Have you considered peer-to-peer funding as part of your funding package?

It doesn’t seem like we can go a week without hearing about how difficult it is for small and medium sized businesses to access finance. The banks issue statements saying that they are lending and are open for business and that there’s a lack of demand but I speak to lots of small and medium sized business owners who tell a different story.

 

Either they have been told by their “relationship” manager that they cannot support any new lending and therefore don’t apply or feel that because of previous conversations there is no point in approaching their bank.

 

It’s usually quite easy to see why the banks are unwilling to support. Maybe; whilst profits are growing they are still not performing as they were four to five years ago, there are no real tangible assets to provide as security and balance sheets are weak maybe due to losses incurred in recent years. More often than not there are usually also no up to date management accounts, no budgets to compare performance to or predict the future and generally a lack of business planning.

 

I believe it is the disconnect between business owner and funder that is the most important problem that we need to solve if we are to help small and medium sized businesses develop and ignite wider economic growth in the UK.  I’m familiar with all of the bank lending schemes but don’t think that a one size fits all approach is what’s needed.

 

My opinion is that small and medium sized business owners need tailored advice that is based on an understanding of their business and their needs and with the knowledge of wider funding solutions available on the market.

 

Whilst some of the support a business will need will come from a high street bank there is now a wide range of alternative (peer-to-peer) funders that can offer flexible solutions, all of which can be combined into an overall funding package. This week I connected with a company called Platform Black who offer a flexible invoice finance product based on a peer-to-peer model. Funding Circle who offer peer-to-peer term loans report funding nearly £96 million via their army of investors whilst crowd cube provides more of an equity based solution.

 

There are solutions out there for small and medium sized business owners whether they are multi-generational businesses or run by give it a go entrepreneurs providing there is a solid idea, good commercial business plan, a passion and desire to succeed. So my advice would be connect with a professional who understands the alternative lending market and who can help find the right mix of funding products for your business and let’s get Britain going again!


A budget for growth…

Over the last couple of weeks I have spoken to three business owners who want to raise cash in order to grow their businesses.

 

Between them their growth plans would see them employ 10 more people and invest around £250,000 in new equipment.

 

After approaching their respective banks all were left feeling demoralised. This is unfortunately a common feeling as banks don’t seem to want to speculatively fund the growth of their customers. On more than one occasion clients have been told to come back in six to nine months when they can demonstrate their plan works and they are achieving their budgets.

 

Chicken and egg…

 

I get really frustrated when I hear this. I appreciate that banks are not equity funders but they should be funding working capital and considering situations where companies are in a growth phase.

 

Balance sheets of these businesses are weak, wearing the scars of a double dip recession and owners have more often than not sacrificed all of their own assets because thy are passionate about what they do and their business.

 

So on hearing the Chancellor announce this was a budget for growth my clients and I were waiting for how the Government we’re going to increase funding into the SME sector.

 

Unfortunately after listening for an hour I was left disappointed that there were no firm commitments to increase the amount of funding made available to SME’s.

 

We did hear more about growth vouchers, up to £5,000 of support for growing businesses to access support and professional advice however, I don’t as yet know much about them!

 

So where from here?

 

Well I’ll be sitting down with my clients reviewing their cash flows and identifying sources of funding suitable for their needs and concentrating heavily on the support peer to peer lenders can provide.


Interesting calculation : Stamp Duty on leases

Working maths early in the morning is not something I do every day but I was determined to crack this little query! When you take out a new lease there is often stamp duty to pay. To work out the value of stamp duty due you can use a calculator on the HMRC website. It’s not that I don’t trust calculators but like our tax software I want to understand the numbers. I wanted to know how it worked. ; So it’s a simple Net Present Value calculation of the rental figures over the term of the lease plus any lease premium. An excel workbook later and I had the calculation but couldn’t find the discount value anywhere. It was suggested by a colleague that LIBOR+1% might work but which LIBOR rate? ; So I used the 3.5% rate on the HMRC example and this worked to the penny! Not a foolproof exercise but at least I understand the rationale behind it! They say tax doesn’t have to be taxing…


Have you considered the tax perspective on buying and selling capital equipment

I’ve spent some time on the blog looking at tax and the requirements to plan ahead. This was focused in particular at actually paying corporation tax but there are other issues that need to be considered. One such issue relates to capital allowances. Capital allowances are HMRC’s standard rates of depreciation and ensure that all businesses depreciate, for tax purposes, their capital spend the same way. However, they are used by the Government as a way to provide tax breaks. One such break is the Annual Investment Allowance which allows capital spend upto a limit to be written off in the year the spend against profits.

 

In the previous budget the rate of the annual investment allowance was reduced from £100,000 per annum to £25,000 from 1st or 6th April (2012) depending on whether you traded as a limited company or sole trader/ partnership.

 

For businesses that are capital intensive there may be a problem due to this reduction. Take for example a business that produces widgets using a specialised piece of equipment that pushes gas into the widget (too technical I know!).

 

The machine cost  £80,000 a year ago. Full allowances were claimed and the business reduced its profits in that year by £80,000 saving tax of around £16,800. The widget business becomes aware of a new widget machine that can double efficiency that costs  £150,000.

 

Assuming a year end of 31 March the business would receive an allowance of £25,000 and then an 18% (transitional rules apply) on the balance, a further £22,500,  £47,500 in total on the new spend.

 

However the deal includes a part exchange of the original machine at  £60,000. Due to the way that the capital allowance system works and because the business has taken advantage of the higher AIA s and first year allowances in the past there is a small capital allowance pool. Therefore when the proceeds of the old machine are processed it leads to a balancing charge on that machine, because the book value for capital allowance purposes is nil, of  £12,000.

This reduces down the tax allowance above to  £35,500.

 

Consider though the impact on a business which is looking to reduce say its fleet of lorries. Selling lorries to release cash might help but the sting in the tail may be the tax charge on the disposal.

 

Therefore when looking to purchase new equipment consider the impact of the changes to the AIA but also consider the tax implications of disposing of capital and equipment at good second hand rates.

 

As an indication of the tax liability you could face should you dispose of your capital and equipment look for the deferred tax liability in your accounts and speak to your accountant. Professional advice is vital when making any decisions that might impact on tax. Please therefore take professional advice from your advisor.


How accurate is the information in your accounting system?

I’ve recently been working with a number of my clients on their management accounts reporting. Whilst a lot of the discussion has been around the measures and numbers I’m mindful that some work remaining, is centred on ensuring that the numbers coming out of their accounts system are accurate.

 

There are lots of different accounting systems to choose from today, some offline and other like XERO in the cloud. All offer simplicity and ease of use however, the accounts and information that they produce are only as good as the information that is put into them.

 

So I would suggest that any review of management accounts information starts with a comprehensive check of the underlying financial systems and procedures; is the bank balanced on a regular basis, is cash checked to what’s in the till or petty cash tin, is depreciation (of fixed assets) posted into the system and are the rates appropriate, are debtor notes reviewed to identify potential bad debts and are they provided for, are prepayments and accruals large enough to worry about on a monthly basis, is the stock  balance updated and Work In Progress adjusted, is the VAT balance checked and are the wages and PAYE/ CIS accounts balanced?

 

Without addressing these points the information you review in your accounting system may not be an accurate reflection of how your business is performing.

 

A good way to ensure the accounts are accurate is to work to a monthly checklist, a list of tasks that you do each month. When I prepare these for clients I always make sure that they are annotated so that there is a handy “how to” next to each item. This helps take the stress out of updating the system each month and ensures you don’t spend a long time thinking about how to enter information.


New report into levels of bank lending

I read with interest this morning that a study by the Federation of Small Businesses (FSB) has revealed that around 42% of all business applications from small businesses are being rejected.

 

Whilst I’m not surprised to see bank lending in the spotlight again it does worry me that 40% of small businesses looking for funding are being turned down.

 

We are told that banks are open for business and will support strong propositions and therefore can we conclude that over 40% of small businesses are too weak to survive? I’m not sure about that.

 

It does however, highlight the need to maintain a strong balance sheet and good business proposition in these turbulent times and look towards alternative funding sources like funding circles for development finance.

 

The FSB report can be accessed here


Business Planning – on a town scale

Six months ago I joined 4 other business owners in the local pub to talk about how we could help develop business and commerce in our town to make it a better place.

 

I didn’t know it then but those gatherings would propel me on a whirlwind journey that would take me from my home in Market Rasen to London to meet and learn from Mary Portas, the queen of shops!

 

Along the way our group has engaged with the business community, consulted widely, grown our group to 57 members, and connected with local community groups and stakeholders.

 

We also created a town transformation plan, wrote an application and filmed a video all of which resulted in us being selected as one of twelve towns out of 371 across the country to become a Portas Pilot.

 

In the short periods of time I have had to reflect on our achievements I have tried to identify the key ingredients that made our plan a success, so I can share my learning’s with the business owners I work with in my day job!

 

Vital elements of our plan were the creative and joined up ideas the group developed. Often when developing a business plan ideas are generated by the owners sometimes with their management teams.  Our ideas were generated off the back of two consultations with over 50 business owners. The ideas were then shaped by a smaller group of 15 who weaved them together into a coherent strategy.  This strategy was finally committed to paper by 2 of us who tried to ensure our plan was clear and communicated effectively.

 

So what can we learn? The most important learning so far for me is that when generating ideas, involve as many people as possible; employees, suppliers, customers and key partners.

 

Then shape the ideas and join the dots to create a coherent strategy.

 

Once our plan had been formulated we spent a long time communicating it to our members and stakeholders so they could see how their ideas had been incorporated into the plan – this encourages ownership and buy-in.

 

Whilst business owners will not want to publicise their plans online, sharing elements internally with employees and with key partners, suppliers and customers could unlock the plan and help it become a real success.

 

My latest nugget of learning came from Mary herself when she encouraged us to think big, and then bigger!  If we’ve learnt anything it has to be that you can think BIG and achieve It!

 

For anybody that is interested in the story of MR BIG why not visit one of our markets to see our ideas in glorious Technicolor reality!

 

More information on this exciting time for Market Rasen and Lincolnshire as a whole, just visit www.marketrasenguide.co.uk/wordpress or follow the team on twitter @MarketRasen_BIG


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