Business Finance Archives - Page 8 of 8

Where to go to raise finance for your business

Posted on January 16, 2018 Written by Administrator

Lots of businesses want to raise funds – but where do you go to find the money you need? There are more options than you probably realise – but you do need to do your research and prepare the right documents.

The very first step, before you think of approaching anyone is to identify whether you need equity or debt – or a combination.

All too often people think that they have to raise all of the money as equity. But, this has massive implications for dilution and for entrepreneurs’ it often prompts the wrong sorts of behaviours to be manifested. For example, aiming to raise the amount of money which doesn’t impact his/her shareholding, rather than what is required.

Most business owners forget the debt option; this doesn’t affect equity and can be a quicker and easier source of funds – enabling you to save time on the project of raising funds, and get on with running the business. A more open view about what is right for the company, rather than just the shareholder is an important consideration. Debt can be used to fund the growth just as well as equity can.

These days there are plenty of debt providers who will assist early stage business providing they have the right management and the right track record. For example, Funding Circle in the UK will consider lending to a company which has a two-year history. However, the traditional banks are no longer a good source of debt funding – you will definitely need to look other providers.

A combination of debt and equity is often the ideal solution, as this enables a cheaper cost of capital for the company, as the debt is entitled to interest rather than a dividend, making it less expensive for the company.

30% equity and 70% debt is good ratio and can make the company easier to manage. This is generally the accepted ratio which tax authorities and capital providers like to see. This usually makes the company more likely to attract further equity investment, as the potential shareholders can see that the management has understood that debt needs to be part of the company’s financing strategy.

Funding a start-up will always be the most challenging – but, depending on the scale of the ambition there are some institutions that will back raw start-ups with no less than an equity cheque for £100 million. For example, Sola Bank and Baldetton Capital. At the other end of the scale, in the £1–5 million area, there are lots of EIS/SEIS funds, VCT funds, and plenty of pools of EIS investors. This is where a firm such as ours can be helpful in providing introductions and knowledge of the market place. It can save a lot of time and help open the right doors, faster and more efficiently.

For smaller ambition companies there are plenty of Angel Investors – however they can be very difficult to find. The best place to start is by contacting the Angel networks. A Google search will throw up lots of results and then you need to dig into each one to see if you meet their criteria. There is often an up-front fee for being introduced to the Angels in the network – so be sure the Angels are right for you, and you for them, before you start. In some cases, the Angel Networks are sector specific.

Don’t ignore your own connections. Ask your network for recommendations and introductions – these are often the best investors and debt providers and they have come through a personal contact. Also, approach your family and friends. Although you may not hang out with millionaires and seasoned investors, people who know you are often more willing to invest in you – even if it’s a small amount. And these small amounts add up – and help give you seed that will attract a bigger fish later.

There are also other areas you can look into to raise funds – which you choose will depend on how much you are hoping to raise, whether debt or equity is best for your business or if, in reality, the real issue is cash flow. If your finance needs could be solved with improved cashflow consider invoice finance and leasing, rather than selling shares.

Crowdfunding is another option – but just because you put it out there doesn’t mean people will invest. You still need a robust business plan and you’ll need professional help in talking to investors and marketing the offering.

There are also a variety of small business grants available. These change all the time and many are dependent on your location. So, contacting your local business advice centre or Chamber of Commerce can help you track down grants that may be suitable. Check that you are eligible before applying; grant applications take time, so be sure you are right for them, and they are right for you, as they will often come with certain obligations.

Finally, it’s important to remember that fund raising is a combination of a sales project and a numbers game; you’re going to have sell the business to a lot of potential funders before you find the perfect match.

ABOUT THE AUTHOR

Clive Hyman FCA is founder of Hyman Capital Services offering expertise in due diligence and managing change in business including raising equity and debt capital, mergers and acquisitions, interim management, board management and governance, deal structuring, and company turnaround. See: www.hymancapital.com

Social media:

https://www.linkedin.com/in/clivehyman

Twitter: @clivehyman

Recycling and waste management funding options

Posted on December 12, 2017 Written by Administrator

Due to a combination of European targets and public enthusiasm for environmentally friendly approaches to waste management, nobody seriously doubts the government’s commitment to recycling more of our waste.

Whilst progress over the last decade in this area has been impressive, much more needs to be done.

Herein lies a problem though because in spite of this apparently fertile business environment, some companies are experiencing serious difficulties in obtaining funding for recycling and waste management projects.

The problem

Although many of us by now are tired of talking about the subject, the fact is that the economic crisis of 2008-2012 have changed our society – and possibly forever.

One of the biggest changes arising is the transformation of the commercial lending culture. In fairness, some of that had started before 2008 but the crisis accelerated a trend towards lending that’s:

risk averse;
short-term in the sense of demanding fast returns;
much more rigid in terms of approval thresholds and qualifying conditions.

Predictably, some recycling and waste management organisations find it difficult to obtain funding as a result.

That’s because their businesses often have a long ramp-up before investment starts generating a return. It’s also the case that some of the latest cutting-edge technology associated with certain forms of waste management might not be entirely proven and to some extent that requires a leap of faith on the part of investors and lenders.

The solution

Today the approach of simply going in to a single random lender brandishing a “big ask” business proposition, is no longer typically yielding results.

There is now far more emphasis on:

expert intervention and intermediation;
diversity of approach to funding.

Let’s consider what those two things mean.

Intervention and intermediation

If you’re a specialist in waste recycling and management solutions, it’s probably unlikely that you’re also a wired-in expert in the UK’s lending markets.

That matters because some lenders might simply be far more receptive to propositions in your business area than others. Not only that, some may be more receptive at certain times than others, subject to variables such as their budgets and total financial exposures etc.

The idea of using expert market intervention is that you will be talking to specialist funding facilitators and intermediaries who know all those lenders who might be receptive to the types of projects you’re discussing and when.

This can be simply expressed as saying that there’s little point in wasting your time talking to lenders who, by definition, are not likely to be interested what you have to say.

Diversity of approach

Lenders in the current market are likely to welcome propositions which share or offload elements of the risk. That requires innovative thinking.

They may be particularly interested in evidence that you have considered and obtained other methods of funding at least part of what you require to reach your goals. For example, rather than seeking a single cheque for the large scale outright purchase of multiple plant items, it might be more appropriate to seek a combination of lease financing, hire purchase and also outright purchase.

This is what is meant by diversity of approach and it is a significant departure from earlier generation “can I have a big cheque please” approaches to funding requests.

A bright future

The revised European Waste Framework Directive demands that EU member states recycle a minimum of 70% of all waste generated by the year 2020. Whatever the Brexit detail, it seems unlikely that the UK government will move away from this target.

There is a considerable opportunity for companies operating in the recycling and waste management arena. With some assistance and lateral thinking, funding roadblocks should be overcome.

Looking for bus and coach finance?

Posted on October 11, 2017 Written by Administrator

Whether you’re starting a new bus and coach business or expanding an already existing one, it’s likely that you’ll be in need of assistance with bus and coach finance.

The basics

In many respects, trying to find bus and coach finance isn’t that different to looking for private car finance. You’ll need to find someone who is willing to either lend you the money or who will purchase the vehicle and then allow you to use it over time.

If someone has lent you the money, they’ll typically expect to have a legal charge over the vehicle which means they can seize it if you don’t maintain the loan repayments. If they have purchased it, they’ll typically allow you to use it as the registered keeper while they will remain the owners – until such time as you have made the final repayment.

A slight variation on that second option is where you’re not actually paying off the cost of the vehicle, working towards an end point where it becomes automatically yours. In those variations, you’ll actually be leasing the vehicle back from the owners for a specified period. At the end of the lease you may or may not have an option to purchase the vehicle.

The nomenclature

These different forms of bus or coach financing have specific names:

buying outright with a loan – typically this is a bank or other loan type usually known as “secured lending”;
buying the vehicle in agreed instalments while operating as its registered keeper – this is the familiar “Hire Purchase” (HP);
using the vehicle under an agreed arrangement with its owner – typically called “Operational Leasing” or “Finance Leasing”.

The pros and cons

Before giving a quick overview of each option, it’s worth noting that what’s best for someone else might not be for you. A lot will depend upon the exact situation of your company and its accounting position. What follows is very general and you should not hesitate to seek the advice of your accountant and a specialist in bus and coach finance before deciding how to go forward:

Bus and coach loans

These have the advantage of being conceptually easy to grasp in terms of how they work. The downsides are that lenders can be slow to make a decision, they’re sometimes risk-averse and you may need an excellent business standing to be approved;

Hire Purchase finance

Again, an arrangement that is very easy to understand and widely familiar. A big plus is that at the end of the agreed repayment period, the vehicle is yours.

Point to remember – you are committed from the outset to the purchase of the vehicle concerned. Changing your mind half-way through might be possible but this sort of scheme is not designed for such;

Leasing finance

The two forms of leasing may be very tax or balance-sheet advantageous and they do mean you’re not committed to purchasing the vehicle concerned. The differences between the two forms of leasing largely affect the way the deal is reflected in your accounts and you may need an accountant’s help to decide which is preferable for you.

If there’s a downside, it perhaps only affects those businesses who want to see an asset at the end of all their payments. However, even that can be achieved with leasing which provides a purchase option at completion.

Summary

A very large difference between car or bus and coach financing is, of course, the typical cost involved.

You’ll be using substantial sums of your business’s money and therefore it’s important to be sure you’re making a decision on finance that’s suitable for you.

Getting that specialist advice on options may be a good idea before you start looking at specific vehicles.

What is Asset Finance?

Posted on September 12, 2017 Written by Administrator

The term “asset finance” is one that is probably commonly used in the UK financial services industry.

Here’s a very quick overview and definition of it and related issues.

Using an expensive asset

If you’re looking for something such as a van or specialist piece of heavy machinery, then the chances are that it will come with a hefty price tag.

Some individuals and businesses may be able to pay that out of their cash reserves. That’s good in one sense but as many accountants will tell you, not necessarily the best use of your liquid capital.

More commonly, borrowing or other financing is required to help secure the use of that asset. Note the words “use” and “secure” above. That’s intentional because some funding systems will allow you to obtain benefit from the asset without actually buying it outright.

The various ways of funding your access to an expensive asset are referred to, unsurprisingly, as Asset Finance. However, that involves several different products and options.

A quick clarifier – asset re-finance

You might also encounter the term “asset re-finance”.

It’s simple – if you have equity (the sum left over if you deduct any outstanding loans or debts on the asset from its realistic market value) in an asset, you may be able to borrow up to a percentage of that.

That’s a very useful technique and one that may be beneficial and cost-effective. Many people consider this to be part of the domain of asset finance while others think it stands apart in its own category. It’s listed separately here just because it has a potentially confusing name!

Asset Finance – different approaches and products

To keep it brief and simple, here is a list of some of the more commonly encountered products often categorised under the asset finance heading:

Hire Purchase (HP);
leasing (operational and finance);
contract leasing;
business loans.

These options differ from each other in many important respects.

Some involve you, to all intents and purposes, renting the asset. Others may do likewise but with an option to purchase it at the end of the agreed term. Something such as HP results in the asset automatically becoming your property at the end of the term, assuming you have kept up all payments on it.

In all these cases, the asset remains the property of another party and you are using it in one legal capacity or another.

Direct loans are slightly different because there you use the money to purchase the asset at the outset but the lender will typically still have a legal charge over it, meaning they could seize it if you don’t maintain the loan repayments.

Which option is suitable for you?

All of the above products have their pros and cons. What’s suitable for someone else might not be so advantageous for you.

It’s very difficult to summarise these in isolation and it’s usually beneficial to take advice from an expert provider of asset finance. That’s because it will be important to understand the shape and nature of your business before speaking of suitability.

Why?

Some of the options above differ from each other principally, from a customer’s viewpoint, in their accounting treatment.

In some cases, these options may result in monthly payments that can be booked into and written off against your P&L. In other cases, they result in the asset being reflected in your capital asset register and depreciated on your balance sheet.

The tax implications can be complicated and that means you need to consider advice and guidance from a specialist provider and your accountant – unless you’re fully familiar with the accounting principles and taxation issues involved.

Looking to buy vehicles for your business?

Posted on August 3, 2017 Written by Administrator

The imminent arrival of the new 67 plates in September is, as always, getting people excited about picking up that new vehicle.

For private buyers, the processes and sometimes pitfalls are well-known. However, if you’re a relatively new business, you may not be so au fait with the realities of life.

While buying a new commercial vehicle (for simplicity’s sake, here we’ll call any vehicle being purchased for business reasons “commercial”) then you should be prepared to enjoy yourself. Yes, take it seriously because it’s a lot of money but concentrate on the positives!

Even so, there are a few things you need to be aware of and prepare for, in advance.

Funding

If you’re a new small business, then there’s a fair chance you’ll be operating as a partnership, sole trader or perhaps micro-enterprise Ltd company.

Typically what that means is:

for some lenders, perhaps like the banks, you’ll have little commercial history and that will make them uneasy about lending. From their viewpoint, your business will be largely invisible and off the radar;
with no trading history, some lenders will look more closely at your own personal credit score. A few issues will by no means be a showstopper but some lenders or finance providers may be more understanding than others;
remember that while the vehicle provider may have finance options on the table, this can make things very complicated for you in terms of driving a hard bargain on the vehicle’s price or trying to be hard-nosed when reviewing your finance interest rates etc.

It’s perhaps understandable if a business wants to get started ASAP with their commercial vehicles rather than spend time sit around examining funding models and associated costs. Try to resist that temptation though and make sure you’ve adopted a hard-headed approach, with expert advice, before rushing off to the vehicle showrooms.

Accounting

The UK has one of the higher proportions of company car ownership (or use) in Europe. However, take the advice of your accountant before deciding how to deal with commercial vehicles officially described as “company cars”.

There are some technical issues here relating to things such as depreciation and accounting entries and they will be decided, in part, by how you’re paying for the vehicle. It’s easy to get this wrong so be sure to take advice before making your decision as to how to purchase your vehicle.

In passing, also look closely at the idea of “fully expensed” cars in accounting terms. At one time, there were very major taxation advantages to operating on that basis but these have been eroded to such an extent by HMRC that many accountants will argue today that there is no longer any point in trying to include private mileage etc.

That position is not likely to change!

Think about who will drive it or them

It’s perhaps stating the obvious but don’t forget that if any of your co-workers who will be driving the vehicle has motoring convictions or is young or inexperienced then your insurance premiums may soar.

In some cases, it might be more cost-effective for you to pay their expenses for using their own vehicle on their insurance but remember to ensure they have changed their cover to commercial use. You may need to reimburse them accordingly and agree an equitable mileage rate.

Take accounting advice here too.

Practice Loans for VAT Funding

Posted on July 20, 2017 Written by Administrator

Value Added Tax – or VAT as it is universally known – was introduced in the UK in 1973 as part and parcel of its admission to the European Union.

Now that the UK government is negotiating an exit from the EU, it might be fair to ask about the future of a tax that is founded very much on European principles. However, it is also clear that the UK has been going very much its own way as far as VAT is concerned – and a clear illustration is given by the fact that the standard rate of VAT in Europe is just 15%, whilst it is currently 20% in the UK.

Inside or outside of Europe, therefore, it seems clear that the UK is going to continue to raise revenue through a VAT and that this tax obligation is likely to remain a major issue for any professional practice.

Current VAT rules

Any business (including one structured as a partnership) with an income over £85,000 must register with HM Revenue & Customs (HMRC) as a VAT-registered business.

This means that you must levy VAT on a wide range of the goods and services you provide, but may also reclaim the VAT on goods and services which your business has bought.

The calculation of VAT charged and VAT paid is the subject of a return you must make to HMRC every three months, together with your payment of the net amount due.

VAT is charged at different rates, according to the particular goods or services sold, and may be at the standard rate of 20%, a reduced rate of 5%, a flat rate (typically between 4% – 14% depending on your business actitives) or be zero-rated for VAT purposes.

It is chargeable on an especially wide range of items, such as:

the goods and services your business sells;
any goods you hire or loan to a customer;
business assets you sell;
commissions you charge;
goods and services you sell to your staff;
goods owned by your business, but for your personal use; and
non-monetary transactions, including gifts, part exchange and barters.

Clearly, every profession is in the business of providing different goods and services – health care provided by doctors to NHS patients is VAT-exempt, for example – and the calculation of VAT liability may vary widely from one profession to another and from one practice to another.

Practice loans for VAT funding

However robust and carefully managed your practice budget, VAT liabilities may impose a decided strain on your cashflow and the availability of essential working capital.

Yet VAT demands are relentless in their regularity – coming around every three months – and represent a liability that may be met with fines and penalty charges by HMRC if the liabilities are not paid or are paid late.

This raises decisions your practice may need to make about borrowing to meet those VAT liabilities. Your decisions fall into two broad categories:

Secured loans

your practice might already have one or more secured loans – secured against the personal assets of the firm’s partners;
such borrowing is typically quite long-term (10 years or more) and repayments over the full term of the loan are likely to include a considerable sum in interest;
partners offering the security of personal assets do so at some considerable risk, since financial failure of the business may mean that repayments on the loan cannot be maintained and the assets may be forfeit;

Unsecured loans

if you are looking for practice loans for VAT funding, however, you are more likely to be in search of much shorter-term borrowing;
this is where an unsecured fixed rate loan, for, say, three or 12 months may provide the more realistic solution – and may help to spread the costs of meeting your VAT liabilities over the repayment period you choose;
the shorter timescale means that interest charges also accumulate over a considerably reduced period;
such unsecured loans for your professional practice are typically advanced at a fixed rate of interest and require fixed monthly repayments, making cashflow management more straight forward and less onerous;
you may be given the option of your loan being paid directly to HMRC or into the bank account of your practice; and
you may also have the option of continuously rolling over one short-term loan into the next, thus giving your practice a permanent source of funding to meet not only this quarter’s VAT liabilities, but those well into the future.

VAT liabilities may be a headache for any professional practice, but, with the help of practice loans for VAT funding, your essential cashflow management and the ability to spread out the costs over the period you choose may prove a godsend.

Finance Options for Business

Posted on July 14, 2017 Written by Administrator

The tone of this brief piece is going to be up-beat and positive.

Business finance IS available out there and it can help you make a success of your enterprise.

However, let’s get one brief “dose of cold water” statement of reality out of the way first.

Finding business finance isn’t easy

Whether you’re a start-up or business already in-flight, business funding isn’t handed out on every street corner. You’re going to have to work to find and then obtain it.

That consists of two main aspects and they’re sometimes showstoppers for the unwary:

you need to go to sources of finance that are suitable for your particular business situation (unless you want to waste a lot of time being turned down not because your proposition lacks merit but simply because you’re speaking to the wrong type of lender);
whoever you’re speaking to, your proposition MUST be up to professional standards and show that you understand your business and of critical importance – its current financial position. Poorly presented finance requests are the biggest single cause of funding refusals.

Sources of funding – start-ups

You need to recognise that to potential investors, a start-up business is often one of the riskier things to invest in. Yes, the rewards are potentially high but so are the risks.

Your main sources where finance may well be available for the right ventures are typically:

the banks. A conventional channel and one that has been the source of much public criticism since 2008 but which is, nevertheless, an ongoing option. Anticipate needing to find some potentially hefty financial contribution from your own personal resources;
Business Angels / equity funding. Typically much more entrepreneurial than the banks, they may inject money into start-ups in return for a share of ownership of the company. Note that many business angels only deal through intermediaries who have already vetted the proposition on the table for credibility. They might also be more inclined to invest in companies who have at least some trading history behind them;
the government. Things here tend to change over time but the government does help with business start-up funding both directly and indirectly through tax-breaks for business angel investors etc.
friends and family. There are good reasons why it’s advisable to keep your business finance and family/personal lives separate but even so, this is a potential source of funding that shouldn’t be overlooked.

Business growth and expansion funding

Here, your channels might typically be slightly different:

Business Angels. These are potentially risk-inclined investors and providers of finance options for business. Be aware though that you’ll need to be on your toes in terms of the quality of your proposition and will also need to present your trading history to date in order to be taken seriously. Again, many Business Angels will only consider applications from specialist business finance providers who they know will already have reviewed and approved the proposition in principle;
equity release. Many owners of businesses have considerable sums (equity) tied up in things such as property. Accessing that equity, with help from those same specialist business finance providers, can be one of the most cost-effective and easiest finance options for business. Not only that but you won’t have to share ownership and control of your company.

So, if you’re thinking that finance options for business are almost non-existent in today’s world – think again!