Business Development & Marketing Cash Flow & Forecasting Finance General

No need for SMEs to panic over China

There has been a great deal of angst in the finance and business media over the impact China’s slowdown is having on stock markets around the world.
But actually, it could be argued that a reduction in their rate of growth is necessary as China’s economy reaches maturity. While the situation may suggest a slight slowdown in global growth and perhaps a further delay in raising interest rates there is little sign of worry about the prospects for the UK SMEs unless they sell to China.
Indeed the CBI this week revised its forecast for growth for the rest of the year from 2.5% to 2.6%.
For SMEs in particular, events on the wider global stage are unlikely to have much effect since most depend for their business on short term consumption.
Those that import from China may actually benefit from reduced cost as the price of Chinese products is likely to become cheaper.
Those SMEs that export luxury goods for China’s domestic retail market, however, may suffer a drop in orders as well as reduced margins due to currency devaluation.

Banks, Lenders & Investors Business Development & Marketing Finance General

Low interest rates – the lull before the storm!

It seems that some members of the Bank of England’s Monetary Policy Committee have broken the previous unanimity and are beginning to argue for a rise in interest rates sooner rather than later.
Most recently, Kristin Forbes, MPC member and MIT professor, has warned that leaving it too late could depress the current economic recovery because of the time lag between introduction and its effect feeding through into the economy.
In our view interest rate rises are unlikely to rise in the medium term because the MPC are aware of the storm when they do.
In terms of the interest rates being paid by SMEs, these are unlikely to rise much because SMEs are already paying huge premiums, often more than 10%. This has enabled the banks to restore their balance sheets, which has been the real concern for the MPC and government.
For small businesses considering growth plans, financed by borrowing, the preferred option for a while has been to look to online lending platforms.
Nevertheless, keeping an eye on consumer spending and cash flow to ensure business is
healthy enough to provide some room for manoeuvre may become more important for SMEs.
Where an interest rate rise will really impact is on consumers, many of whom still have unrealistic levels of personal debt. Most home owners are benefitting from the expiry of fixed interest rate mortgages that automatically switched onto low variable rates because they are pegged to the Bank rate. While servicing such mortgages, many still paying interest only, may currently seem easy, an increase of 0.5% will double interest payments for many. So much for historical rates above 5% a tenfold increase in payments for many.
The potential impact on consumers is being exacerbated by the current spending on capital goods such as new cars. Most new cars are bought on tick where the low cost of finance packages is helping drive the huge growth in sales.
The unprecedented period of low interest rates at 0.5% since March 2009 has lulled most consumers into believing they are the norm. Not that anyone likes unpleasant predictions but we believe it is a lull before the storm, a bigger one than any of us want to confront. At least it will develop slowly as rate setters and governments try to protect consumers from the reality of debt – debt has to be repaid even if this can be put off for the moment.

Banks, Lenders & Investors Finance General

Investor Visas offer another source of finance for UK businesses

Businesses looking for investors may be able to take advantage of another avenue of finance, as a result of revised rules of access to the UK for overseas investors.
Tier 1 Investor Visas allow people from outside the European Economic Area and Switzerland to live and work or study in the UK for up to three years and four months on certain conditions.
The visas are conditional on applicants investing at least £2 million in either UK Government bonds, share capital or loan capital in UK-registered active & trading companies. The money has to be held in a regulated financial institution such as a bank, building society or stock brokerage for 90 consecutive days before making a visa application.
Tier 1 Visa investors cannot invest in companies mainly engaged in property investment, property management or property development companies.
Investors can apply to settle in the UK if they make further significant investment, of £10 million after two years, or of £5 million after three years of living in the UK on a Tier 1 visa.
UK Government data has revealed that there has been a significant increase in the numbers of Chinese applying for the Tier 1 Visa doubled in 2014 compared with 2013, with 357 visas granted, while 184 Russians were granted Tier 1 visas in 2014.

Cash Flow & Forecasting Finance General

The clock is ticking for Auto-enrolment for SMEs

This year the employers’ compulsory pension auto-enrolment scheme is starting to impact on some SMEs.
Employers will have to contribute to a pension scheme for any employee who is aged 22-plus, not already in a scheme and earning more than £8,105 a year. Initially the employer must contribute 1% of the employee’s earnings to a scheme, but this will rise to 3% by October 2018. Employees will also have 0.8% deducted from their salaries rising to 4% by 2018.
Every employer will eventually have to set up a suitable scheme and this will mean not only ensuring that they know their staging date (when they are due to begin payment) but have all the systems in place to meet the deadline.
The Pensions Regulator is advising that businesses need to allow 12 months ahead of their staging date to be sure they have everything ready.
A problem already identified is that the HMRC online PAYE software is not compatible with the online auto-enrolment system.
For those that don’t outsource their payroll management this will include buying and installing payroll software compatible with the pensions automatic enrolment software and identifying a suitable pension provider that is willing to participate.
Those who do outsource will need to check whether your payroll manager is able and willing to manage the auto-enrolment set-up and administration for you.
It is also becoming clear that many accountants, payroll management companies and pension providers are either unable or unwilling to take on the task for a very small workforce on the grounds that it is not cost-effective for them.
In that case SMEs as employers will have no option other than to manage the process themselves using the guidance to be found on the Pensions Regulator website, and this will be a challenge when trying to run a business, not to mention the significant increase in costs to business payrolls.
Make sure you know your staging date and allow plenty of time for planning.

Business Development & Marketing Finance General Turnaround

How can SMEs prepare for the National Living Wage?

Predictably, predictions of job cuts and slower growth for SMEs followed the announcement of a compulsory National Living Wage in July’s emergency budget.
But how serious a threat is it really, given that businesses are already used to annual increases in the minimum wage and the £9 Living Wage will not come into effect until five years hence in 2020?
Although there are other factors such as business rates and rent that received no mention in the budget and play into business costs, the wage issue alone need not put a brake on plans for growth.
Firstly, some of the increased wage bill is offset by an increase in the employers’ national insurance employment allowance from £2,000 to £3,000 and from a reduction in corporation tax. Secondly the living wage will only apply to those aged 25-plus.
It could, therefore, be used as an opportunity to plan ahead, which all businesses should be doing each year in any event.
All businesses depend on a well-motivated and well trained workforce and with four or five years still to go, now might be a good time to consider taking on an apprentice or two or investing in staff training.
It may also be a good time to invest in more up to date equipment and more automation or to consider outsourcing some routine tasks that will leave more time for existing staff to focus on those tasks that need to be done by skilled humans.
Arguably, such measures will bring the advantages of a more stable, committed and engaged workforce and higher productivity per person and a growing business better prepared for paying the Living Wage in 2020.

Banks, Lenders & Investors Finance General

Donation crowdfunding can be useful to businesses

Donation crowdfunding, also called reward crowdfunding, is the third type of crowdfunding covered in my series. It is like Equity and Debt crowdfunding in that it is a way of raising money in small amounts from multiple contributors, but unlike the other two types, it doesn’t appear on the balance sheet.
The “investment” by donors does not generate a monetary return; instead they provide funds for a variety of reasons which mainly relate to receiving benefits or rewards, or simply the “feel good factor” of contributing to a worthy cause
The benefits or rewards can be products or services that arise from the project such as gifts, discount vouchers, event tickets or early release software or products. The other main reason is where the cause is a worthy one such that the donation is more of a charitable nature..
Unlike other forms of crowdfunding, donation crowdfunding is not regulated by the Financial Conduct Authority (FCA).
Clearly it is becoming popular with charities and those supporting social causes, but it can also be a useful way for early stage businesses to raise finance for prototypes or test the viability of ideas and products.
A good example was an online game development company that raised £1,578,316 from 25,681 backers. The fundraising involved raising finance for Elite: Dangerous, a space game where the fundraising campaign benefited from a huge, captive fan base who pledged amounts from £5 to £5,000 plus with five backers pledging the top level of support for a number of levels of in-game bonuses such as credit, rank and cargo, enticing those that wanted to compete in the online universe to get a head start.
We also know of one young product designer who has developed and tested a set of portable, lightweight and easily-storable injection-moulded plastic cutlery for use in the office or outdoors, and is currently using donation crowdfunding to cover manufacturing costs. Donors will get special limited edition colour sets that will be packaged and tailored to the level of the donation. The target is £10,000 and in 10 days since launch in early August 2015, just over £4,200 had been raised.

Banks, Lenders & Investors Business Development & Marketing Factoring, Invoice Discounting & Asset Finance Finance General

Is raising finance from debt crowdfunding a good idea?

In the second in our series on crowdfunding we’re focusing on debt crowdfunding, also called Peer to Business lending.
Typically lenders are looking to finance tangible assets that they can secure, such as book debts, vehicles or plant & machinery. However all too often businesses want to finance business growth which might involve business development, staff or simply working capital. The banks have largely withdrawn from such funding unless security can be provided. As a result there is an explosion of crowdfunding with most models based on loans.
In the debt crowdfunding model most loans are based on compounding interest with equal monthly repayments for the duration of the loan which is normally for between 2 and 5 years.
According to Nicola Horlick, chief executive of Money&Co, writing in CityAM in April 2015, debt crowdfunding is the source of funding for the vast majority of UK SMEs. She argues that this type of crowdfunding is less risky than equity crowdfunding because of the high failure rate of start-ups, whereas a debt funder like herself will ask for several years of made-up accounts.
Funding Circle is probably the best known debt crowdfunder in UK. It has loaned about £750 million to 7,300 businesses in UK and US. Examples include Blood & Sand who borrowed £104,000 in October 2014 from 100s of individual lenders to refurbish their new cocktail bar in London.
Given the risks, such loans are not much cheaper than those from a bank but they tend to be easier to obtain. However despite the perception of an easy loan, most funding platforms rely on directors giving a personal guarantee so as to make sure that they have every intention of repaying the loan.

Banks, Lenders & Investors Finance General

Essentials of Equity Crowdfunding

Equity crowdfunding is particularly useful for start-ups and SMEs seeking to grow, particularly because it is so difficult to raise small amounts as share capital due to the extensive due diligence required by investors who don’t already know you.
Even when investors are interested, the share of the equity and control they may require can be an issue for the founders when the business is not yet profitable.
Investors in equity crowdfunding receive shares in the business and with them the prospect of receiving dividends as well as being able to vote and to hopefully sell their shares at a profit in the longer term.
The business must provide a detailed business plan with a lot of information about the key people as well as other supporting information before it will be accepted by a crowdfunding platform.
An example of a successful equity crowdfunding was E-Car Club that raised £100,000 for 20% equity from 63 investors. The online fundraising was organised by with most investors subscribing small amounts although the largest was £15,000. E-Car Club is a pay per use scheme whereby club members have access to an electric car for a defined amount of time without having the expense of car ownership.
Research by the British Business Bank in 2014, however, found that the growth of crowdfunding had posed challenges to Angel investment networks because some angel investors were choosing to invest through crowdfunding instead.
The risks in equity crowdfunding include a relatively high failure rate for start-ups and the potentially lengthy wait for a return on the investment.
Equity crowdfunding platforms are regulated by the Financial Conduct Authority (FCA).