Category: Finance & Capital

Article Contributed by Doug Barden

It is pretty difficult to get a new business off the ground without some kind of start-up capital. You may need to buy fixed assets, pay new employees, or even draw a wage to cover your personal living expenses. There are ways to keep the costs down—setting up a small business from the spare room can work for entrepreneurial IT types—but if your dream is to open a restaurant franchise or a boutique, the only way to do so will be to look into your potential sources of available finance.

Bank Business Loans

Banks have always been a traditional source of funding for small businesses. Going cap in hand to your local bank manager with a head full of dreams and an embryonic business plan might just be enough to secure you a business loan. Or at least it would have been ten years ago. Nowadays, the economic climate has changed and banks are far more risk averse. Your credit history and business plan will need to be rock solid before most banks will even give you the time of day. But there is funding available, so don’t lose heart if the first bank you approach says “no”.

Private Equity

The first place to look for private equity is close to home. If you are lucky enough to have any friends and family with deep pockets and a desire to help, you may be able to secure enough money to get your new business off the ground. Another possible route is to approach a private investor and try to persuade them that your business is worthy of their investment.

Venture Capitalists

Venture capital funding comes from private investors interested in long term growth potential. High risk businesses with the potential for generating massive returns for their investors are attractive to venture capitalists, so if you can’t raise cash through traditional avenues, but you are certain your business plan will make you rich, venture capital may be your best option. The main disadvantage of this type of funding is that your investors will expect to have a say in how you run your business, plus they will expect a slice of the equity pie.

Grants and Government Start-up Initiatives

There are many non-profit organisations and government backed initiatives offering finance solutions for new businesses. Many are aimed at young entrepreneurs aged between 18 and 30, so if you fit the bill, this could be the ideal path to take. Aside from a cash loan, you will also receive lots of support from a mentor to help you make a success of your business venture.

Invoice Factoring

Instead of chasing payment from customers, use invoice factoring to release capital from the sales ledger to help build your business. Invoice factoring companies will charge a fee and a percentage of the invoice, but it is useful way of raising working capital in the early days.

There are many ways to raise finance for a new business start-up, but almost all of them will require that you have an excellent business plan. Nobody will lend you money unless they feel that your ideas are workable, but if you are convinced your business has the potential to be more than a pipe dream, it is time to turn your dreams into a reality and join the thousands of other people who start their own business every year.

About the author:

Doug Barden is a managing partner in Beech Business, one of North Manchester and Lancashire’s leading chartered accountancy firms.  For more information on the services they offer, including book-keeping, payroll and accounting, visit http://www.beech-business.co.uk.

Without the proper accounting and budgeting practices it can be difficult to ascertain whether you’re company is truly running at a loss (not making any profit at all) or operating a potentially profitable business that is simply experiencing temporary financial difficulties. Fortunately though, you don’t have to be a proficient accountant in order to recognise the key warning signs that your company could be, or may soon be, operating at a loss:

 1. Declining Profits and Net Worth for More than 4 Consecutive Quarters

If your books indicate a declining profit for a period of more than 4 consecutive fiscal quarters then you could be well on the way to running at a loss, if you aren’t already. Likewise, if your net worth is in a deficit, or based on earning trends it is scheduled to fall into a deficit within the next 2-3 years, you might already be operating in a state of insolvency. If you haven’t been keeping thorough track of your expenditure and income now is definitely the time to start, especially if you’re already concerned that the business could be failing.

2. Debts that Exceed the Value of Assets

Debt recovery professionals sometimes use a metric known as the current ratio, also known as the cash ratio, which represents the total amount owed in debts and liabilities versus the value of all cash assets (i.e. bank account funds, pending invoices payments, available cash flow, etc.). In short, if the amount you owe in debts and liabilities exceeds the total value of your assets then your chances of being able to get out of debt without significant restructuring are slim.

3. Declining Monthly Budget Cushion

The margin between how much income the business generates and how much it pays to service its debt each month is commonly referred to as the “cushion.” Failing companies tend to lose this cushion gradually as the business makes less profit and/or debts continue to pile up along with interest charges. If you’re noticing that the company does not have a lot of room for error each month this could be a sign that you’re right around the corner from operating at a loss on a monthly basis, and you could find out at the end of the year that you’ve already been running at a loss on an annual basis.

Experts recommend allowing a margin of error of no more than 20% in your monthly budget. If you find that you’re regularly exceeding your budget in operating expenses, or are unable to meet payroll expenses,  your company could be experiencing the early signs of trouble.

4. Engaging in Creditor Negotiations

If you’re finding the need to negotiate with creditors in order to keep them from taking your company to Court, chances are you’re very close to being declared insolvent, unless some type of outside financing can be obtained. When informal negotiations prove to be unsuccessful you may want to consider proposing a formal company voluntary arrangement (CVA) with the assistance of an insolvency practitioner.

A CVA offers a higher rate of approval than informal negotiations conducted independently over the phone or email because it is proposed by a licensed insolvency practitioner, and creditors tend to trust the opinions and proposals of a qualified IP more than a proposal made by the debtor directly.

5. Business Is Stagnant

When a company is failing to land any new contracts, solicit new clients, capitalise on investment opportunities, or progress in any way it is considered stagnant. Now, this is not necessarily a bad thing if you remain stagnant at a satisfactory income level. However, when you’re already having trouble paying bills on time and in full, stagnant operations can lead to the expeditious downfall of your company after the loss of just one or a few key clients.

If stagnancy is a real concern you’ll need to consider some cost-effective restructuring and marketing methods to get things moving again.

Conclusion

Keep in mind that there are many more signs that could indicate your company is in trouble, but for the simplicity’s sake the warning signs above are the primary ones to look for.  If you’re dealing with any of the aforementioned issues you should take action urgently if you want to retain any hope of facilitating a recovery.

Many people think that the hardest part of starting a new company is coming up with the idea and business structure. However, the actual hardest part can be getting the financing to get your company off of the ground.

There are many different routes you can take to get the money you need. Some may be chosen as a last resort, but sometimes you have to suck it up and do it for the sake of your company.

Expert Juan Carlos Bertini has experience in finance helping companies grow through funding, and can help your startup as well with these tips.

Venture Capitals

This is the money that you can receive that is given to startup companies. It’s a high risk and high reward fund for investors so it may be difficult to get the funding you need.

Basically what happens is a group of very well-off investors from various walks of life pool their money together to fund small businesses they believe in. From there, they will give that to the startup company in exchange for equity in the company and possibly some of the revenue.

It’s usually within the first five years that they expect serious returns on their investments. This means that they are hoping for the startup company to be acquired by a much larger firm or gain the ability to sell stocks.

Although it’s a bit harder to find money from Venture Capitals (think of the show Shark Tank) this is the best way to get a large amount of funding.

Crowdfunding

The power of the internet has created the growing phenomenon of crowdfunding. Websites such as Kickstarter allow you to pitch your business to the site’s viewers in hopes of having them give your company money for funding.

It’s not always a large amount as many people will give as little as $5, but you don’t owe them interest back. However, it is more appealing when you can give a reward for their investment in different stages.

This can be anything from a t-shirt from your company all the way up to equity depending on the value of their donation. Many companies, books, movies and much more have been launched using this method.

People You Know

This may be the last thing you want to do, but it may be absolutely necessary if you can’t find funding in other places. Perhaps you have grandparents that are sitting on more money in retirement than they know what to do with. It’s a lot easier for them to invest in you than an accountant that they don’t know.

Loved ones are always there to help, so don’t be afraid to ask if you really need to.

Find a Partner

Think of this as something similar to a Venture Capital except you only have to deal with splitting your profits with one other person. Obviously, this person will have to have quite a bit of money and you will need to sacrifice a significant amount of equity.

Some are wary of partnerships as things can go a little sour after working together for so long, but it may be worth the investment.

Personal Savings

If you have any life insurance policies, home equity or life savings, it may be time to cash those out. There can be a lot of money in those accounts and if your company pans out, you can put the money back in there to set yourself up for retirement.

However, it’s a very high risk so you have to make sure that you really believe in what you are doing.

There are a lot of other methods in which to get money, these are just a few. There are loans and grants available from banks and the government that can help you get started. Explore all of your options before making a decision as it could be the biggest one of your life.

Article contributed by Jenna Smith

The modern entrepreneur has a number of advantages over those of 20 or even ten years ago.  Marketing has become drastically different thanks to social media, as well as powerful software systems that can integrate, categorize, and manage contacts to make your efforts more efficient.

And products today are far easier to “manufacture”; no longer does a startup have to find space and tools to build a product and hire skilled people to assemble it.  The focus today is on intangible products that can be produced on a computer with very little overhead, usually right in your home.

Because you no longer need a drill press or arc welder to continue cranking out your product, you can crank from almost anywhere that you can find available Wi-Fi.  That frees you up for more traveling, provides options when you experience problems like a power failure at home, and stimulates the creative juices by letting you log a day’s work from a local park or simply out by your pool.

Mobile banking even allows you to take care of financial transactions on the fly, and if you adopt this method you’ll soon learn about the benefits of mobile banking.  Here are a few points worth considering if you’re considering doing financial work on a smartphone or laptop.

Quicker Detection of Problems

Mobile banking permits you to see what’s happening in your accounts just as quickly as a teller or customer service rep can do so.  That allows you to stop fraudulent transactions quickly and prevent additional ones.

Most credit card number thefts begin with a small purchase, just a couple of dollars, by the thief, to make sure the number is valid.  If you see that $2.36 on your account in a city hundreds of miles from you, you can act quickly to stop the card’s activity and save yourself a great deal of hassle later on.

With so many methods of automatic payment used today, it can also be easy to forget a scheduled transaction.  That could nudge you uncomfortably close to your credit limit or an overdraft.  It’s far better to take a regular look at account activity and make sure you’re current on where money is going before you make a mistake.

Safer Operation

That begs the question of whether mobile banking is safe.  While the FDIC has its concerns, there is nothing about mobile banking safety that is drastically different from online safety in general.  You use smart passwords, you keep up with your phone, and you watch for unexpected activity.  It’s just like your email or social media accounts.

Using a mobile app to deal with your bank or your credit card is actually safer than via a laptop.  Your phone is on your person or in your purse at all times, whereas a laptop can’t make a restroom stop with you and won’t walk in at the gas station to grab a cup of coffee.  Additionally, phones utilize data connections that are secured through your phone, rather than the free Wi-Fi at a fast food restaurant.

So not only is a swiping, scrolling banking method faster, it’s also considerably less vulnerable to hackers and theft.

Easier Recordkeeping

Whether it’s business expenses appearing on your credit card or checking account, the best time to categorize them is when you first incur them.  Waiting on a monthly statement to analyze how to categorize them for accounting purposes is just an invitation for mistakes.

Instead, you can utilize mobile banking to view expenses as they post to your account, and quickly record a breakdown on each expenditure regarding its purpose, amount, and destination.  That’s a big time saver when it’s time to take care of corporate taxes.

Going Greener

As a devoted mobile banking user can attest, it’s a nice thing to see less paperwork accumulating in the mailbox.  Statements from checking and credit card accounts will stop cluttering your office as you begin to transfer data from mobile banking apps to your own storage in your accounting software or spreadsheets.

That eliminates the occasional chore of shredding documents and the subsequent (often messy) chore of dumping the shredded paper.

A greener business not only saves money but also adds a marketing angle that provides extra appeal to many clients and customers.

Mobile banking use requires the same attention to detail and security that any other online transaction requires, and it carries the added benefit of greater efficiency and easier management.  As features and apps are developed, many entrepreneurs will join the ranks of mobile banking users.

Article contributed by Jenna Smith

Many small new businesses don’t yet qualify for conventional financing since they haven’t yet developed a solid credit history. Unfortunately, these are just the companies most in need of extra working capital to meet their day to day needs. If you are the owner or director of a fledgling enterprise in need of a loan, have you considered invoice factoring? This is perhaps one of the least known types of business financing available but one that is easy to qualify for if you meet a few basic requirements.

An Introduction to Factoring

In simple terms, factoring is a loan against your outstanding books. A lender, in this case called a factor, will lend up to 80% against qualified invoices which are outstanding. However, it should be made clear that the invoices must be commercial invoices – B2B accounts.

Once the factor agrees an amount to lend, they will literally take over your books. You will no longer need to hound your customers for payment as that will be the role of the lender. As payments come in, the factor will keep track of what has been received and apply that amount to what is owed towards the loan. TBS invoice factoring is a good example of a company and also provides some extra insight into the process.

Benefits of Factoring

There really are quite a few ways in which factoring can benefit a business. Bearing in mind that a company’s credit rating plays a huge role in the availability of loans, it is easy to see why factoring would be helpful to businesses that haven’t yet had time to build a solid history. The outstanding invoices are the security needed and the company’s credit score takes a back seat to the amount payable to them. So then, the biggest benefit is in the fact that little emphasis is placed on creditworthiness of the borrower.

Then there is the fact that the factor goes about collecting on those invoices. The company directors are able to focus on day to day operations without stressing over who has paid what and when. The factor carries that burden in order to recover the amount (along with interest and service charges) owed to them by the borrower. Money is made available almost immediately which will enable the company to move forward.

A Few Disadvantages

Although factoring enables a qualified business to quickly inject money into the company, there are some downsides to be aware of. It was mentioned above that the creditworthiness of the borrow is not a huge factor in qualifying for the loan but unfortunately, the debtors’ credit history will be carefully scrutinized before money is lent against that debtor’s account.

Also, many companies find that there is a significant cost in exiting the loan. It is advisable to choose a factor carefully as some offer much higher rates, service charges and exit costs. A third disadvantage lies in the fact that you can no longer fly under the radar. Your customers will know that you sought out financing because the factor will be contacting them to collect on your behalf. After all, they figuratively bought your books from you and it is their contractual right to contact ‘their’ debtors.

It is important to weigh the advantages against the disadvantages before entering into a factoring contract. If cashflow is a serious problem and money is needed immediately, this may be the best solution. Just be aware of the fact that your customers will know that you borrowed money and there will most likely be some sort of exit fee assessed. In the end, it is a judgment you will need to make. Factoring may not be widely understood but it is surely a great way to get your hands on cash fast.