Raising Finance for your Business

Do you need to raise money for the continuation and growth of your business?

If so, no longer is traditional bank finance simply the only option. However, many business owners do not consider other options available to them if they are unable to raise money with their bank.

The banks are open to lending money, and we have seen many examples of this over recent months, but here are some of the most common ways business owners are raising finance for their business at this time:

• Traditional Bank Finance – banks, and other similar commercial lenders, traditionally arrange finance using Overdrafts, Business Loans and Commercial Mortgages. However, speak to your bank manager, as today they have access to other methods and innovative solutions, such as international trade credit finance.
  
• Personal Savings – this could be a cash sum in a deposit account or funds held in a pension, insurance policy or investment scheme. An easy option, but not always the best option for the long term and we recommend you seek advice.
  
• Selling personal assets – sometime a business owner may have a surplus personal asset, such as a vehicle, property or other business interest, that they can use to sell and raise monies.
  
• Personal loans and credit cards – this may involve a new loan or card application or raising finance using an asset such as a property. Interest rates can fluctuate from low to very high depending on the type of funding option used.
  
• Friends and Family – often the cheapest way to borrow money, but can also have its own complications. It is a good idea to keep the arrangement formal and in writing following the good practice of other lenders.
  
• Investors / Equity Finance – this option involves selling shares in your business to an investor, who will take a share of any profits or losses that the company makes. This can be referred to as Seed funding. The investor may also lend additional monies, like a loan, and therefore repayment terms are applied for any monies additionally lent to the business. If there is a mix of lending and equity (or right to equity), then this may be referred to as Mezzanine finance.
  
• Grants -  an amount of money given to an individual or business for a specific project or purpose. Sources include from the government, the European Union, local councils and charities. However, the availability of grants has reduced and there is much competition for any available. Click here to see some sources
  
• Asset Finance – including hire / lease purchase – involves the leasing or renting of assets such as, but not limited to, machinery or office equipment. This can save you the initial outlay of buying them outright. For existing large capital assets in the business, the Sale and Leaseback schemes also appear popular. 
  
• Invoice Financing – Invoice discounting / Factoring – whereby you are advanced a percentage of your sales invoices with the balance paid on collection of the monies less fees. The provider can also offer credit control for you on a disclosed or non-disclosed basis. In the past, you had to finance all your invoices, but there are now lenders who will consider financing just one single invoice. 
  
• Crowdfunding - involves a number of people each investing or contributing smaller amounts of money to your business or idea. These various sums are then pooled to reach your funding target. In return you may offer equity with a return on investment or perhaps are ‘reward based’ such as providing a sample of your product or service. As an example, see Kickstarter.
  
• Peer to Peer lending – similar concept to investment crowdfunding but you tend not to give away any equity and rather pay interest on the money you borrow, much like you would with a bank. For an example, see Funding Circle.
  
• An initial public offering (IPO) – the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded.
  
• Product Pre-Sales – involves selling your products before they are actually launched, receiving an advance from your customers.
  
• An adjustment of your payment terms and improved credit control – reducing your payment terms or collecting your debtors quicker with effective credit control activities are often overlooked before businesses try to raise new cash. Are you collecting your debtors as efficiently as you can?
  

Good credit control and why it is so important

Well the most obvious is that 'cash is king' and if it is safely in your bank account, then you have the choices rather than being the lender to your customers who have taken the liberty of extended credit.

We recently met a prospective client who, due to a possible bad debt, had much more to lose than just the cash. His turnover was £780,000 with a net profit of £30,000. His own income was made up from dividends each year based on the annual profits of the business. He had a low volume of customers, but with an average value of £25,000. However, without implementing credit limits, due to the desire to sell more, he had allowed one of his clients to build up a balance owed as £44,000. He claims his advisors had not highlighted the aged debt to him. So, when he noticed the level, he made the effort to collect the debt, only to find the customer could not pay, had exhausted credit lines and was simply avoiding him as it was likely they would have to go into liquidation. So the deeper impact was on the viability of the business, the risk to the staff he employs, but also the ability for him to draw his own income from the business as both profits and expected cashflow were at risk. Worrying times.

Our customers are sometimes surprised that we can help with credit control, as bookkeepers are 'number crunchers'! But we try to approach our support in a different way and keep our eyes open for our clients and help them understand their business financials, profits, assets and liabilities.

Our other credit control tips are:

• Measure your debtor days - not just the number, but the value of lost cash to your bank account that someone else is using, usually for free.
  
• Send statements to your customers at least monthly and do not be afraid to write / call to ask
• Produce accurate information and paperwork, as an easy delay tactic is to state a missing invoice or credit note.
• Have good terms and conditions that give you control, especially to retain ownership of product
• Have an audit trail of delivery. Delivery notes signed for products or something like a timesheet for service businesses
• Have an application form for credit and start new customers or start ups with 'cash on delivery' or short managed terms until the relationship is established and known
• If considering legal action, then ensure you can evidence that the customer understood the offer / product, understood the pricing & terms, and has received delivery
• Undertake vetting of your new credit customers
• Use credit limits and be aware of customers taking extended terms to fund their lack of working capital
• Share experiences with other credit controllers
• Stay in control when collecting your money. Record conversations, refer to them and know the excuses
• As a past mentor said to me 'a good customer is only one that pays'
  

What Business Expenses can I claim for?

Not everything documented in a profit and loss account of a trade, profession or vocation is an allowable deduction for tax purposes. A taxpayer may not deduct expenditure in computing their profits unless it is incurred wholly and exclusively for the purposes of their trade.   

Here are some of the allowable business expenses you could claim, whether paid directly by the business or paid personally and reclaimed from the business:

• Your Salary
  
• Accountancy Fees for the business
• An Asset purchased for business purposes
• Advertising/marketing
• Business Insurances
• Mileage at published rates (eg 45p for initial 10,000 miles)
• Car Parking and / or Travel Cards
  
• Post and Office Stationery
• Accommodation for Overnight Stay 
• Subsistence - contribution to a meal cost if away from the business for a published time period
• An Annual Event - such as a team Christmas party (limit applies)
• Company Pension Contributions 
• Course Fees/Professional Fees & Subscription where relevant to the business 
• Allowance for a Home office
• Charitable Donations to a registered charity (not always for sole traders or partnerships)
• Childcare Vouchers - with a provider registered or approved with Ofsted.
• Company Phone - better if the contract is in your company name. 
• Company Car: - If purchased through the company. & influenced by the CO2 emission.
• Eyesight test - provided relates to your duties
• Annual Health Check - you may qualify for one per a year if invoiced to the company 
  

This is not a conclusive list due to the UK's complex tax legislation, so if you are in any doubt about what you can claim, then please contact me.