The Business Bulletin Issue #17 - Focus On Finance by Paul Green

The

Business Bulletin By business owners, for business owners

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ENGAGING CONTENT

Focus on Finance Spotlight on Neil Wattam

PLUS Why value pricing isn’t the magical solution people rave about Struggling to pay tax – what should you do? The low down on tax and electric vehicles What to consider when choosing professional advice

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Issue 17

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The Business Bulletin

A magazine that works for everyone Paul Green Founder & Chief Editor

Welcome to the 17th edition of The Business Bulletin. Hopefully you will enjoy this edition which focuses on finance. Published every four weeks, it will cycle through the following themes: ■ Finance ■ Sales & Marketing ■ Operations & Resources ■ Strategy & Personal Development It will bring together a collection of articles aimed at any small business owner who doesn’t have all the answers and is open to some thoughts and advice from some of the leading experts in their fields. So what makes this different to any other publication? I’m glad you asked! For the reader – no more advertorials. All the featured articles have been chosen for their valuable content, not because the author has paid to be published or taken out an advert to get their slot! For the contributor – you can submit articles for inclusion without having to pay for the privilege or having to advertise. If your article is deemed suitable based on its merits – that it is relevant, good and engaging content and not promotional of your business,

All the articles featured in this magazine have been chosen because of their valuable content

then it will be published. For the advertiser – if a publication is more engaging due to the content, then it is more likely your adverts with be noticed. The number of full-page and half-page ads is limited for each edition and there will be a limit on the number of advertisers from a given industry sector. This means your advertisement is more likely to stand out from the crowd and not be lost in a sea of competitors. Your feedback and thoughts on this magazine are welcome – let us know your experience.

Join in!

Thanks,

Design & Layout: Pixooma Ltd.

Proof-reading: James Tarry

© Copyright 2022 The Business Bulletin. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanic, photocopying, recording or otherwise without prior permission of the editor or the author of the article. Disclaimer – no responsibility can be accepted for any actions that you take as a result of the content provided in this magazine. There is no guarantee that implementing any of the advice contained in the articles will definitely ensure your business success or have a positive impact. They are presented as information based on the experience of the authors working with many different types of businesses in their field of expertise and are provided as a choice for you to consider if they will be useful for your business.

Issue 17 – Finance | 3

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The Business Bulletin

Contents This edition focuses on finance and brings together a wide range of topics with a selection of quality articles from leading experts in their field.

What to consider when choosing professional advice Neil Wattam

Management accounts – worth your time and resources? Sarah Randall

Inheritance tax – that seven-year rule – what it’s all about? Tim Mullock

Spotlight on

Neil Wattam

The low down on tax and electric vehicles Roger Eddowes

The importance of planning and budgeting Wendy Tate

Struggling to pay tax – what should you do? Matthew Goude

What’s the best way to fund my business? Peter Douglas

Why value pricing isn’t the magical solution people rave about Nishi Patel Ask the experts

How do I get my business credit worthy? James Blacklaws

SME survey

Money matters for business and life Rob Harris

Issue 17 – Finance | 5

The Business Bulletin

What to consider when choosing professional advice

Neil Wattam Wattam Kirby Mee Neil has worked in various finance and accounting roles since 2004, starting as an auditor, followed by senior positions within FTSE 100 and FTSE 250 companies, including as Finance Director. His experience of working in numerous businesses and sectors, including running a limited company, provides a sound base from which to help clients. Neil is a Chartered Accountant (ICAEW) and holds the Diploma in Regulated Financial

For many things in life, you have a choice – do it yourself or get someone else to do it.

Planning (CII). Neil is studying towards Chartered status with the CII. 0116 218 4891 neil@wkmwealth.co.uk wkmwealth.co.uk

6 | Issue 17 – Finance

The Business Bulletin

From cleaning your car, to investing

emotional reaction. What

these subjects, but are focused on

your money, decorating your house

would you do if you saw your

financial advice in respect of savings,

and marketing your business. The

investments drop by 10%? Or

pensions & investments. There are

choice is yours – but there are a

indeed, rise by 10%? Would

numerous factors to consider, but

multitude of reasons influencing your

you stay invested?

some key points are as follows.

decision, including:

■ Desire – do you have the inclination to continue to

Regulations

to help, invariably means

monitor, research and trade your investments?

To provide financial advice, the

spending some cash

■ Cost – getting someone else

■ Time – have you got the time to do these tasks? ■ Expertise – do you know how to do it? ■ Inclination – you may have the time, you may have the ability, but do you really want to do it? Managing your finances is no different. Yes, you can open an ISA with Barclays or a SIPP with Hargreaves Lansdown and crack on. But where are you going to invest? If at all? Are you ok with earning 0.01% on your hard-earned savings? Are you just reading the Money section from the Sunday papers? Using a professional could potentially be beneficial for many reasons as against a DIY approach,

■ Risk – what risks are you monitoring? Are you thinking about markets, capital risk, income, inflation and others? Or are you just thinking whether the FTSE100 goes up or down? ■ Plan – do you have a plan? What are you trying to achieve? What are your timescales? ■ Cost – what are you actually paying? Transaction fees, stamp duty, fund management fees – you’re already paying someone! ■ Tax – are you taking advantage of your allowances? ■ Who? – Are you looking after

but you need to mentally decide

just your own finances? Or

that’s where you’re going. Using

for your whole family? What

a third party to look after your life

happens if you’re unable to?

savings and financial future for

Does you partner know what

example, is no trivial matter and in the

you’re invested in & why?

world of managing money, there are numerous complexities to deal with… ■ Jargon – do you know your

What do you want to spend your easier knowing that someone is looking after your best interests

gilts from your S&P 500?

and help you make those difficult

to keep on top of what your

authorised by the Financial Conduct Authority (FCA). You can check the regulatory status on the FCAs website. If it is unclear, ask them to clarify their status. https://register.fca.org.uk/s/

Independence Just because a business is ‘small’, that does not mean it is Independent. Many smaller financial advisor firms are tied to a network or are effectively a franchise of a larger business and can be restricted to just offering products from within that operation. ■ Restricted advisers might either be restricted in the type of products they offer, the number of providers they choose from, or both ■ Independent financial advisers (IFAs) can recommend their pick of retail investment products and pension products from firms across the market without restriction

time doing? Do you want to sleep

lifetime allowances from your ■ Time – do you have the time

advisor has to be regulated and

financial decisions?

Cost Financial advice will cost. It’s a regulated service and not something that just anyone can provide but the

If you’ve decided to use a third party, how do you pick a financial advisor?

way in which advisors are paid has not

Firstly, be clear on what you are

That all changed as part of the Retail

seeking advice on. Is it a mortgage,

Distribution Review (RDR) and with

emotional beings and make

savings & pensions or insurance? The

the exception of mortgages and

most decisions based on our

notes below broadly apply to all of

insurance, commission is banned.

money is doing? ■ Research – are you talking to investment houses and fund managers? ■ Rational thinking – we are

always been clear. Prior to 2013, advisors were typically paid through commission.

Issue 17 – Finance | 7

The Business Bulletin

Advisors now charge fees and have

Such costs are normally deducted

the business. An open, honest and

to disclose those fees.

from the value of your investments,

transparent relationship is absolutely

so you don’t have to get out the

key. You want to feel happy to pick up

cheque book!

the phone to the advisor and chat.

Most advisors will not charge for an initial chat. This can help establish what you want and whether the advisor can help – also, if you’ll get on. If you are seeking a one-off piece of

Contract restrictions – would exit

a chat with your friends, family and

contract length?

perhaps your accountant if you have one.

advice, there will be a one-off fee that you’d pay for directly. If you are seeking an ongoing service and relationship, the service is typically charged as a percentage of the investments being managed (e.g. 1% per annum), for the advice, plus the cost of the platform (where your

It’s not an easy decision, so have

fees apply? Is there a minimum

Service What will they offer? Is it a setup and forget or is there an ongoing service? What do you want & need? Is it in person, or over Zoom/Teams?

money is held) and the investments

The person!

themselves. There is usually an initial

You need to get on. You need to

fee for the setup and investment.

be able to trust this person and

The Business Bulletin

Management accounts – worth your time and resources? I had the conversation again today with a new client; “I prepare management accounts every month”…”Great, what do you include and how do you use them?“…”Well I run the Reports on the software and save them in a file”…”OK, but how do you use them?”…”Well I don’t, I just file them”.

Management accounts can be

maintain complete and accurate

When businesses move beyond

incredibly valuable. However, if you

records to track cash flow, ensure

these basic requirements, whether

are one of the many businesses

suppliers are paid on time and

due to employing staff, tendering

preparing reports simply to file

crucially, to ensure customers are

for larger projects, taking out

them away, then please stop and ask

paying their invoices.

finance or simply growing, then

yourself, why do you need or want to

management accounts can help you

prepare management accounts?

run your business more effectively. If

Not all businesses need management accounts. For smaller businesses, it is often sufficient to

Issue 17 – Finance | 9

The Business Bulletin

properly prepared, understood, and

■ The reports may highlight

and for those who struggle to keep

interpreted, the numbers can give

regular use of expensive

personal and business monies

you a huge amount of information,

contractors, which could

separate, regular review of the

including where your business is

justify hiring an employee

Director’s Loan Account position (have

going right, and wrong.

to bring that element of

the directors drawn too much?) could

the supply chain in-house.

avoid nasty tax implications later on.

The reasons for preparing the reports, and the people using them, will dictate the level of detail and frequency required. For example, you may need to evidence a solvent balance sheet to the bank each month to maintain an overdraft facility. If this is your sole reason then a simple Profit and Loss report to summarise the activity in the period, along with a Balance Sheet to confirm the updated position, will likely suffice. Tax provisions and timing differences should still be considered to ensure the figures are complete, but the final reports will not require a lot of detail. For most businesses, management accounts should only be prepared to enable decision-making, help drive the business forward and should therefore be tailored to suit your needs. The Profit and Loss Report should show detail in the areas relevant to your current purpose, everything else can be grouped to avoid you getting lost in the data. ■ They might split the

Alternatively, fluctuating sales or downward turns may suggest that the business cannot afford a full-time employee and would instead be better off with the flexibility of a contractor. ■ Establishing the profits generated from activities will

point; the volume of sales required to cover the business’ overheads. ■ Comparing the activity month

need to act now. Some businesses will include

■ If budgets and/or cash flow forecasts are prepared, then compare them to actual figures as you move through the year to evaluate

trends or areas for further

performance. Budgets and

investigation, especially when

plans are very useful tools, but

looking to streamline overhead

should ideally be reviewed and

costs. Examples may include;

updated as changes occur.

Are your subscriptions all in use or have you forgotten to cancel old ones? Do you know how much you are paying for advertising, phone contracts, website maintenance, etc.

shopping around?

■ Understanding the gross

(“net assets”) figure is negative, you

by month will highlight

all profitable or is there an

change in direction?

what you owe (liabilities). If the overall

management accounts;

for money, or should you be

all others which may lead to a

shows what you own (assets), less

and monitor the break-even

of the business; are they

department outperforming

down the line. The balance sheet

additional reports in their

and are you getting value

draining resources? Is one

highlight potential cash problems

also allow you to calculate

different income streams

element of the business

The biggest reason to have an accurate balance sheet is that it can

Reviewing the Balance Sheet will ensure you are familiar with the business’ assets and liabilities. Where reports are to be provided to third parties, the balance sheet is particularly important and small

■ You may benefit from additional customer analysis; top customer reports are great for identifying strong but also weak customer relationships, this may lead to understanding where the business is losing out on repeat orders, for example, or lost opportunities for add-on sales or after-care services. Are you giving your best customers enough attention to maintain those relationships? Are you too reliant on any one

profit of the business (the

changes such as separating long-

sales less the direct costs

term creditors can greatly improve

to deliver those products/

liquidity ratios. This could make

services) is crucial and

all the difference when tendering

includes breaking down the

for projects, as should increase

directly attributable costs; the

confidence in the business’ financially

the source of their income

source of any materials, the

stability. An accurate Balance Sheet

to assess the success of a

method of delivery, the value

will also confirm the reserves (retained

particular method, campaign

of stock held, and so on.

profit) available for dividend income,

or type of advertising.

10 | Issue 17 – Finance

customer which leaves your business vulnerable? (all your eggs in one basket…) ■ Some businesses also track

The Business Bulletin

The key is to know why you want

interest lies in maximising growth in

to prepare management accounts ,

your business, consistently reaching

what you are trying to achieve, and

a set target to provide you with a

therefore what data do you need to

regular income, or trying to recover

get you there.

from a difficult period; management

The frequency is also relevant; you may not have the time or resources to produce monthly reports and even if you do, this is irrelevant unless you actually intend to use them monthly. For many small businesses, quarterly reporting is sufficient to review the

accounts need to be accurate, timely and should be produced with a frequency and level of detail to suit YOUR needs and enable YOU to make decisions. Anything less than that is probably not worth your very valuable time.

Sarah Randall Cottons Accountants Sarah spends most of her time working with owner-managed SMEs, across a broad range of industries, both new businesses and those already

business and plan for the next period.

established. She also specialises in

For those businesses who choose

Solicitors’ Accounts Rules work, leading

to invest their time, or money if

Cottons’ dedicated team, training others and working with a range of solicitors

outsourcing, for the preparation of

across the country

detailed management accounts , they are equipping themselves with

01604 632116

a wealth of data on which to make

SRandall@cottonsaccountants.co.uk cottonsaccountants.co.uk

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The Business Bulletin

The low down on tax and electric vehicles Business parks and hotel car parks are beginning to fill up with electric vehicles and, at the time of writing, the RAC estimates that there are more than 330,000 zero-emission Battery Electric Vehicles on the UK’s roads – with more than 125,000 registered in 2021 alone – along with 320,000 plug-in hybrids and over 700,000 conventional hybrids.

By 2030 new fossil fuel cars will cease

A maximum grant of up to £2,500

2022 and a claim submitted to the

to be sold in the UK. Before then, the

is available for an eligible new car, and

Driver and Vehicle Licensing Agency by

Treasury is incentivising business

further grants are available for eligible

30 April 2022.

drivers to go electric by offering some

motorcycles, mopeds, small vans,

key tax benefits:

large vans, taxis and trucks.

For a pure electric car, a low benefit

The Electric Vehicle

in kind rate

Homecharge Scheme

The scheme will remain open to: ■ homeowners who live in flats ■ people in rental accommodation (flats and

For the current 2021/22 tax year this is

This is a grant that provides a 75%

set at 1% rising to 2% for the 2022/23 tax

contribution to the cost of one

year. E.g. in 2021/22 the benefit in kind

charge-point and its installation. A

for an electric Tesla with a list price of

grant cap is set at £350 (including

£100,000 has a benefit in kind charge

VAT) per installation. The main

of £1,000 whereas a high emission

requirement is that a person owns,

fossil fuelled car with the same list

leases, or has ordered a qualifying

price of £100,000 has a benefit in kind

vehicle and has dedicated off-street

charge of £37,000. For a 40% tax-payer

parking at their property. A person

the tax saved by going pure electric is

may apply for 2 charge-points at

normally it comes down to cash flow.

£14,400 in this example.

the same property if they have 2

1. Buying – this can be by cash or

qualifying vehicles. For a low emission car, a plug-in

single-use properties)

Should you buy or lease your electric vehicle? A common big question is whether to buy or lease your new electric vehicle. There are advantages and disadvantages of either way but

by finance. Having full ownership

grant for qualifying vehicles

From April 2022, the Electric

of the vehicle means you may be

Vehicle Homecharge Scheme will

able to claim a capital allowance

You can get a discount on the price

no longer be open to homeowners

against the purchase, for a new

of brand new low-emission vehicles

(including people with mortgages)

vehicle this could be a 100%

through a grant the government

who live in single-unit properties

annual investment allowance.

gives to vehicle dealerships and

such as bungalows and detached,

The disadvantage to buying is

manufacturers. The grant is

semi-detached or terraced housing.

that you often have to find cash

automatically deducted from the price

Installations in single-unit properties

or have the ability to obtain

of the car at source by the dealer.

need to be completed by 31 March

finance.

12 | Issue 17 – Finance

The Business Bulletin

2. Leasing – This gives you the full use of the vehicle until the end of the lease agreement, and you would usually only need to pay a deposit and then spread the monthly lease payments over

■ you are a sole proprietor ■ you charge your electric vehicle at home ■ you charge your electric vehicle for business purposes

the life of the lease agreement. The disadvantage is that you would not be acquiring an asset and so wouldn’t be able to claim tax capital allowances. The choice is not always clear-cut so it’s best to talk it through with your

You should work out how much of charging your electric vehicle is for business use and how much is for private use. You can recover VAT on only the business use amount. The usual input tax rules apply.

Roger Eddowes Essendon Accounts & Tax Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts & Tax with Helen

As a sole proprietor, you can

Beaumont in 2014. Roger loves ‘getting

recover the input tax for charging

his hands dirty’, working with emerging,

VAT liability for electric vehicle charging

your electric vehicle for business use

small-to-medium and family businesses

Being an accountant writing this

input tax for charging electric vehicles

article, it would be wrong not to

is the same as the VAT rate charged

mention the lovely area of VAT.

on the supply of electricity.

accountant.

Electricity used for charging an electric car in public places is subject to the full standard rate (currently 20%) and HMRC quote the following from their manuals:

at other places. The usual input tax rules apply. The rate for recovery of

If you employ people and an employee charges an electric vehicle at their home you cannot recover

to ensure they receive the best possible accountancy advice. Using an extensive network of business contacts to leverage the best guidance and practical solutions, he has been called a Business Godparent due to his caring, hands-on approach. 07595 021376 roger.eddowes@essendonaccounts.co.uk essendonaccounts.co.uk

the VAT suffered. This is because the supply is made to the employee and not to the business. If the employee

to apportion the amount of VAT

charging your electric vehicle if all of

charges the electric vehicle at the

claimed according to the amount of

the following apply:

business’s premises, you would have

business use out of the total use.

You can recover the input tax for

Issue 17 – Finance | 13

The Business Bulletin

The importance of planning and budgeting I am sure many businesses have been planning and adapting throughout recent times if only verbally. By going that step further and writing your plan down and even sharing your aspirations for the business with staff you will be surprised how many of your goals you are able to achieve.

14 | Issue 17 – Finance

The Business Bulletin

Have you, like me, ever written a list and then left it on the table when you go shopping, I know I have and just

Work expands to fill the time available for completion

because you’ve written it all down it’s surprising how many of the things on it you remember. Writing it down reinforces the thoughts, it’s the same with your business goals.

So how should you go about writing a plan? Step 1: Define your end goal, if the thought of writing a long-term plan for the next 12 months seems daunting then break out down and write a quarterly plan instead. Over longer timescales, it can become increasingly difficult to track progress

goal of your plan? This is where it is

your budget on. Oftentimes budgets

good to ensure your goals are SMART

will contain elements of each

by this I mean

approach especially setting a budget

1. Specific

for a brand-new project.

towards objectives.

2. Measurable

Historical budget

Step 2: Write a list of the steps you’ll

3. Achievable

In this method, we project future

need to take in order to reach your

4. Realistic

goal, it doesn’t matter how many steps there are.

5. Timebound

Step 3: Have a look at the steps

Step 7: Lastly, as I said at the beginning

you’ve created and put them into

your plan should be regularly

order of priority, it might be that some

Monitored to evaluate the progress

are more pressing than others or that

and then updated and adapted as

some steps need to be completed

necessary as things change to ensure

in order to move to the next stage of

your end goal is achieved.

your plan. Step 4: It’s important to set milestones and celebrate those little victories as each one is reached, it encourages you to continue with your plan, keeps you on track and can be used to examine progress and to maintain motivation towards short-term achievements. In addition, deadlines often inspire productivity as in accordance with Parkinson’s Law: ‘Work expands to fill the time available for completion’. Step 5: Identify what resources you are going to need and where you can find them, it can be a good idea to set some budgets, so the costs are kept to a reasonable level for your business. Step 6: Can you visualise your plan? Can you see yourself reaching the end

If you want to put plans in place for your business but don’t know what is achievable or where to start, then it may be a good idea to look for a business coach who can go on the journey with you. A good business coach can be worth their weight in gold especially if you run your business alone and don’t have anyone you can bounce your idea off. One of the key things to look at when planning is to create a budget. There are two different approaches

revenues and costs on the pattern of recent years’ trading, looking back and seeing the pattern of the revenues and costs by week or month and from there predict what might happen in the future.

The zero-based budget This method starts from a position of zero costs and zero revenues, and each element of the budget is justified and challenged. Obviously, the only option available to you if you are starting a brand-new business. Both the Historical and ZeroBased budgets have their place, the zero-based option will be more time consuming although it can create the most well-founded financial budgets as everything is considered and challenged.

to setting a budget for your business,

Key budget elements

if the business has been trading

When creating a financial budget for

for one or more years a historical

your business this can be an overall

approach is the most common, but

budget for the whole business or

if you are setting up a new business

a smaller one for example for the

what then? This is where a zero-

marketing. Whatever budget you are

based approach will need to be used

creating there are some key financial

as there is no historical data to base

considerations:

Issue 17 – Finance | 15

The Business Bulletin

■ Revenues ■ Costs ■ Investments ■ Financing ■ Credit management and cash fows

functions will have to be monitored and amend based on knowledge of the current market situation and the assumptions that have gone into their business planning.

One-off flows

Wendy Tate

As the name suggests, these Let’s look at revenues and costs.

monetary flows are neither fixed nor

Bean Counters Bean Counters is a forward thinking

There are three types of monetary

variable, but come from expected

flow, which apply to both of these,

transactions that, while the value and

fixed, variable and one-off costs, all of

timing are known they are significant

which need to be considered.

in scale and not likely to be repeated

Whether your business is new or old it

on a regular basis.

needs efficient accounting services for

Fixed flows These are flows that are known with reasonable certainty for the budget period and are usually related to a fixed, contractual arrangement for example the premises rent, machinery lease costs, maintenance contracts. On the revenue side this would include any contract or retainers’ revenue or indeed rental income if the business has property. As these are well-known it is a good idea to use these as the first entries into your budget.

Variable flows These are flows that come generally as the result of normal business activity. Sales, not including those retainer and other fixed income costs which have already been discussed above. Costs of raw materials, related to the budget period, which generally scale

These would include the sale of Assets or the freehold or lease on a business premises, or the receipt of

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one-off Grants. Conversely one off Out-Flows would include expenditure

07810 562295

for new plant and machinery or

wendy@bean-counters.co.uk

another large asset. A significant

bean-counters.co.uk

change in value of stock of goods held could be either depending on whether then stock is increasing or decreasing in value.

Creating the budget In order to create our financial budget, using the more common historical method we need to consider all costs and revenues that have occurred in recent years of trading. It will be necessary to list all sources of cost and revenue from prior trading and determine its flow-type and its likely impact during our budget period. Budgets need not be over

will make your life a lot easier if the information you receive from each department is in similar format and detail to this end it will be worth your while to create a template for each department to complete. This ensures that you have the right level of information to bring together and a consistent basis to track the progress of the organisation through the budget period. All flows should be accounted for in the template that you provide to each contributor, as this will ensure that all items are captured, including those

with the volume of production, also

complicated, however the greater

fall under this category. Projection of

the detail in a budget the more

these flows will normally be based on

likely it will be that you’ll be able to

their equivalents from the previous

identify elements are not staying

in-depth budgets is time consuming

financial period where products or

in line with the budget, variances

having a good understanding of the

services exist in both periods.

should be calculated and reported

numbers in your business is crucial

at least quarterly in order that action

for future health and indeed growth.

can be taken to correct the negative

Happy planning!

Variable flows will be based on expected activity that has been planned by the business for the budget period. While a Finance function may be able to do reasonable projection of these flows based on previous activity. The variable business

16 | Issue 17 – Finance

occurrences or exploit the positive ones which will show where extra money will be available. If you are tasked to compile an overall budget for your company, it

unexpected costs and revenues. While creating a plan and such

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What’s the best way to fund my business? New start-up and early stage businesses are like ‘acorns are to oak trees’ for the UK economy. All successful businesses were start-ups at some stage and it is vital to the future of the UK economy that entrepreneurs continue to create new start-up businesses.

It is, however, a sad fact that after 5

Now, whilst cash may be king,

years only 40% of new-start businesses

getting your hand on it can be a big

are still trading. According to the

problem! For example, the less history

Office for National Statistics [ONS] the

you have, the more difficult it is to

biggest reason for business failures is:

raise that loan you need to grow the

opinions on Access to Finance for SMEs in the UK, one of the key findings was:

Insufficient investment and working capital finance

for early-stage businesses, the only

The lack of awareness of the range of finance options available.

way to persuade a ‘Lender’ to provide

This comes as no surprise to anyone

a Loan is to offer some significant

involved in the commercial finance

security against it. Often this will be

world as changes over recent years

For many businesses the well-known

property based unless the business

have created a totally different

dictum “cash flow is king” certainly

itself has already acquired sufficient

landscape to the funding choices

rings true, especially for SME’s and

‘unencumbered assets’.

now available compared with the

business. In many cases, particularly

start-ups. I emphasise the smaller businesses as often larger enterprises will be able to rely on the pure size of their business and/or unencumbered assets to obtain credit.

18 | Issue 17 – Finance

In the findings of a survey conducted in the Spring of 2021 by Ipsos Mori, on behalf of the British Business Bank [BBB], to research

past. There was a time when the only

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Enterprise Ltd. has also impacted on the funding landscape. The BBB do not, however, lend to SMEs directly.

The landscape was very different then, with local bank managers having their ‘ears very firmly to the ground’

Instead they work with ‘distribution partners’ i.e. other financial institutions, to increase access to funding principally by providing part guarantees for loans. Thus it is easy to see the argument for employing the services either of an experienced broker or possibly an accountant, if you can find one who has broad knowledge of the many types of finance as referred to above. Worth mentioning also that there is now a new source of free information on the many types of finance available

realistic option of raising money for

The funding landscape has

a new business outside of its own

dramatically changed due to a

resources and friends and family was

significant growth in the choice

to ask the local bank manager for

of funding types available to SME

either an overdraft or a loan.

businesses. This has been driven

Traditionally banks did not expect to back new business ventures with all the monies required but were invariably receptive to backing viable propositions where the founders were inputting some of the funding

by registering to download from the www.thestartuppack.co.uk web site. Highly readable and very informative.

to move into areas where the banks have been less focused due to concentrating on repairing their balance sheets. In a way, this is potentially very good news for the start-up or

for the facilities requested. The

established SME. The problem

landscape was very different then,

lies, however, in the sheer diversity

with local bank managers having their

of funding options that now exist

‘ears very firmly to the ground’ and

(note: I do not say ‘are available’ as

they were invariably the first point of

many of them will have parameters

referral when entrepreneurs asked

& conditions that some businesses

their accountant, solicitor or advisers

cannot meet). Who are these

where they should go to raise funding

‘alternative’ funders? What type of

for their business.

finance do they provide? How do we

ago, with the advent of the original

Finance Guide’ that can be accessed

largely by the new funders looking

requirement and/or providing security

It was probably some 40 to 50 years

to small businesses. This is ‘The

qualify? Equity Investment, crowdfunding,

Peter Douglas Business Finance Services Having successfully completed a Degree in Business Studies Peter spent over 20 years in Export Sales and Marketing. He then decided to give up the globetrotting life and, with his wife, bought a small business which they

‘alternative finance’ options coming to

unsecured loan-based crowdfunding,

ran together. Peter has been involved in

market, commercial finance brokers

rewards-based crowdfunding, spot

running SMEs ever since and set up BFS

became established and accepted as

factoring, merchant cash advances,

part of the funding landscape. Initially

pension-led funding, Government

these brokers focused on the property

start-up loans are just some of the

and asset finance sectors where

types of funding that have grown

they ‘packaged’ funding applications

significantly in terms of availability

and presented them to the funders.

over the last 10 years. The creation of

However, the biggest change in the

the British Business Bank [BBB] in

brokerage market has been seen

2014 to take on all financial schemes

since the 2008/9 banking crisis.

previously controlled by Capital for

in 2002 having spent time getting an education in commercial finance. He says “Whilst it is hard work I have never had so much fun as running BFS. Nothing gives more satisfaction than helping SMEs to grow or regain their strength”. 07770 866955 peter@bufinserv.co.uk bufinserv.co.uk

Issue 17 – Finance | 19

The Business Bulletin

How do I get my business credit worthy? Cashflow is the lifeblood of any businesses, especially in the current post lockdown economy and while a majority of business owners are likely aware of the basic fundamentals of how their lending requests are assessed by lenders, it is likely that there are many factors which are still overlooked.

This article is designed to help a small

rent paid (if moving from a rented

business with ensuring their business

premises to a freehold) or even

a negative net worth or late filed

is in the best possible position when

pension contributions to a director

accounts as well as defaults and

applying for finance, whether it is a

(which can be put on hold if required).

even the sector which the business

small loan for an asset or a larger loan for a property:

While I would never expect a client to complete a full assessment of their

This includes late payments,

operates in. There are many websites which can

lending request, it certainly would

be used to check your business credit

Criteria A – Your business needs to be able to afford to repay the loan

help them present a case to a lender

history. I recommend that a business

if they were able to demonstrate that

owner subscribes to one of them to

their business could actually afford

ensure that the details are accurate

to repay the proposed loan. There is

and up to date.

This may sound obvious but isn’t

very little point in applying for finance

always the case. As a minimum,

if your business is loss making and

your business needs to be able

struggling to make their current

to demonstrate from produced

monthly commitments.

annual accounts and management information, that it can afford the

It’s also important to mention that, despite us focusing on business lending here, personal credit history is still of great importance. No matter how well run your business is, if a director has multiple CCJs in their

are ways to calculate the serviceability

Criteria B – Ensure your credit history is accurate and clean

of a loan repayment, the most

In an increasingly technology driven

cold feet. It can also cause great

annualised loan repayments. A good broker will know that there

common being EBITDA (earnings before interest, tax, drawings and amortisation). This enables a business to reduce their profits effectively while still ‘adding back’ figures to demonstrate that the business can

marketplace, the importance of credit history is growing and growing. While it may be obvious that County Court Judgements (CCJs) are likely to rule a client out from being accepted for

personal name (or even linked to their address in any way) this can lead to a lender very much getting embarrassment and strain to a business relationship if an adverse credit history is revealed when applying for finance. As with businesses, there are a

finance, other factors can also appear

number of monthly subscriptions

on a clients credit history which may

available for individuals to check

either lead to a declined decision or

changes to their credit history with a

may be added back to demonstrate

reduce the pool of lenders available

majority of lenders using Experian or

serviceability of a loan are current

to them.

Equifax which are affordable options.

afford the repayment required. Other lines on the accounts which

20 | Issue 17 – Finance

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Criteria C – Have your information up to date

always be required by a lender and it’s

Nothing frustrates a broker or lender

quickly as possible when applying for

more than continually chasing a client for information which they should, as a business owner, have available at their fingertips. I would always recommend that business owners are always on top of the following, and even more so if looking to raise some finance: ■ The last filed set of trading accounts ■ The latest monthly management information ■ The last 6 months of business and personal bank statements ■ An up-to-date aged debtors

The above information will usually vital that as much of it is available as any form of commercial finance. Every form of funding requires different information, so the above tips are very ‘broad brush’. It is likely that a property purchase will require proof of a deposit so proof of this will be required. I would always recommend that a client has their professional advisors on ‘red alert’ when considering a purchase as it is likely that a Solicitor will be required for a property deal and an Accountant may be needed to provide further information, albeit this is less likely for a small working

James Blacklaws JB Commercial Finance James, an ex-banker, is a highly experienced and fully Independent Commercial Finance broker, authorised and regulated by the FCA. With whole-ofmarket access. He specialises in helping businesses declined by their banks; businesses looking to grow, survive and purchase commercial property. 07722 432128 james@jbcommercialfinance.co.uk jbcommercialfinance.co.uk

capital deal.

and creditors list ■ An accurate cashflow forecast for the next 12 months

Issue 17 – Finance | 21

The Business Bulletin

Money matters for business and life I guess if you’re like most people, you have your investments handled by your financial adviser? And I’m guessing you entrust that person to invest wisely and optimise the return on those investments. It may be however, you don’t know the options that are available and whether to question your FAs choice of portfolio.

The intention of this article is to

The cash needed to redeem your

hear that one investment is

give you an overview of the choices

holdings is often stored in a so-called

low risk and another is high

available to you and the pros and cons

Money Market Fund which sometimes

risk. It’s no such thing!

of each. So let’s take a look.

can be a place for you to place your savings when interest rates there are

Cash and near cash Is your money in the bank or building society safe? Certainly, many believe so. Subject to changing compensation levels in case of bankruptcy, it is. You’ll get £100 back for £100 deposited. However, the value of your savings isn’t necessarily safe. If the interest you earn doesn’t keep up with the rising cost of the things you want to buy, then your £100 taken out later might only buy say £96 worth of goods in the shops. That’s why we need to invest. You can explore near cash holdings such as Certificates of Deposit, Floating Rate Notes and Time Deposits or even consider National Savings but none of these will yield a potential capital gain as well as interest while you’re invested. When you invest in pooled funds (Unit Trusts and OEICs – Open

higher than in your high street bank. As we approach the stock market, I suggest three golden rules to remember – ■ Firstly, always invest where you can potentially make your original investment grow – that is, make a capital gain; while also receiving interest (dividend or yield). Always earn these two kinds of return on every penny you invest! ■ Secondly, in today’s fast-

its value and investment in direct property, such as buy-to-let, is battered by nasty tax erosion, where to next?

Fixed interest investments There are essentially just two main ways in which you can invest through the stock market. Lend your money at interest or buy ownership of companies by purchasing shares. You can lend your money to the UK Government, global governments or to business enterprises through stock

changing financial world, never

exchange quoted companies in the

invest where your money is

UK or worldwide.

locked in or not liquid enough to allow instant withdrawal. Remember, bricks and mortar locks your money in. ■ Thirdly, always remember that

Ended Investment Companies), your

the risk of any investment

fund manager will normally buy your

depends on the changing

investment back from you, when you

economic, social and political

want to sell, turning your holdings into

events surrounding the type of

cash. He/she must therefore have ready

investment you hold. Always

cash to be able to do so.

question when you read or

22 | Issue 17 – Finance

So, if money held in cash loses

The Fixed Interest route means you, or your pooled fund manager acting for you, lends your money to governments or companies. In the fund supermarket you walk up the fixed interest aisle. On the shelves are bundles of fixed interest funds offered by a good number of fund managers, all wanting you to choose to invest with them. Each fund offered will have a Fact Find Sheet where you can read all

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about it! Remember – each deal your

go for greater safety by holding money

manager agrees to will simply pay

in the bank once again. Where to next?

interest and return the capital to the fund at the end of the loan term. The fund may have as many as 50 or more loan deals included. Particularly look for the current yield (interest rate). If the rate seems very low, then the risk is likely to be reflected by the credit ratings of the holdings. So, if 100% of the holdings are shown as triple AAA credit rated, then the likelihood of a failure to pay interest or return the loan capital when due is very small. Suppose the rate seems tempting and attractive, a yield say of 4% or higher? Then look for the credit rating again. You’ll find ratings of BBB or lower. This means the probability is that at least some of the loans your manager made for you could fail to pay back the loan or interest when due. You employ your fund manager to research and balance the possibility of risk and reward. How can your manager make a capital gain in this market for you? Suppose the yield (interest) on your chosen fund is a variable yet reasonably stable 4%pa ongoing and interest rates at the bank fall? Those with money on deposit at the bank want to move their money to a better interest rate and so choose to buy into your fund. Now there is a demand for the investments your fund holds. Supply and demand means the price of your holdings rise

Property fund investment Investing in commercial property provides potential for regular income and growth of your savings, capital growth as property prices rise, if they do, and rental income from the fund’s tenants. Your fund manager will purchase shops, office blocks and industrial units. Your fund can be limited to the UK or property across global markets. What percentage of your money would you be happy with in say retail (shops)? What percentage in office blocks and then industrial units? Current High Street worries for the retail trade against online sales might be of concern if your fund has a big percentage of retail ownership. These funds are supported by foreign investors who are sensitive to the rise or fall of sterling as a currency.

Rob Harris Your Financial Friend For more than 30 years, Rob dedicated himself to giving professional financial advice to all kinds of individuals, businesses and corporations. Time and again, his clients confirmed how delighted they were that their savings and investments prospered so well. Now he shows you how to take control and make the ongoing right decisions for yourself! Never make the mistake of referring to Rob as a “financial adviser”.He will make clear he isn’t. Rob will explain that he is very different. He’s a financial friend, educator and commentator – hand in hand with you all the way. 07540 582910 harrisfinancialfriend@gmail.com yourfinancialfriend.co.uk

They lose when sterling falls against the investors home currency. This caused

It’s true of all pooled funds,

the inability of many such funds

especially those using illiquid assets in

to allow investors to redeem their

the mix, that circumstances can arise

holdings in 2016 when the UK voted

where the fund manager is unable

for Brexit causing sterling to crash.

to redeem an investor’s holding

There is a clause in the fund details which allows the manager to defer buying back your investment so your funds could be locked in for an unspecified time. Property takes time to sell and convert to cash.

making your original savings grow – a capital gain is made. So two kinds of return are achieved, affected by the political, economic and social events surrounding your investment. The receipt of interest and a capital gain. Equally though, if interest rates in the bank rose then your capital could fall as people sell your fund holdings to

Issue 17 – Finance | 23

The Business Bulletin

immediately – a concern which has

has your manager hopefully poised to

been growing in the industry.

pick the best options. You pay more for

adviser if you need one? How can you

the active manager so many prefer the

invest to maximise tax free returns?

lower costs of passive funds.

How can you have the government

In the long term, in the past, equities have always provided greater gains for investors than any other asset. Let’s take a look.

The equity market Shares or equities allow your fund manager to buy part ownership of the companies in which he invests your money. As the manager has a mountain of money to invest from many investors like you, he can buy many shares across many sectors of

Go up the equity aisle of your online fund supermarket and you’ll find funds investing in UK shares – large companies and small and specialist, or go global to Europe, Japan or even China. Technology,

How do you choose a financial

add to your savings through generous tax contributions to your investment? How can you reduce risk? How can you make profit in all market conditions? Is gold a good investment? Bitcoin? Like life in general, investment has

gold and precious metals, emerging

its ups and downs, so profits are not

market equity funds – an endless

guaranteed. You need to understand

supply of opportunity to speculate

more of how prudent investment can

and accumulate wealth.

be profitable and how to reduce the

The content here is designed to

risk of financial loss.

the market. You can choose between

open the door into this world for you

passive or actively managed funds.

and so isn’t comprehensive. You’ll

knowledge of the world of money is

Knowledge is power and

Passive funds simply seek to follow an

need to learn more before taking

the power to build a secure financial

index like the FTSE 100 Index up or

advantage of some of the ideas and

future and benefit.

down, while an actively managed fund

outlines given here.

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Inheritance tax – that seven-year rule – what it’s all about?

Tim Mullock Adept Asset Solutions The core of what Adept Asset Solutions does is about family. Tim started the company in 2013 to make estate planning local and straightforward. He has been helping people manage their wealth and estates for thirty years and reached the point where he knew he could help people more effectively on his own. When growing up, Tim’s uncle introduced him to the exciting world of stocks and shares. It gave him a passion for helping money grow and why wealth management was critical. He loves

Have you started thinking about estate

knowing his clients have peace of mind,

planning? Let’s hope you have. If the answer’s

will stay in their family for generations to

‘no’, then today is as good a time as any. And there’s no better way to start than by looking at the famous ‘seven-year rule.

knowing their wealth is protected and come. 07523 952252 tim@adeptassetsolutions.co.uk adeptassetsolutions.co.uk

Issue 17 – Finance | 25

The Business Bulletin

Gifts and inheritance tax Certain gifts can be subject to inheritance tax – usually at a rate of 40%. You might think that the simple way to avoid your beneficiaries having to pay inheritance tax is for you to give everything away before you die. Not so fast. HMRC has applied a set of rules to stop you from doing exactly that. Some gifts are usually tax-free from the moment you make them. For example, gifts between you and your spouse or civil partner, or the first £3,000 you give in each tax year. However, other gifts can result in an

You might think that the simple way to avoid inheritance tax is to give everything away before you die…

immediate tax bill immediately or further down the line. To find out more about these, get in touch, and we’ll talk you through your options.

The seven-year rule Let’s look now at gifts that aren’t immediately tax-free but which HMRC considers ‘potentially exempt transfers’. In other words, they’ll

estate of £650,000 to Hannah

none left – your beneficiaries will pay

and her brother in equal

40% on their entire inheritance.

shares. Because he’d died within seven years of making the gift, its value reduced his nil rate band. ■ This meant Hannah would

only be tax-free if you survive for at

receive her £100,000 gift tax-

least seven years after making the

free, leaving £225,000 which

gift. If you die within that time, your

could then be passed to her

beneficiaries may find themselves

and her brother tax-free.

paying inheritance tax.

Your nil-rate band So, we’ve agreed that, if you die within seven years of making a potentially exempt transfer, the transfer becomes chargeable. Its value will either reduce or eliminate your nil rate band (the amount which can be passed to your beneficiaries without inheritance tax liability). This band is usually £325,000 per person.

■ The remaining value of his estate was £425,000 (£650,000 – £225,000). ■ This was subject to inheritance tax at 40%. ■ The total Inheritance tax bill was, therefore, £170,000 (£425,000 x 40%). ■ The consequence is that the net estate (tax paid) was paid to Hannah & her brother £240,000 each.

An example

On top of this, the recipient of the gift may need to pay inheritance tax on the value of the gift above the nil rate band. However, the news isn’t all bad. The amount of tax they will pay depends on how long you survive after making the gift.

What is taper relief? The rate of inheritance tax they will pay gradually reduces over the sevenyear period – this is called taper relief. Here’s how it works: Taper relief only applies to the amount of tax your beneficiaries pay on the value of the gift above the nil rate band. For the remainder of your estate, they will have to pay the full rate of inheritance tax – usually 40%. An example ■ In June 2014, Helen Jones gave her son, Sean, £500,000.

Giving away more than the nil-rate band

She died six years later in July

If you die within seven years of making

gifted more than her nil rate

gifts that exceed the nil-rate band,

band. So, when she died, Sean

Stanley died and left, after

your full nil-rate band will be used up

had to pay inheritance tax on

inheritance tax, his remaining

by the gift. When you die, there will be

the excess.

■ In May 2016, Stanley Shirtcliffe gifted £100,000 to his daughter, Hannah. ■ Four years later, in June 2020,

26 | Issue 17 – Finance

2020, leaving Sean the rest of her £700,000 estate. She had

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■ Inheritance tax was due on the

of £280,000 (£700,000 x 40%)

value of the gift above the nil

had to be paid before Helen’s

How long

rate band, which was £175,000

assets could be released to her

ago was the

the tax

gift made?

reduces

0-3 years

No reduction

3-4 years

20%

4-5 years

40%

5-6 years

60%

6-7 years

80%

(£500,000 – £325,000). ■ Because Helen had died six

son. ■ When looking at your estate

years after making the gift,

planning and making financial

taper relief kicked in. The

gifts, some of the areas to

amount of inheritance tax due

consider are:

was reduced by 80%. ■ So, rather than paying the full

❙ how much money you can afford to gift without

£70,000 (£175,000 x 40%),

incurring inheritance tax for

Sean only had to pay £14,000

your beneficiaries

(£70,000 x 20%). ■ The gift made in 2014 had used up Helen’s nil-rate band. The result was that her entire estate was also subject to inheritance tax at the usual 40%. An inheritance tax bill

How much

❙ whether you’re due to leave behind an inheritance tax bill, and how best to

More than 7

manage or reduce this

years

No tax to pay

❙ whether you’d be better off making outright gifts or setting up a trust

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Spotllight on…

Spotlight on Neil Wattam Neil Wattam is a co-founder of WKM Wealth Limited. They’re an independent financial planning and investment management business launched in 2020. Set up by four friends with the intention of helping people with their personal wealth and hopefully helping them have a comfortable future.

How did you get into the finance

Capita in 2010, who are a big

so and we had our second child. After

world? And how did you end up

outsourcing firm. I'd been a chartered

paternity leave, I decided I'm off. I

setting up the business?

accountant working in big corporates

remember that summer of 2018 was

It’s quite a varied journey. I started off

for a long time, which was fine, but

a scorcher. I decided I was going to

generally quite stressful, quite hard. To

go all-in. I quit, took the summer off

a degree I enjoyed the treadmill that I

and did my exams with the Chartered

was on. Then one Christmas, I sat with

Insurance Institute; so I could

my brother in his house, and he was

undertake this regulated role.

in design back at university. I really enjoyed it, but can't draw, which is a bit of a problem! Having said that, I liked it and did well. I went to Boots in their purchasing department and then decided to become an accountant. I am a chartered accountant, having completed my ACA training in Hertfordshire with BDO, prior to joining Tesco, where I worked for five years or so. I joined

28 | Issue 17 – Finance

talking about the potential of starting something. And I thought how can I get involved? What can I do that this size of business needed? I really wanted to be a part of something like that, especially with my brother. Roll forward about 15 months or

Going back to study after a long time was challenging. My job for that summer, was to study. I passed those exams quite quickly, as it turned out, with a lot of hard work. Then went back to work, where I provided accounting consultancy roles for a bit,

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October 2019 - the four founders got together and applied to the FCA. Seven months later, in April 2020, we got the green light. So, a variety of education, big corporate life, and actually just thinking I want to do something that's ours and give it a go. What's the worst that can happen? My decisions along the way have always been about what do I enjoy and what I want to do next and go for it. Not be too worried. It's easy to say it with some hindsight, but I picked design because I enjoyed it. I picked accounting because it seemed like

I started off in design back at university. I really enjoyed it, but can’t draw, which is a bit of a problem!

a good idea. I guess a bit of a tip for people generally is just go for stuff. Don't think overthink too much. How did you all get together? We have all worked for, in some cases, larger corporate, some slightly smaller. Ben, Tim and Adrian all worked in the finance services industry for many years and met each other whilst working at the same company. We have been friends, on for 20+ years. I was the one who's come from a slightly different background, from the accountancy route, rather than advisory. It’s the first time I've worked on my brother as well. We didn't know how it would go, but so far, so good!

Who is your ideal sort of client?

family; they can just pick up the

It would be someone who's perhaps

phone and we're here. That's why I get

sold their business, in their 40s, 50s or 60s. Depending where they are with that, they've released a decent sum of money and may have already accrued a number of pensions and wealth but need some assistance managing their finances. Some may have made some money quite suddenly and have no idea what to do. Some people have built it over time. You might be someone who's worked in a corporate life all your life, and you've just put money into pensions. You’re in your 50s and you probably should look at that now. We typically work with

Between the four of you, do you each

people who have accrued relatively

have specialist areas?

large amounts of wealth and need

Good question! Ben Wattam is our

some help to manage it for the future.

investment director. That's what he has always done – looking after billions of pounds for clients. He's the brains behind the investment side and that's what makes us different for a firm of our size. Most businesses of our size

The world of finance can be quite daunting. A lot of jargon has arisen in most industries and we can help navigate them around something that may be a bit of a mystery to them.

out of bed. That's what I love doing helping people. We want a good life as well - we set up this business to enjoy our work, as per the strapline of “enjoy the journey”; which works for clients, us and anyone who works with us. We don't want to come to work dreading it, or dreading speaking to someone. So, we have a “rule number one violation” - if someone violates our rules, we won't work with them. We want to work with nice people ultimately. Our “why”: work with nice people, do a good job, earn a living and keep it simple! What would you say makes you different from your competitors? There are many financial advisors out there. The things that make us stand out, include that are we are completely independent, we are authorised directly by the FCA; which doesn't mean we're any better

outsource this to another company.

What is your “why”?

Adrian, Tim, and I are client facing.

I think there are a couple of things.

decisions, we make the investments.

As in many smaller businesses, we

One is to help people, we're here

Our money's in this thing - what we

all have our other hats. I look after

to help. When people wake up

tell clients and what we advise, is

our finances. Tim’s our compliance

thinking they’ve got a question about

what we do. It's not a standout thing

director and Adrian looks after sales

this, or this has happened at work,

that's different to everybody, but if

and marketing.

or something's happened in the

you come to us and people work with

- it just means it's us, we make the

Issue 17 – Finance | 29

Spotllight on…

which was enjoyable. Roll forward to

The Business Bulletin

Spotllight on… us, it is because we're doing what

of our clients as well. I think that

appointed representatives,

we say we'll do. As we are managing

independence and small mindset is a

piggybacking off an umbrella

investments in house, making the

real differentiator. Also, most firms do

organisation. Being direct means that

decisions, it is a much more personal

not have a “Ben” with the experience

our necks are on the line - it's us, it's

service for clients; you are not going

and expertise that he has.

our risk. To get there was very, very

through unknown third parties – it is us! You’re dealing with people who are making the decisions and

What would you say has been the biggest challenge setting up your

hard. That’s why we ended up going live in April 2020 - we didn't choose that date, we didn't ask for it - it was

want to see it grow for both clients

business?

and ourselves. It's win win. It's not a

The biggest challenge was getting

the approval we needed. Our industry

win for other shareholders. You're

going. Particularly with the FCA.

is so heavily regulated, for the right

not paying dividends out to some

Because we are directly authorised,

reason and it's good to see that the

randoms. It's for us and for the future

it is different to a lot of firms that are

FCA are thorough and despite us all

the earliest we could get going due to

having lots of years of experience, and in theory, on paper, should be almost

Our “why”: work with nice people, do a good job, earn a living and keep it simple!

a rubber stamp, it was still difficult. That's why a lot of people don't do it but we got there! Our challenge now is to grow the business and creating a team of excellent people. What's your model for charging clients for the services you provide? We charge a percentage based on the value of investments clients hold with us. As it grows, our fee base grows as well. We don't charge anything over and above. There are other firms out

30 | Issue 17 – Finance

The Business Bulletin

have a meeting - you’re on the clock. With us, you pay your fee, you may not see it directly as it happens largely in the background. However, we're always up front. When people come to work with us,, they will know up front what they'll pay. It's not the same for everyone, because there is a “treating customers fairly”, which is one of the FCA’s fundamental principles. We have to treat clients fairly and fair does not mean the same. The fee and costing in our industry is always a bit of a hot potato. There's a lot in the media about is it worth the cost? There is a cost, because you're paying for professionals who are doing what we've already talked about. With us it's transparent, and we try and be up front about it all.

Going back to study after a long time was challenging. My job was study. I passed those exams quite quickly, as it turned out, with a lot of hard work.

Again, there are smoke and mirrors some people can say “we charge this as well”, “does it include that?”, “does

planning that adds value. It's all very

What is your top tip?

it include if you want a meeting?” It’s

well that markets will hopefully in

not about being the cheapest either

time go up. If they stood still though,

From a financial perspective, talk

– it’s about generating a fair income

do you have the right planning from

for us, that is commercially viable and

your financial advisor so that your

represents value for the client. If our

investments will still increase by them

clients are seeing the value of their

doing the right thing and making sure

portfolio going up, ideally, outside

you’re in the right spot at the right

of the market averages, then they're

time given market conditions. You

going to be happy. We’re really keen

can control what you do, but you can’t

to emphasise that it's the joined up

control the markets.

to your accountant and/or financial advisor about how you extract money from your business – your renumeration; be it salary, drawings, dividends, pension contributions, etc. Think ahead about your shareholders, family involved, any other aspects of your business that can impact your financial future and the implications these factors may have. Have a strategy going forward, don’t wander aimlessly along – think, talk, get advice. There’s no one size fits all, your situation will be specific to you.

Watch the interview This is an extract of a video interview – to watch the full session, visit: https:// www.youtube.com/ watch?v=DTCgmxUYDLg.

Issue 17 – Finance | 31

Spotllight on…

there that will charge you to phone,

The Business Bulletin

Taxpayers who are within self-

Where their tax and Class 4 National

assessment will need to pay any

Insurance liability for 2020/21 was

remaining tax due for 2020/21 by

at least £1,000 and less than 80% of

midnight on 31 January 2022, and

their liability was collected at source,

also any Class 4 and Class 2 National

such as via PAYE, the first payment

Insurance liabilities for 2020/21.

on account must also be paid by midnight on 31 January 2022. If you are struggling to pay what

Zinc Books Matthew is a chartered accountant and tax advisor based in Northampton. By taking the time to understand client’s

07498 202281 info@zincbooks.co.uk zincbooks.co.uk

32 | Issue 17 – Finance

your Government Gateway account if:

Ignoring the problem will not make it

■ you are within 60 days of

If you think that you are going to struggle to pay what you owe in full by the 31 January 2022 deadline, you should set up a time to pay agreement or contact HMRC as soon January 2022. However, if you miss

easier and to give them time back.

You can do this yourself online via

■ you owe less than £30,000;

able to provide solutions and advice to

software in order to make clients’ lives

time-to-pay agreement.

Contact HMRC

as possible, and ideally before 31

invested heavily in the latest accounting

you owe in instalments by setting up a

■ you have filed your latest

short and long term objectives, Matt is help meet those objectives. Zincbooks has

It may be possible for you to pay what

you owe, what can you do?

go away; rather, it will make it worse.

Matthew Goude

Paying in instalments

this deadline, all is not lost and you may still be able to set up or agree an instalment plan. Burying your head in the sand is

self-assessment tax return;

the payment deadline; and ■ you plan to pay back what you owe within the next 12 months or less. If you do not meet all the above conditions, you will not be able to set up an instalment payment plan online. However, you may be able to agree one with HMRC. To do this, you will need to call the Self-Assessment Payment Helpline on 0300 200 3822.

definitely not recommended. It is

The line is open from Monday to

important to open up a dialogue and

Friday from 8am to 4pm. If you

review your options with HMRC.

cannot pay another type of tax, for

The Business Bulletin

Struggling to pay tax – what should you do? The January self-assessment payment deadline is not well timed, falling as it does in a month when people may be already struggling to pay their Christmas credit card bills. However unpalatable the 31 January tax deadline is, it is not one that should be ignored.

example, corporation tax, you should

There is no set length for a time-

instead call HMRC’s Payment Support

to-pay agreement – it will depend on

Service on 0300 200 3835. The lines

how much you can afford to pay each

are open from Monday to Friday from

month to clear the tax that you owe.

8am to 4pm.

The payments are usually made by

When making the call, make sure that you have the following information to hand: ■ your unique taxpayer reference and National Insurance number; ■ your VAT registration number if you are VAT-registered; ■ your bank account details; and ■ details of any previous payments that you have missed. HMRC will take into account what you are able to pay in full, your monthly income and outgoings, any savings and investments that you have and what you can afford to repay each month. If you have savings or investments, you will be expected to use these to clear your tax bill.

direct debit, and once the agreement is in place, it is important that payments are not missed, and future liabilities are paid on time. You can pay more than the agreed amount if you are able to clear the debt more quickly. If you do

If your company is in tax debt HMRC will discuss your company’s finances with you. They’ll ask you to make a verbal proposal, explaining how you’ll pay your tax bill as quickly as you can. An adviser will ask questions about your proposal to make sure it is realistic and affordable for you. You must reduce your debt as

not make the payments, or HMRC will

much as possible before entering into

not agree to a time-to-pay agreement,

a Time to Pay arrangement. You can

you will be expected to pay what you

do this by releasing assets like stock,

owe in full. HMRC may use their debt

vehicles and shares.

collection powers if you do not do this. If you’ve received independent debt advice, for example from Citizens Advice*, you may have a ‘Standard Financial Statement’. HMRC will accept this as evidence of what you earn and spend each month. *For further information on dealing with income tax arrears, take a look at

HMRC may ask company directors to: ■ put personal funds into the business ■ accept lending ■ extend credit

the Citizens Advice site. Continues overleaf »

Issue 17 – Finance | 33

The Business Bulletin

How HMRC works out your payments

When you cannot pay in instalments

The amount you’ll be asked to pay

You cannot set up a Time to Pay

each month is based on the money

arrangement if HMRC do not believe

you have left after you pay any rent,

you will follow a repayment plan. For

food or utility bills and fixed outgoings

example, if you have not paid taxes

you have, like subscriptions.

in the past. If HMRC cannot agree a

You’ll usually be asked to pay around half of what you have left over each month towards the tax you owe. If you get a pension HMRC will count that as income, but will not count the amount in your pension pot as savings. You can also agree to pay more if

payment plan with you, they’ll ask you to pay the amount you owe in full. They can collect unpaid tax directly if you refuse to pay.

payment arrangement or renegotiate it with you. If you cannot pay another tax bill, contact HMRC. You may be able to include the new tax bill in your existing Time to Pay arrangement. To help you manage your tax liabilities in the future, it is worth seeking professional advice from your bookkeeper or accountant. HMRC provides a free guide on keeping records for your tax return.

After a Time to Pay arrangement has been agreed

you want. Paying your debt quicker

If you miss a payment, HMRC will

means you’ll pay less in total, as interest

contact you to find out why. Where

is added to your bill each month.

possible, HMRC will restore the

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The Business Bulletin

Nishi Patel N-Accounting Nishi started N-Accounting in 2014 after a successful career in corporate finance. He has been a Chartered Management Accountant (CIMA) since 2007. Nishi is known for the high standard of tax planning he provides to his clients and his ability to communicate effectively. He has a knack for identifying what the real

When you run a small business,

common types of pricing model.

there are really two types of pricing

However, one of the pricing strategies

strategies that you can implement

that’s becoming more and more

when you’re trying to work out how

common now, and especially when

much to charge for your product

you talk to business coaches and

or service. Traditionally, a lot of

financial coaches is something called

businesses have used something

value-based pricing.

called cost-based pricing which is about looking at your costs in the business in terms of employee time, in terms of your overheads, and any specific materials that you need to actually provide that product or service. Then it’s about adding a certain markup or to create a margin on what you charge to make sure

issues are and creating actions to deal

that you recover those costs, plus

with them.

make enough to cover your profit

07735 501251 nishi@n-accounting.co.uk n-accounting.co.uk

36 | Issue 17 – Finance

requirement. In the past, it’s always been about

Instead of thinking about what a product and service are costing you to deliver, you actually need to think about what that product or service is worth to the client, and then charge a proportion of that so you'll share that benefit. For example, in one scenario where you’re going down a cost-based route, you might have to buy a bit of software for a client which costs £10 a month. The staff hours that go into supporting that client costs another £30 a month, and then

cost-based or cost-plus pricing, and

you’ve got a share of your overheads

that’s probably one of the most

which go into supporting that client,

The Business Bulletin

Why value pricing isn’t the magical solution people rave about In this article, I wanted to talk about why value-based pricing isn’t always the magical solution to small business profitability that everyone always talks about.

and that’s another £20 a month.

I just want 10% of the value that’s

well we think it’s going to be worth

Overall, you have £10 plus £30 plus

generated for my clients. Of that

£20,000 a year to you and this is the

£20, which equates to £60 of costs.

£20,000 of value, I want £2,000.

investment needed to get you to

Under the cost-based model, you’d

Between the two approaches,

that £20,000.” This becomes a lot

then say, “Well, actually, okay, I want

you’ve got very different pricing and

more challenging because ultimately,

a 50% margin or a hundred percent

that’s interesting, so let’s talk about

even though they might have gone

markup.” Which means I’m going to

the pros and cons of the two different

to some of your competitors for

price at £120 for that service.”

methods. With cost-based pricing, the

a quote as well, your competitors

chances are that you’re always going

might instead be using a cost-based

approach. Under value-based pricing,

to be in a similar ballpark to your

approach, which means their price

you might look at the service that

competitors, which is great if you’re a

might be much, much lower. Or

you’re providing to that client and

me-too business where there isn’t a

they will also be using a value-based

or customer, and you might actually

big differential between what you do

approach themselves, but their

say, “Okay, well, even though it’s only

and what your competitors do. From a

assessment of the benefit and the cut

costing me £60 to provide this, it’s

prospect’s point of view, they’ll be able

they want of that benefit could be

going to help them make another

to understand it, because they might

very different from yours.

£20,000.” Then you may come to

have already got a handful of quotes

the conclusion. If it’s going to help

and they might have said, “Okay, yeah,

explain why value-based pricing isn’t

them make another £20,000, then

the ballpark’s about right. We like what

the magical solution people always

it’s only fair that I get 10% of that.

you’re saying, let’s go with it.”

make out. And this is because what

Let’s take the value-based pricing

Forget what it’s cost me or forget my margins and mark up, actually,

The value-based approach is when you go to a client and you say, “Okay,

I wanted to write this article to

a lot of people don’t tell you: They'll acknowledge value-based pricing can

Issue 17 – Finance | 37

The Business Bulletin

get you to a really profitable business

reputation in your community. It relies

to £60. Then you might have come to

model quite quickly, but they don’t

on you then consistently vocalising

the conclusion, well, this product or

always mention the amount of effort

that reputation. Then it requires a

service that I’m offering is actually only

needed to actually sell a value-based

much, much longer nurture sequence.

worth about £500 of benefit to the

service, and a value-based product,

There’s a couple of instances where

clients, so I want 10% of that. At that

that has been priced on that basis.

value-based pricing can really fall over.

point, you might only have actually

Ultimately you can sell anything to

One of them being that although

ended up with £50 because 10% of

anyone at any price, but it just depends

you can make a much better profit

that £500 would give you £50. In that

on the amount of effort you need to

margin on the actual product, but

scenario, you’re not even covering

do it, the number of leads you need

then spend so much effort in terms of

your overheads in which case you are

to create, the conversion rates and

selling it, that it negates any benefits

worse off.

the dropout along the sales process.

you’ve got by charging more based on

Ultimately a cost based approach at a

that value-based approach.

lower price tends to also be easier to sell, although you might make a lower profit than a value-based approach. The value-based approach then

The other time it can really backfire

Value-based pricing isn’t always appropriate, but it can be a great way to really enhance your margins when

is when the value-based price that

done right, but really to do it right,

you work out ends up being lower

you’ve got to have the right sales and

than your cost-based price. It could

marketing infrastructure. You’ve got

relies on you having a lot of social

be that. In my previous example, the

to have the reputation where people

proof in terms of testimonials and

direct materials or software needed

actually believe you when you say,

examples of work in your portfolio.

for that client, £10 plus the £30 of

“Yeah, the benefit is £20,000.”

It relies on you having a really good

staff plus the £20 of overheads came

Do you have something to say? Are you considered an expert in your field? Then why not submit an article for inclusion in a future edition of The Business Bulletin?

There is no cost to have an article included

The Business Bulletin

Ask the experts Do you have a burning question that you would like the answer to? Or maybe you’re looking for some advice to help your business. In each edition some questions will be shared and answered by some of The Business Bulletin experts.

Q. What precautions should I take as

to protect their margins without

minority of businesses owners and

a business owner with the threat of

upsetting clients.

really should be something monitored

rising inflation?

Breaking down the individual

on a continuous basis.

A. With inflation comfortably above

costs for individual products (as far

Government targets and showing no

as is reasonably practicable) can be a

continually monitor your own

sign of slowing down, it’s vital that

useful way of finding out your margin

spending as a business owner

businesses ensure that their business

for the particular item, as well as

but increasingly so in a period of

is robust enough to manage rising

ensuring that you can maintain it with

inflationary pressure. It can be a

prices for their purchases as well as

rising costs. Margin management is

simple exercise such as running

ensure their own pricing is managed

an underused tool by a significant

through your monthly bank statement

It’s always important to also

Issue 17 – Finance | 39

The Business Bulletin

with a pencil to ensure that you

Having robust up-to-date

are not making any unnecessary

accounting systems and budgeting

or duplicate payments as well

systems will flag up red warning signs,

as contacting utility and finance

so finally make sure you have a good

providers to make certain you are

accountant as part of your team.

on the best rates and tariffs for your business – ask around, ask your trusted professionals and peers! It can be as simple as that! In a time of rising inflation, it is likely that the Treasury will strongly consider raising the Bank of England Base Rate, especially as it’s currently at a historically low level. This can have knock-on effects on lending and savings rates so it’s hugely important that the business owner anticipates this before it’s too late. While there is little a business owner can do to control inflation, there are many actions they can take to ensure that their business is in the best possible position moving forward to survive and grow during an inflationary period. James Blacklaws JB Commercial Finance A. Inflation is here for a while as the economy adjusts to the changes to the business environment for the last couple of years. Keeping your eye on cash flow and budgets is key. Both sales prices and costs play a part so ask yourself the following: 1. Are you charging enough, can you charge more? 2. Can you find alternative suppliers that would be suitable and charge less? 3. Can you consume less in terms of raw materials and overheads to save on costs and maintain profitability levels? 4. Can you improve productivity by automating more, for example?

40 | Issue 17 – Finance

Contributing experts

Roger Eddowes Essendon Accounts & Tax Q. What are R&D tax credits and how can they benefit my business? A. HMRC state that Research and

James Blacklaws JB Commercial Finance

Development (R&D) relief supports companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can be for a product or service R&D tax credits are important tools used to boost innovation and the economy. To qualify the business must

Roger Eddowes Essendon Accounts & Tax

be operating as a company, employ less than 500 people and turnover less than 100m euros, about £86m. (For larger companies there is an alternative to R&D tax credits). Using R&D tax credits companies may offset up to 33% of the R&D costs against their Corporation Tax liability. If the company has yet to make a profit and pay corporation tax it can “cash in” its credits and receive cash from the Treasury instead – useful for fledgling businesses. We would always recommend using a specialist R&D tax advisor for claims as much can be missed. Roger Eddowes Essendon Accounts & Tax

Got a question? If you have a question – then email us and these experts will set about answering it for you. It can be on any business topic you like, be it finance, sales, marketing, operations, resources, strategy or personal development. If you would like a more immediate response, then raise your question on the “Ask The Experts” forum.

The Business Bulletin

SME Survey What does your turnover and profit look like over the last year and looking to the next?

Figure 1

Figure 2

At the time of writing, the UK has

in 20 businesses didn’t know their

been in the grips of COVID-19

performance! Although, reassuringly no

for 21 months and this has had

one was unsure in the current survey).

significant impact on the economy. This survey looks at historic performance and future predictions of those that completed the survey (45 respondents). It is open to interpretation as to the reason for growth, stagnation or decline via the answers, as no further information was gleaned at the time. When asked about performance over the last 12 months, 51.1% had experienced growth 31.1% a decline, with the balance, 17.8%, staying the same (see figure 1). Compared to a survey taken in September 2020, this is a fairly similar result on the historic performance at that time: growth 54%, decline 21.7%, same 19.1% and 5.2% unsure (a tad worrying that 1

Looking at the prediction from that

Figure 3

Get involved To take part in the next survey

time, there is some similarity with the

about marketing spend –

current results: growth 51.1%, decline

visit here: https://forms.gle/

8.5%, same 25.5% and 14.9% unsure

TdYc7BHX3px9jFgd9. The

but with a more optimistic outlook

results will be shared in the next

than now; albeit different respondents

edition of this magazine.

– so no direct correlation. Taking a look at the future outlook this time around on turnover (profit), this was the outcome: growth 68.9% (66.6%), decline 13.3% (15.6%), same 15.6% (11.1%) and 2.2% (6.7%) unsure (see figures 2 & 3). So despite what has been thrown at small businesses in recent times, there still seems to be a positive view on what is ahead. This is encouraging as SMEs represent a significant contribution to UK plc!

Issue 17 – Finance | 41

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The Business Bulletin Issue #17 - Focus On Finance

Articles inside

Why value pricing isn't the magical solution people rave about

Struggling to pay tax - what should you do?

Spotlight On: Neil Wattam

SME survey

Ask the experts

Why value pricing isn’t the magical solution people rave about

Money matters for business and life

How do I get my business credit worthy?

The low down on tax and electric vehicles

The importance of planning and budgeting

Inheritance tax – that seven-year rule – what it’s all about? Tim Mullock

What’s the best way to fund my business?

Management accounts worth your time and resources?

What to consider when choosing professional advice