five Per Cent Plan

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.