Business Finance Archives - Small Business Insider

Invoice finance – a brief guide

Posted on October 21, 2019 Written by Administrator

The recent annual report by the British Business Bank on Small Business Finance Markets revealed that asset finance for small and medium-sized businesses (SMEs) grew by 3% during the period 2018/2019.

Indeed, in 2017 alone some £32 billion was advanced to British businesses in the form of asset finance.

But what exactly is asset finance?

Asset finance

The Merchant Advice Service explains that asset finance allows a business to borrow funds against the value of assets it already owns. The repayment of that borrowing may be spread over several years – so bringing within the company’s grasp otherwise unaffordable equipment, to raise needed working capital or to smooth over temporary cashflow problems.

One of the most valuable assets held by any company, large or small, are its invoices receivable from creditors for goods and services supplied. That asset may be used to raise invoice finance.

Invoice finance

Invoice finance relies on the value of those invoices receivable by effectively selling them to a third party and repaying the sum advanced by way of that sale as and when the invoices are paid.

Invoice finance, in turn, may come in two different forms:

Invoice discounting

the finance provider advances an agreed percentage of the value of your invoices receivable – up to 90% of their value in some cases;

you remain responsible for the collection of outstanding invoices and repay the lender – together with interest (in this case called a “discount charge”) as you bank the receipts each month;

Factoring

in this form of invoice finance, the provider is called a “factor”;

the factor not only advances a percentage of the value of your invoices receivable but also assumes the task of collecting them from your creditors;

once the factor has received payment of those invoices, he will deduct repayment of your advance, plus the costs of the service provided, before returning to you the balance of payments received.

It may be seen that invoice financing is a form of borrowing – using the asset represented by your invoices receivable as security against the loan.

Unlike business loans, however, invoice finance is a more flexible way of borrowing. Repayments of the advance are made as and when payment of the invoices is collected. Repayment is directly proportional to the success of your business in terms of the invoices raised and paid.

Costs

Invoice finance – like any other type of borrowing – comes at a cost, of course. It is not regulated by the Financial Conduct Authority (FCA), but the Asset Based Finance Association (ABFA) – now incorporated into UK Finance – maintains an industry-wide code of conduct. By choosing one of its registered members, therefore, you may be re-assured of reasonable costs.

These might comprise:

a service charge – which covers the provider’s administration, management, and invoice collection costs and are typically charged as a percentage of the turnover of your business (generally, at a rate of between 0.75% and 2.5%); and

a discount charge – is a fee proportional to the sum you draw down against your invoices receivable. It is typically calculated daily and is applied immediately after the money is advanced – currently at a rate of between 1% and 3% over the Bank of England base rate.

Given its flexibility and the reasonable costs involved, invoice finance proves a widely popular method for businesses to raise the funding needed for all manner of operations.

Considering Invoice finance? Speak to Nick at Peak Business Finance

Crowdfunding has nothing to do with fundraising say 52% of start-ups in new survey

Posted on August 15, 2019 Written by Administrator

Why do start-ups use crowdfunding? You might think the answer is obvious but a recent survey we commissioned found some surprising answers. Our report reveals that over half of all businesses undertaking a crowdfunding campaign within the past three years did not rank raising capital as their key motivator.

The findings reflect issues with market perception among growth businesses as to what crowdfunding can do for them. It seems that the perceptions in the market are out of sync with the realities of what is actually happening. What is the next effect? Estimates of success rates indicate that they are as low as 45-55%.

Crowdfunding and ‘free marketing’ myth

Fifty-two per cent of respondents in the survey of 200 said that ‘brand exposure/customer acquisition/PR’ was a primary reason they decided to crowdfund with 24% giving it top ranking. However, when asked what they liked about crowdfunding after having run a campaign this drops dramatically with only 12% giving it a rank of number one. This indicates that expectations of ‘free marketing’ and swathes of new customers aren’t being met.

Beyond expectations, brand exposure through a crowdfunding website isn’t free for companies who are paying upfront fees and/or success fees.

The cost of internal resources on running the campaign are significant. On top of that, if you consider that the average raise in this sample was £332,300 and the average success fee in the market is 3 – 7%, cash-strapped companies would be paying £9,969 to over £23,000 in untargeted marketing spend.

Only 27% of respondents listed access to investors as their primary motive; putting it in 5^th position after: a perceived high success rate, the ability to provide their community with a stake in the business, the reputation of the crowdfunding site and it being a quick way to raise funds.

Why you need your own network

The myth of ‘free marketing’ was only one of many misconceptions uncovered by the survey. The data also clearly show that start-ups are still unaware of what is required to succeed at crowdfunding. When asked what companies liked about working with crowdfunding site, the ability to raise money through family and friends, received a low ranking for 60% of respondents. The reality is that most crowdfunding websites require companies to be a percentage funded before they gain access to the site’s investors and ‘go live’, so this is a critical part of every fundraise. It’s clear that this is not well understood in the market.

Most companies don’t understand just how difficult it is to raise equity. The market perception, that you can approach a crowdfunding website and just sit back and watch the investment pour in, persists. We need to educate start-ups that this is not the case. Naturally crowdfunding sites offer many advantages and there are some great success stories; however, the survey data shows us that companies are still not aware at just how much planning and legwork they themselves have to do.

Start-ups say crowdfunding needs to evolve

Despite the challenges, the idea of crowdfunding is here to stay with 71% of those who’d successfully raised funds indicating they would use the method again and 44% of those who didn’t meet with success saying that they would give it another try.

However, companies cited issues with the current model, namely; lack of control over who views business documents (42%), the inability to communicate directly with investors (38%), paying success fees for investment generated independently from my own sources (28%) and investors being charged to invest (28%).

With these frustrations, 80% of successful companies indicated they were ready for new approach – namely an off-the-shelf website that they could brand and control themselves in order to fundraise.

Crowdfunding is an excellent idea, but it hasn’t evolved since its start in 2011. Companies have grown in maturity since then and this is exactly why we developed Envestry for Scale-ups, our white-label, FCA regulated fundraising platform that empowers our companies – not the facilitators – to control their fundraise.

The survey was undertaken for us, In April 2019, by independent research specialist Coleman Parks. The participants who took part were two hundred businesses who’d used crowdfunding for equity financing within the past three years. If you’d like to read more you can access the report here: http://casestudies.envestors.co.uk.pages.services/Envestors-Crowdfunding-Survey/?ts=1563954577806

ABOUT THE AUTHOR

Scott Haughton is COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.

Envestry has raised £100m+ for over 200 companies through its own private investor network.

Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

Facebook: https://www.facebook.com/pg/envestorslondon/posts/

The new approach to business fundraising

Posted on August 7, 2019 Written by Administrator

When you need to raise funds for business growth have you ever considered that you may be reducing your chances of success by using a model where time is limited arbitrarily?

Time is needed to raise capital and growth businesses are now realising the benefits of Always-on Fundraising, in which companies leave themselves open for investment 365 days a year.

An open funding round provides an opportunity to capitalise on any unexpected successes, gives the entrepreneur the best chance of finding their perfect investor(s) and with an investor relations mindset being a constant, follow-on funding. As the days of traditional, time-limited funding round are numbered let’s look at what you need to do to make the ‘always on’ model work for you and your business

Always on Fundraising – What needs to be done?

How does ‘Always on’ work in practical terms? While the concept is radically different some of the early steps will have a sense of familiarity, but you are looking at them through a different lens. Here are five key areas of activity:

What is your investment opportunity?

You need to start by defining your investment opportunity which includes deal structure, valuation, share price and your minimum and maximum investment levels.

Even though you’re ‘Always on’, you must have clearly defined investment levels. This benefits all parties. Your minimum investment level protects investors by ensuring that you have a significant cashflow runway to execute on your plans and projections while the maximum level dictates the total number of shares you are willing to sell at that price, protecting the shareholders from dilution.

Get the right tools in place

You need an FCA-regulated environment in order to promote your investment opportunity, accept pledges and draw investment. The new breed of White-label platforms like Envestry for Scale-ups, provide off-the-shelf functionality to allow companies to create a branded fundraising portal that easily links to their current site. With FCA-coverage built-in, companies can focus on the hard work of attracting investment rather than regulatory fine print.

Promote, promote and promote

With your fundraising site up and running, it’s time to promote your investment opportunity. Before you do anything, think about the investor journey by type. For example, personal connections who may be new to investing will need more guidance as they go through the process than experienced investors. To accommodate those new to investing, how-to guides, investment glossaries and frequently asked questions are imperative. Whereas, your communications to experienced investors can focus on the why instead of the what.

Have a first close

Once you hit your minimum investment level, you can do a first close and draw down the pledges, while keeping your round open. This allows you to start fuelling your growth while continuing to attract investment to your maximum level. Up until you reach your maximum you can continue to draw down funds at significant intervals as they come in.

Close a round; open the next

While the name ‘Always on’ might imply one continuous round, the best way of using this approach is via a series of back to back rounds (tranches). As a growing business you will want to change your valuation and share price to reflect the progress you have made. It is worth noting that on rare occasions businesses may also reduce share price, known as a ‘down round’.

So, when is the best time to close one round and open another one? Clearly, once maximum investment level has been reached, the round will have to be closed. Beyond that, anything significant which justifies an increase in valuation, such as a securing a large new contract, reaching a customer milestone or securing regulatory approval on a product, should prompt you to close the round and open a new round at a higher share price.

It makes a lot of sense for businesses to use the Always on Model particularly if they are generally raising funds every six to eighteen months. In future I expect it to be the norm for all companies from seed through to sale to have a section of their website devoted to ‘investor relations’. A section which should attract interest from both loyal and new investors.

ABOUT THE AUTHOR

Envestry has raised £100m+ for over 200 companies through its own private investor network.

Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

Facebook: https://www.facebook.com/pg/envestorslondon/posts/

How to get your company through the equity crowdfunding due diligence process

Posted on July 10, 2019 Written by Administrator

Equity crowdfunding presents a fantastic opportunity for early and growth stage companies to gain essential funding, raise awareness amongst the investor community and gain a tribe of loyal supporters.

To unaccustomed eyes, it might look like companies simply post their pitch on an equity crowdfunding platform, such as Seedrs and Crowdcube, and gain investment. However, that’s not the whole story – there are many preceding steps that determine whether a company can even get listed.

When investors browse any reputable platform, they can be confident that the investment opportunities are fairly sound. Investors know that giving their financial backing to any company comes with a risk but they take comfort in the fact that platforms apply their own due diligence process to every prospective campaign.

In other words, the platform looks very carefully at every claim the company makes – and I mean every claim – to make sure it is accurate, can be evidenced, and isn’t in any way misleading. This will include all the content on your pitch page, including your video and team bios. It’s only after this rigorous vetting process that the platform will allow a company to pitch an opportunity to investors.

Frequently unaware of the challenge ahead, many companies fail due diligence and end up significantly delaying their campaign. Rather than deliberately trying to mislead the platform, failure is often due to being unable to evidence claims.

Here are a few tips to give your company the best chance of getting past the crucial due diligence stage and speeding up what can sometimes be a glacial process:

Team bios – be prepared to evidence your team’s credentials

When investors are deciding whether to back your company, they pay close attention to your team’s credentials. For this reason, team bios are an essential part of any equity crowdfunding pitch.

Claims made in team bios often delay the due diligence process more than any other section of the pitch. It comes back to the fact that you have to evidence every claim you make – including your team’s career history. If any of the bios cite “20 years’ experience in marketing” or “spent two decades working as an accountant”, be expected to be asked for evidence going back 20 years to demonstrate this, including tax returns and payslips.

A better approach can be to pull out actual examples of companies your team members have worked for or concrete, provable achievements they made during their tenure. Again, these will have to be evidenced, and you can’t use LinkedIn or a CV!

So, a green technology company claiming that they used to work for the Environment Agency or the National Grid, for example, may need to show a contract or an email from the employer stating that they worked there, how long for, and what role they played.

Likewise, the CEO of a new challenger brand claiming they founded a company and sold it for £5 million will have to provide the documentation to prove the date they founded it and the sale price.

It’s also key to avoid vague statements or exaggerations, instead opting for clear, verifiable facts.

Former employers tend to take ages to get back and, as the platform will definitely ask you for their reference, it’s really worth chasing them up before you’ve even submitted your pitch page.

Know your market, check your numbers,

Unsurprisingly, investors will want to see some numbers to give them an idea of how your company is performing, a picture of the overall market, and how you can further tap into it.

It might sound impressive that you made 10,000 sales last month, or achieved a 300% sales growth in just one year, but can you demonstrate it? If you’re making claims like this, you’ll have to offer the platform a complete list of your sales and show your working.

As such, it’s important to keep your numbers in order. Even if your company is not yet profitable, you’ll need to prove that there’s interest in your product or service amongst your market. Finding reputable stats which show that X% of consumers complain about a problem you have a solution to can prove very useful.

It’s also worth locating original source industry figures which show how big your market is, including the current and projected future trends. Identifying and naming your competition in any documents you’re presenting to investors, and certainly in any docs you’ll be attaching to your pitch page, is another must.

Claiming that you have a one of a kind product or service when there’s competition out there will suggest that you either haven’t done your research or are trying to pretend that you don’t have any competitors.

Videos are not exempt from fact-checking

A key part of any pitch, your pitch video will allow you to communicate the opportunity you’re offering, the character of your brand and the expertise of your team in just a few minutes. Of course, many claims can be made in a short time, and just like any other document you’ll include in your pitch, your video will have to get past due diligence.

Companies that have made their videos in advance of the due diligence process can often fall into trouble. Any claims they can’t prove must be cut, and if they are many, the video will have to be redone, wasting time and money.

Unless you’re confident that you can evidence every claim, then it’s best to hold fire on making a video before you begin due diligence. This way you can write the script, show it to the platform, and ensure that they have no qualms with what you’ll be communicating to investors.

Obviously, you will need to highlight any claims that will feature as on-screen graphics in your script when you show it to the platform, too.

So, make sure you treat your script like any other text you’ll be submitting to the platform. Analyse it line by line, have the clear evidence to hand, and you should be able to breeze through due diligence.

The due diligence process can be tough, and at times, frustrating. It’s also a crash course in how to get your house in order and hone your knowledge of your business and market in a matter of weeks. Trust me, it’ll act as the perfect training – you’ll be vetted all over again by many inquisitive investors once your campaign is live!

If you follow this advice, be clear and transparent and start as early as possible, I’m sure you’ll have little trouble getting past due diligence. What’s more, if you have all the evidence to hand, the due diligence team at your chosen equity crowdfunding platform will absolutely love you.

Best of luck with this crucial stage!

ABOUT THE AUTHOR

John Auckland is a crowdfunding specialist and founder of TribeFirst, a global equity crowdfunding communications agency that has helped raise in excess of £17m for over 50 companies on major equity crowdfunding platforms, with a greater than 90% success rate. TribeFirst is the world’s first dedicated marketing communications agency to support equity crowdfunding campaigns and the first in the UK to provide PR and Marketing campaigns on a mainly risk/reward basis.

John is also Virgin StartUp’s crowdfunding trainer and consultant, helping them to run branded workshops, webinars and programmes on crowdfunding. John is passionate about working with start-ups and sees crowdfunding as more than just raising funds; it’s an opportunity to build a loyal tribe of lifelong customers.

Web: http://www.tribefirst.co.uk

Twitter: @Tribe1st

The impact of digital technology on early stage investing

Posted on June 13, 2019 Written by Administrator

Early-stage investing has always been a very human endeavour, after all matching businesses and investors is all about relationships. So, it’s no surprise that the adoption of digital in this space has been slower than it has been in other industries.

But the sector is now waking up to the idea that digital does not mean impersonal. In fact, it can help people to build deeper relationships, faster. Digital goes this by providing new ways to communicate, share information and ultimately makes finding the right opportunity and deciding to invest easier process for investors.

Two ways digital will transform the world of early-stage investing:

Making it considerably easier for investors to discover deals, complete due diligence and manage their portfolios

In early-stage investments, offline activity is still primary. This is set to change with the introduction of white-label investment management platforms like Envestry for Networks. These platforms allow groups to showcase deals to their investors, in an FCA-regulated environment. Investors can review deal information and documents in a secure area, engage with the management team and other investors and make an investment.

The suggestion here is not that digital will replace offline activities; presentation events and face-to-face meetings will always play a crucial role in any investment decision. Digital will complement these activities in a way that makes the entire end-to-end experience much better for investors.

Connecting the disparate world of early-stage investing

The landscape we have today is the same landscape we had fifty years ago. We’ve got investment networks, clubs, incubators and accelerators, all of whom actively help investors to find opportunities and scale-ups to secure funding – but they are all closed and separate. Our vision for the future is one in which all these groups connect to one another, without sacrificing control or independence. We’ve built a software platform to do just that. Using an aggregated approach, we can bring the world of early-stage investing together in a way that benefits all of those involved.

For scale ups, it means working with one party and gaining wide exposure rather than promoting a deal through a number of disparate networks. For investors, it means having access to a near unlimited number of deals, all filtered according to interest and managed in a single location – regardless of network of origin. For investment facilitators, it means a greatly improved experience for their investors and decreased operational overheads.

But why is now the time? I’ve delved into the market and industry trends to show why I think 2019 is the year that early-stage investing truly adopts digital.

Results – instantly

Instant gratification spans all areas of our lives: instantaneous validation on Twitter, one-hour Amazon delivery, and 24-hour news. So why should the investment experience be any different? If I can find out about anything in the world from wherever I happen to be, why should I – as an investor – wait for a pitch session to find out about investment opportunities?

The ROBO Effect

Borrowing a term from the retail industry, ROBO (Research Online, Buy Offline) reflects a broad behavioural change. People no longer head to a shopping centre to browse for an item, they go online and find what they want and then go down to the store to get it. In many cases, they opt not to go to the store, satisfied with the information they have found online, and make an immediate purchase. This behaviour isn’t particular to consumers: a study, by Forrester Research, found that 68% of business to business buyers researched online independently and a further 62% say they go as far as developing a selection criteria and vendor list based on digital content.

So, why is it different with investing? When people prefer to get information instantaneously and independently, why do we ask them to wait for a pitch event? Using digital, information on potential investment opportunities and any relevant details can be ready for investors to read at their leisure. Further to that, information can be interactive. Potential investors can ask management teams questions – using online channels – and get answers in real time.

Seeking a diverse portfolio

Digitisation has fuelled the unprecedented growth of start-ups in the UK. This has produced a vast – and occasionally overwhelming – array of opportunities, resulting in a trend showing networks are becoming more niche and sector specific. While regional investment networks have long been part of the landscape, they are joined by networks specialising in – for example – Greentech, MedTech or women-owned businesses. This is not a bad thing, but it has caused further fragmentation.

Experienced investors know, that if they are to get the best chance of a return on their investments, a diverse portfolio is a must. However, such specificity throws diversity out the window, leaving investors only one option – joining multiple networks and doing a lot of leg work to build and manage their portfolios.

Digital to the rescue. With an aggregated platform, regional and niche networks can connect to one another and share deals at the click of a button. This allows networks to protect their greatest asset – their investors – while offering them a broader array of investment opportunities without doing all of the vetting and admin.

Uncertainly factor

By mid-2018, the impact of a looming Brexit was already starting to be felt across the industry. With predictions of economic troubles in the UK in the short term, many investors tightened their purse strings, becoming increasingly selective over which investments to make. Yet, at the same time, reports show that foreign investment is at an all-time high: in 2017, a whopping £6bn was invested over the course of the year, with 396 of these deals involving at least one investor from abroad.

This is another opportunity that could be capitalised by digital. With a digital platform, deals can flow across borders – giving investors the ability to further diversify their portfolios, while giving businesses a better opportunity to find investment.

It’s time to follow the leaders in the field and adopt digital in early stage investing. The sector will reap the benefits.

Key players, like The SetSquared Partnership and Britbots, are already well on their way to adopting digital. Digital disruption has begun so as entrepreneurs and investors you can take advantage of the many benefits.

About the Author

Oliver is CEO and Co-founder of Envestors. Oliver sits on the Board of the UK Crowdfunding Association (UKCFA) and sat on the Board of the UK Business Angels Association (UKBAA) from 2006 to 2014. He is also a Member of Court at Imperial College (London). After completing a degree in Finance, Oliver decided not to become an accountant but instead raised equity and bank debt to start Woolleys Healthfoods. The business comprised three retail catering outlets in central London, three organic sausage shops and a factory in the south-east of England, which wholesaled to 200 establishments including Harrods. In 1997 he sold the business to Northern Foods and moved into early-stage investing.

Web: https://www.envestors.co.uk/

LinkedIn: https://www.linkedin.com/company/envestors-llp/

Twitter: @EnvestorsLondon

Facebook: https://www.facebook.com/pg/envestorslondon/posts/

Business finance options

Posted on May 31, 2019 Written by Administrator

Business finance is the money any business needs in order to run its operations.

Not only is finance required the moment you start up a company, but also throughout various stages of its development and growth – ensuring that there is enough money to pay your staff and for the supplies materials and equipment needed to produce the goods and services you sell.

Additional finance may also be required – often at short notice – to meet new business opportunities which might suddenly emerge and call for you to launch marketing campaigns to support a new venture, re-stock and re-equip, perhaps set up a new office in another town, or make sure your day to day cashflow is suitably balanced.

Where it comes from

So, where does that much-needed business finance come from?

In the very early days of company formation and start-up, sufficient finance might be found from your own personal resources or those of family and friends.

As the business grows and the demands for finance become more pressing, however, personal sources are likely to be exhausted and you must look elsewhere. That search may take you in one of two directions:

Equity finance

if there is still some apparent risk in the longer-term success of your business, you might want to consider equity investment – investment made in return for a share in the ownership and decision-making of your business;

sources of equity finance range from private investors, business angels and venture capital – but all involve your sharing ownership in your business and, with it perhaps, some loss of independence in the way that it is run;

Debt finance

for that reason, many businesses prefer debt finance – borrowing the necessary funds and repaying the loan over an agreed period of time;

if an especially large sum needs to be borrowed – by way of a mortgage, for the purchase of new or additional premises, for example – the loan may need to be secured against company assets and the repayment term spread over several tens of years;

secured debt finance over a substantial term, of course, attracts a considerable amount in interest – and if the rate is variable, it may become more difficult to manage and budget for the regular repayment instalments;

in many instances, rather less needs to be borrowed – in the range of, say, £15,000 to £100,000 – and repayments may be scheduled over the relatively short-term of between three and 12 months, so attracting a far less amount of interest;

business finance on these terms is typically unsecured – so none of your company’s assets are at risk – and the rate of interest is usually fixed throughout the borrowing term;

a fixed rate of interest ensures that the monthly repayments are equal and entirely predictable, allowing you to make the necessary budgetary arrangements for your expenditure with ease;

thanks to the online systems developed by some such lenders, short-term, fixed-rate, unsecured loans may be arranged in a matter of days, with a decision in principle given by some lenders in a matter of minutes and, subject to the approval of your formal application, the requested funds transferred directly to your company bank account within just 48 hours or so.

Business finance options, therefore, are many and varied, in the form of both equity and debt finance. Depending on the amount you want to borrow and the timescale within which you want to repay it, short-term business finance in the form of a business loan may prove the way forward.

How to understand your business numbers and learn to love them

Posted on May 31, 2019 Written by Administrator

Numbers are the language of business so if you tend to shy away from them it’s time to face your fear and learn to love your accounts. Here are some tips for understanding your business numbers and using them for your decision making.

1. Are You Making Money?

You can check if your business is profitable by looking at the profit and loss account. scroll down to the bottom figure which will show a profit (positive figure) or a loss (negative figure).

Then look at the top figure (the sales) and quickly glance through the list of expenses.

Take the bottom figure (let’s assume its £15,000 profit) and divide it by the top figure (assume £100,000 sales). This will give you 0.15 which means for every £1 of income, you are generating 15p in net profit.

How does the £15,000 profit compare with what you had in mind? And does the 15% net profit margin deliver the right return for you?

2. What state is the business in?

Does the business have a positive balance sheet value? You find out by looking at the balance sheet statement which shows what your business has and what it owes. Scroll down and make a note of the last number. It’s normally called capital and reserves. Is that figure positive or negative? A positive figure means your business has some value.

A negative figure is a red flag. Start by taking action to improve profits!

When looking at your balance sheet ask simple questions like; is this how much I owe my creditors? is this how much my customers owe me? If the amount your customers owe you is higher, get the debtors list, review and start making calls.

3. Where is the cash?

Say your profit figure shows £15,000 but your bank balance is only £3,000. Where did the £12,000 go? Another financial statement, the cashflow statement reconciles your cash to your profit. But if you don’t get this here’s what to check:

Have your customers paid you late?

Have you drawn more money or dividends out?

Have you paid your suppliers early?

Have you purchased some equipment?

If you answer yes to any of these, that may be where the £12,000 is sitting.

4. What do the trends reveal?

Compare the current year or the current month’s figures to the previous year or month to make sure you are progressing towards your milestones and to spot any anomalies.

Nearly every business decision you make turns into a number. If your phone costs have gone down by 30%, compared to last year, ask yourself why. What’s the story behind this number? Is this because of the cost cutting decision you made a year ago? Or the change in tariff decision? Trends are your friends.

5. What’s your gross margin?

Gross profit margin is an important number to calculate. The next time you get your accounts, take the direct costs of sales or direct expenses (variable costs) from the revenue. Then divide that number by the revenue. That is your gross profit margin.

If your revenue is £100,000 and your materials or direct labour or direct expenses are £70,000: the difference of £30,000 divided by £100,000 revenue gives you a margin of 30%. So, for every £1 of sale, you’re making 30p in gross profit. This tells you how profitable you are at the gross margin level and whether your business model works.

Here are two red flags. If you’re making £30,000 in gross profit but your fixed costs are £35,000, something needs to change. If your margin is far below the industry average, you need to understand why and take corrective action.

6. What Is Your Breakeven Point?

The reason you need an idea of your breakeven number is so that you know how much income to make to cover all your costs.

How do you get this number from your accounts? You will need your total fixed costs. These are the costs that do not change regardless of the amount of sales you make e.g. rent, admin team costs, rates. In your profit and loss account, it should be most items listed under admin expenses (do watch out for any variable costs that find their way under admin costs).

You then need the gross profit margin. You divide the total fixed costs by the gross profit margin and this tells you the amount of sales you need to make at any given period to cover all your costs.

7. How Much Is Your Business Worth?

You now know how to get and make sense of your profit figure. You also know what to look out for when you review your balance sheet and the meaning of the balance sheet value. And how to look out for the cash drain in your business. Did you know that these give you a starting point in measuring the value of your business?

Healthy profits, good cashflow and positive balance sheet values are all good signs of a valuable business. Of course, there are many other factors to consider when valuing your business and other key drivers of business value. However knowing how to read your accounts and what the numbers mean certainly puts you in a pole position. It also helps you make the right decision with regards to building the value of your business.

In conclusion

I hope the information above will help you make sense of your numbers. There are other key numbers to review so it is important to have regular sessions with your accountant and ask plenty of questions. That way not only will you understand your numbers you’ll learn to love them as they help you with your business decision-making.

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered accountant and tax adviser who advises entrepreneurs on business improvement and tax optimisation. Jonathan is the founder and CEO of The Tax Guys.

www.thetaxguys.co.uk

Future of Fundraising – four trends putting entrepreneurs in control

Posted on May 31, 2019 Written by Administrator

Digital crowdfunding sites have transformed fundraising in the 21^st century and have turned customers, family and friends into investors though this started much earlier – the true genius is the multitasking Mozart. In 1793 and lacking the cash to perform three new concertos in Vienna, he made an appeal for funds and was rewarded by a ‘crowd’ of 176, each of whom received a copy of the concerto manuscripts as their prize.

However, the one problem – that has existed over the centuries – is that no matter who invests in you or how you come by your shareholders, you’ve always needed a middleman. By default, these facilitators have controlled the fundraise, from the introductions and presentations to the length of the campaigns. Until now.

2019 technology offers a solution: digital is allowing start-up and scaleups to take back the reins of their rounds, with the ability to fundraise through a fully personalised platform – within an FCA regulated space. This can include an investor relations portal and the freedom to fundraise – if required or desired – all day, every day. This means that for the first time, business owners are in charge and that changes everything. Here are four key trends that are shaping the future of fundraising.

1 ‘The death of fixed funding rounds

Traditional fundraising rounds usually last between 30 – 60 days. However, this approach will soon be consigned to history, as the new breed of owned funding platforms enable scaleups to stay open to capital throughout their entire growth cycle, from seed to exit.

All savvy entrepreneurs know that time is key in getting funding: finding the right investor – and vice versa, for the right investor to find the perfect deal – can be a lengthy process and opportunities can easily be missed if you’re facing a strict deadline. Another bonus is that it allows a company to take advantage of any unexpected successes – a significant hiring, a valuable contract, an unexpected piece of publicity… anything that creates a ‘buzz’ is attractive to new investors.

A perfect example is provided by Zap&Go: BBC Click aired a feature about their superfast charging technology giving them some excellent publicity. Through their funding platform, Envestry for Scaleups, they were able to capitalise on this by extending their funding round by six months. They subsequently raised £500,000.

2 Investor relations – essential expertise

Investors hate being treated like an ATM. The stories of being wined and dined during the intense windows of raising finance, only to be dropped once the money is in, are myriad. However, if the fundraising mindset is always on, the investor relations (IR) mindset is always on, meaning that your investors are kept warm and ready to invest in your future rounds. In order to maintain this, CMOs will need to be experts in investor relations; digital tools can help with this. By simply having a dedicated system to post regular updates to your shareholders – whether the news is good, bad or atrocious – creates an inclusive sense of community that goes far beyond just driving sales and making money.

In particular, crowdfunded investors may well have given you their money (which can be as low as a pledge of £10) because they strongly identify with your brand and vision – these people are your biggest cheerleaders (think the Brewdog ‘Equity for Punks’ success); if you look after them, they’ll talk about it and this can will benefit everybody. Likewise, when you’re struggling – if you actually tell them about it, they’ll be the first to offer to help.

3 increasing the international pool of investors

According to statistics released by Beauhurst, in 2017 UK scaleups received £6bn in overseas funding, with 396 deals featuring at least one foreign investor. Trends indicate that this figure will continue to rise, with the biggest increase coming from Indian investors, up 321% from 2016.

Gone are the days of exhausting presentations abroad and pitch video conferencing as the sole means to attract foreign investment: geography-agnostic digital platforms make it easy for entrepreneurs to fundraise beyond their own borders. Not only do they provide a bigger pool of potential backers, they also safeguard against any political or fiscal uncertainty in the UK. Quite simply, diverse investors from a wide range of economies, spreads – and therefore reduces – the risks.

4 Making the secondary market mainstream

Even in 2019, the investment landscape is still lacking in secondary market opportunities for early stage companies. The primary market – companies selling directly to investors – means that an investor must have sufficient capital to lock their money in a company’s shares for however long it takes for the business to exit – an average of at least six years – before they see any returns.

The secondary market, however, enables a shareholder to sell directly to another private party and although a few companies have started to offer this, it’s a concept that is still very much in its infancy. However, it’s naturally very attractive to investors and digital provides the necessary tools to make it mainstream: a controlled, secure portal of reporting, agreements and accounting will allow stakeholders to communicate with each other, in turn leading to opportunities to buy and sell their shares. We predict that this will soon become the norm.

2019 welcomes a new fundraising world where the key is control. We believe that digital will end the dominance of the broker and hand the reins, and the control to the entrepreneur.