Categories
Banks, Lenders & Investors Cash Flow & Forecasting Finance General

An overview of crowdfunding

Funding for businesses and in particular those wanting to invest in development and growth has become extremely difficult to find. Banks have become risk averse and need evermore capital-liquidity provisions which has combined to make it uneconomic to lend to SMEs and those who can’t provide asset backed security.
This has led to the popularity of raising money using online via crowdfunding platforms.
Crowdfunding can be defined as the act of raising money via a website from a relatively large number of small investors.
This is a fairly new form of financing and the last two years has seen some clarity emerging as to the different types and what each involves.
In our next few blogs we will be looking at each type of crowdfunding. This first article is a short overview.
There are three main types of crowdfunding. They are Equity, Debt (aka peer to business or market place lending) and Donation (aka Reward) crowdfunding.
In the first, individuals provide capital for shares in the business looking for funding and expect to receive dividends and/or a profit from a future sale of the shares. They are typically used by start-ups, early stage & growth businesses.
In the second type, Debt crowdfunding, businesses are looking to borrow money as repayment loans, convertible loans or loans with warrant. Lenders are typically repaid at regular intervals with interest on terms that are often more competitive than can be achieved from a bank.
Donation crowdfunding is generally used to raise non-returnable money for a worthy cause, so there is a social component and the “reward” is generally in the form of recognition for investors’ contribution rather than any financial return.
There has been some concern that small investors in such schemes may be inexperienced in investment and its risks and this has led to the introduction of regulation via the Financial Conduct Authority (FCA) in an effort to protect them.
Since April 2015 any organisation offering Equity or Debt crowdfunding facilities must apply to the FCA for permission to operate and must supply supporting evidence including a detailed business plan, evidence of capital reserves, a website showing information that details not only the benefits but also the risks involved.
The FCA is responsible for regulating loan-based and investment-based crowdfunding such that only regulated firms should be used to raise finance. The main restriction relates to the marketing promotion to investors in Equity and requires each investor to acknowledge they are either a high net worth or sophisticated investor or to confirm that they will invest less than 10% of their assets in crowdfunding. This means that firms raising Equity should take advice before doing any self promotion of Equity crowdfunding.
The FCA does not regulate Donation crowdfunding.
For other sources of business finance you can download a free Finance Guide from our website using this link.

Categories
Accounting & Bookkeeping Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Further evidence that a safe pare of hands is not enough for growth

Some new figures on attitudes to innovation from Price Waterhouse Cooper reinforce the point that growth will not come from being risk averse and hoarding cash.
In the UK the most innovative top fifth of companies grew 50% faster than the bottom fifth and, more alarmingly, the survey found that in the UK just 32% of companies regarded innovation as very important, compared with 46% of German and 59% of Chinese companies. Just 16% of UK companies planned to prioritise product innovation in the coming year compared with almost 33% globally.
Further proof, if it were needed, that, while it would of course be foolish to be complacent about economic recovery, the risk-taking, innovative manager is needed more at this point in the cycle than the risk-averse accountant.
 

Categories
Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Rescue, Restructuring & Recovery Turnaround

A safe pair of hands does not include plans for growth

UK companies are reportedly hoarding as much as £700 billion in cash. Despite this, business investment grew by just 1.7% in June, according to Bank of England Governor Mark Carney, in his first speech to businesses in Nottingham.
It appears that businesses are still not confident of sustained economic recovery, and this may be understandable following the shock waves after the onset of the global economic crisis in 2008.
When times are hard the general rule is to put an accountant in charge as they will basically hoard a company’s cash.  Accountants are generally pretty risk averse and when the emphasis is on controlling cash flow they are a mainstay of business survival.
But at what point in the cycle should companies start to look at investment and growth for future profits? And at what point should accountants take a back seat and hand over to someone else?
In UK we tend to be slow to adapt to changes in the market. Let’s face it no one will criticise managers for not losing money. Only too late will shareholders realise they have been left behind.
We are still pursuing a strategy of hoarding cash when perhaps the time has come to shift from pessimism to optimism and at the very least we should be planning for growth. Now is the time for carrying out market research, modest investments, testing markets and building capacity for growth. 
We need managers with courage, managers who value mistakes and will learn from them, managers who know how to grow businesses.

Categories
Banks, Lenders & Investors Business Development & Marketing General Turnaround

The Current Situation and K2’s Recommendations for the Autumn Budget Statement

Calls for measures in next week’s Autumn Budget Statement to stimulate the economy are growing louder by the day.
Sadly, the news has been unrelentingly gloomy since October, when Public Sector jobs cuts showed a reduction of 110,000 between March and June, the rate of cuts five times higher than the OBR’s prediction, while job creation in the private sector was only 41,000.
On 14 November, the CBI’s latest employment trends survey found that 47% of employers were relatively optimistic, predicting their workforces would be larger in a year while 19% predicted they would be smaller, a positive balance of +28%.
But then, on 16 November against the background of the Eurozone debt crisis, the Bank of England revised down its growth estimate to stagnation until mid-2012 and only 1% growth for the year as a whole.
The ONS unemployment and employment figures on 19 November showed unemployment at its highest ever total of 2.63 million. From July to September a record 305,000 employees had gone from the economy and in the same period 100,000 people became self employed making a record high total of 4.09 million.
Are these people with a burning ambition to start their own business or have they simply given up on the increasingly fruitless search for employment and set themselves up as freelance sub-contractors or consultants?
As lending conditions continued to tighten, particularly for the country’s SMEs, Project Merlin again undershot its target and companies continued to pay down debt rather than investing.
By 20 November, the CBI, too, had had a rethink, reporting that firms were now reviewing investment plans after a “sharp fall” in confidence with 70% of senior business leaders now less optimistic about the future and two out of five freezing recruitment or laying off staff.
This does not suggest that the private sector is either in the position or the mood to create the additional employment that the government hoped would mop up the public sector job losses.
While not wishing to contribute further to the doom and gloom, it is difficult to find anything positive to say about the current picture and therefore this post adds to the growing calls for a “plan A-plus”  to stimulate some growth. What business desperately needs is some stability to restore confidence.
Our wish list includes measures to encourage small businesses to build capacity for growth by making it easier for them to employ and train people. Initiatives such as a NIC holiday for new employees, or young employees, training grants and relaxing termination obligations will make it easier for employers to justify taking on staff.
We also need measures to encourage export, particularly to areas outside the Eurozone, such as export trade credit, marketing support, trade delegations and export tax credits.
Finally small businesses need to be able to fund their investment in growth via a level of credit easing. The Government initiative of demanding that banks make loans to SMES under Merlin, while at the same time requiring them to reduce risk, is a farce. There are a number of possible initiatives but the Enterprise Finance Guarantee scheme hasn’t worked and the Small Firms Loan Guarantee Scheme (SFLGS) that it replaced did work. We advocate a reintroduction of the SFLGS.