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Wednesday, December 21, 2016
It’s that time of year again, when business owners start thinking about their tax returns – and this is when we start to notice strange things popping up in their accounts.
Over the years, I’ve seen it all. I’ve seen people charging their mortgage to their business who are flabbergasted when I tell them it was taxable income. Perhaps the best effort was a client who put his au pair on the payroll. It took some time to work out because her name was just one among many employees, but I got there in the end.
The thing is…
Many business owners dip into business funds in order to pay for personal things. This phenomenon is particularly noticeable around Christmas, when people need a bit of extra cash to get them through the festive season.
And that can be dangerous.
HMRC hates this behaviour because it’s an attempt to get money tax-free.
If you decide to pay for personal items through the business you have two choices: Pay it back really quickly or be prepared to pay tax on it.
Most people know when they are wrong to charge personal items to the business, and are consciously trying to bend the rules to see how far they get. We often get asked some variation of “What can I get away with charging to the business?”
Others make an honest mistake. The rules can be complex, and people are not always aware of some of the finer points.
But that’s your responsibility. You really need to be clear about the rules – and if you’re not then you need to check. And most importantly of all, don’t push your luck and hope HMRC fails to notice.
Even within the past two years, they are taking this much more seriously. If they discover you have been taking money out of the business for personal purposes, they can charge penalties and levy punitive interest.
Even if they don’t notice, don’t do it. Taking money out of the business to fund personal expenses is a terrible, unprofessional way to run your company. You are depriving it of funds it needs to function, thrive and grow.
Even if you’ve founded the business and consider it ‘yours’, look at it as an entirely separate entity – not an extension of your personal world. Your neighbour has no responsibility to pay your mortgage or shell out for your Christmas presents – neither does your business!
There are areas where the lines might blur, but stick to this general rule of thumb: If you didn’t have the business, would you have paid that expense anyway? If the answer is ‘yes’ – for example, you would have met that friend for coffee regardless – don’t charge it.
Ultimately, claim for what you can. You should ever be out of pocket for expenses that are genuinely business-related. So, if you travelled by car to a business meeting, claim that mileage even if it was only a little. It all adds up.
But make sure you are honest and transparent about what you’re charging to the business. It’ll save you a lot of hassle in the long-run.
As Christmas approaches, everyone is relaxing – well that's the theory! – so with that in mind, I thought I’d do something a little different during this festive season, and tell you about some of my favourite business books.
Actually, that’s a little inaccurate.
Only one of the books is, strictly speaking, a business book. The others are about personal development.
Still, I consider everything they say directly transferrable to a business context. If some of these make their way onto your Kindle, or into your team members’ Christmas stockings, your business will only benefit….
1. The Seven Habits of Highly Effective People by Stephen R Covey
What makes certain people more successful than others?
The late American businessman Stephen Covey narrows it down to seven key habits in this bestselling classic.
Three concern mastering your own time and priorities. Three concern how you work with others. The last is about seeking continuous improvement in every sphere.
My favourite passage asks you to think about your funeral. Who would appear and what would they say? Build the kind of life which would ensure they say nice things – and do the same for your business. What would people say about it, if it wasn’t there anymore?
I’m also very keen on Covey’s time management grid. We must learn to differentiate between things that are important and things which are urgent, he says. We so often spend time on the latter that we forget to focus on the former – and that will harm any business.
2. Raving Fans by Ken Blanchard
This easy-to-read book by business consultant Ken Blanchard uses simple storytelling and parables to show you how to create a service which people will truly love.
He doesn’t want you to have customers; he wants you to have raving fans, people who not only buy your products, but spread the word to others.
Blanchard recommends a process of small, incremental improvements to your customer service. If every day, you find a way to do 1% more than your customers expect, over time, your service will improve enormously.
He runs through a useful list of areas where you can – must – do a little more, including the way you deal with queries, answer phones and generally interact with your customer base.
So think about the words your customers use to describe your service. If they say it was “fine”, you’re in trouble. You want them to rave….
3. Eat that Frog by Brian Tracey
Business trainer Brian Tracey thinks that every morning, you should eat a frog.
By that he means, take on the one thing you were dreading that day, instead of constantly putting it off.
Chances are, it will be an important task which will have a big impact. You’ll feel much better to have it out the way, and it will help your business.
Like Covey’s time grid, Tracey forces you to think about how you spend your time. This is a key challenge for many of us, as modern life – emails, social media, phone calls – can prove very distracting, and take us away from our real priorities.
Tracey provides a series of useful tips to help with time-management, and to get our priorities right.
4. The Inside Out Revolution by Michael Neill
Michael Neill has made a name for himself as a transformative coach and author. His TEDx talk, ‘Why Aren’t We Awesomer?’ is expanded upon in this book.
His main message is that people are more in control of their actions than they believe or realise.
We often assume we are victims of external events, but Neill emphasises that you are in control. No matter what situation you find yourself in, you still have the power to determine how you react.
The best example I know comes from the least business-like book I can think of, Man’s Search for Meaning by Viktor Frankl. In this classic book Frankl relates how, as a prisoner in the Nazi camps, he told himself the Nazis could physically do anything they wanted to him, but only he could control how he felt and how he responded to it.
Ultimately this rather harrowing lesson can be used to challenge yourself about your own mental habits, including in business. When your company is on the backfoot, perhaps faced with negative feedback or a setback, do you panic – or are you determined to solve the problem?
Neill’s approach will help you develop resilience.
So there you have it. A good reading list for a new year. If you have any others, get in touch. I’d love to hear about them.
Occasionally people ask me what is the biggest single step they can take towards gaining financial control of their business.
Well, as we approach 2017, I’ve spent some time re-reading the Blogs I wrote this year.
I’ve covered so many topics – from cash flow and credit control to your relationship with your bank, systematising your finances and knowing when to upgrade your accounting software.
Yet one theme came up again and again: The importance of planning your finances.
Here are some of the essential steps we talked about:
• Plan your cash: So many good businesses fail because their CEOs are caught by surprise when they run out of money.
You must get to know your figures intimately. Make sure you know what’s coming in, what’s going out, when bills are due and what your cash situation is.
We recommend a daily review of your cash position to help spot problems before they become urgent, and deal with them.
Securing your cash flow is the most important thing you can do – too many businesses go bust despite being profitable simply because they run out of cash.
• Plan your budget: Plenty of companies set ambitious financial goals as part of their budget, for example a 20% rise in revenue. Yet all too often, they have no real plan for how they are going to achieve them, so those “goals” remain wishful thinking.
Understanding what actions your business needs to take in order to fulfil their goals should be the basis of any good budget. If you know that to achieve a 20% rise in revenue you’ll need two extra salespeople, make sure that happens!
• Plan your business: Build your business deliberately rather than allowing it to develop haphazardly.
Think carefully about how you want your business to look when it’s ‘done’ – what kind of turnover do you want to achieve? How many employees? Then put the right processes and foundations in place. Your company will develop more smoothly.
• Plan for emergencies: Be a pessimist – plan for the worst financial eventuality. Make sure you have a contingency budget in place to ensure your survival in case the worst happens.
As you can see, financial planning is essential for both positive and negative reasons. It makes it easier to achieve your growth goals, and to function smoothly. It also help you pre-empt disasters that could potentially sink your business.
On a personal level, with good financial management in place, you will find running your business much less stressful.
When you’re not constantly fire-fighting…
When you don’t have to worry about nasty financial surprises….
You will feel much more in control, and have more time to devote to other tasks that are essential for growth.
As I explained a few weeks ago, there is even value in the process of planning itself. Properly planning your financial goals, budget and cash flow forces you to look carefully at your business’s priorities, structure and the way it functions. You will learn a lot about your own company, and make better decisions as a result.
So here we are, just a short while away from a new year. If there’s one thing your business does differently in 2017, I urge you to do a more thorough job planning your cash and finances.
It will make an enormous difference to the success of your business.
And if that’s something you would like help accomplishing, watch out for my regular blogs.
Wednesday, November 16, 2016
Have you ever come across this problem? Friends of yours are having relationship troubles. One complains that the other partner never talks to them anymore, and that they never discuss problems. The other says…. Exactly the same thing.
You just wish that one of them would take the initiative and start talking to the other.
Unfortunately, it takes two to tango. If you want a good relationship, you both share some responsibility for communicating with each other.
And since this is an email about financial management of your business, not personal relationships, what works for couples also holds true for your company and your bank.
Business owners often complain about their relationship with their bank. It’s almost always the same issues: No one’s available to answer questions… Their bank manager shows no interest in the business….. When you need help urgently, they’re just not responsive.
But instead of complaining, why not pick up the phone and talk to them?
If you want a relationship with your bank manager, you can’t rely on them to do all the heavy lifting. You need to work at it, too.
Make your bank manager your best friend.
Don’t keep them in the dark – let them know what’s going on with your business on a regular basis. Give them good news as well as bad, and send them your monthly management accounts.
Invite them for meetings and to visit your company. They’ll usually come.
They hate surprises, so if you think you’re about to hit a bad patch and need their support, get in touch sooner rather than later. They’ll be more inclined to help if they can see that you have a long-term plan for your business. It’s in their interests to lend you cash, so help them help you.
Find out what networking groups are in your area. Many may include local bank managers – it’s a great chance to meet them informally and start building relationships.
Size could be an issue, of course. Most banks will not have dedicated relationship managers for small-sized companies, but what they consider small varies. Generally, the lower limit is a turnover of £1-£2 million. Some, such as Metrobank, have no lower limit and will be happy to help you out no matter the size of your business.
At Insight Associates, we make a point of nurturing relationships with local banks because it’s so important both for ourselves and for our clients. For example, we get to know local bank managers and invite them to our offices so they can see first-hand how we work.
Having an open line to your bank manager will always pay off in spades.
In a previous email I mentioned a customer who had complained about their banking. We solved that by moving them to a bank where we already had a relationship, helping them to get that too.
Many people consider their bank manager their enemy, but they don’t have to be. They can be your business’s biggest friend and supporter, giving you great business advice, helping you tide over difficult periods and smoothing out issues with your banking quickly.
So don’t leave it to your bank manager to reach out first… The relationship is far too important to leave to them!
Wednesday, November 09, 2016
Wherever the president of America goes, he (or soon, possibly, she) is accompanied by a military aide carrying the “nuclear football”. This is a metal briefcase in a black leather “jacket” with the launch codes for nuclear weapons.
I carry my briefcase myself – no military aide – and admittedly it’s not quite nuclear weapons, but I also never, ever leave the office without my own set of codes.
To be precise, I carry a bag full of different security devices to access each of the major banks’ online banking facilities, such as Barclay’s PINsentry and HSBC’s SecureKey. This means that if our clients need me to access their accounts for any reason, I can do so even on the go.
Without going into the details, I had a fair amount to tell them – because there are wide variations between the systems.
And that’s true for almost every aspect of Internet banking.
As you’ve probably noticed, banks are working hard to get their customers online as much as possible. They are closing hundreds of branches all over the country, a process that is likely to accelerate over the next decade.
It makes sense for them as it’s a much cheaper way of doing business.
It can also work for you because it’s quicker, more convenient and flexible.
But – and it’s a big but. Not all internet banking services are the same. In fact, there are lots of major differences. And they will not all equally suit your business.
Here are some things to consider:
- What kind of payments can you make? Are there any restrictions on transaction sizes and do these fit your needs? What about foreign payments, if you do business with companies abroad?
- Security: How secure is their system and what guards does the bank have in place against fraud?
- For example, how easy is it to log onto your online account? Think about how you control access. Do they use a dongle, PIN sentry or another system which has to be physically plugged into a USB port?
- Connected to that…..
- ...Authorisation: How easy is it to authorise payments? Do you need dual authorisation or does the bank require just one person to allow a transaction to take place online? This can be important because you could unwittingly be giving a huge amount of authority to a relatively junior member of staff.
- How much control do you have over your online users? If multiple users need to access your online account, can you give them different levels of access? Some banks, for example, will allow certain users to look at statements but not make payments. Others are an-all-or nothing proposition.
What’s important is that, unlike most businesses, you think carefully about your bank’s online services, and whether they really do fulfil your needs. If not, it’s time to go shopping for a new bank.
Monday, November 07, 2016
Banks...the institution we love to hate above all others.
Indeed, I had one client who complained about his company’s bank incessantly. The customer service was bad, their Internet banking didn’t work and nobody took time to find out about him and his business.
One day I stopped him in mid-flow.
“Our relationship with our own bank couldn’t be better. Everything happens quickly, we can speak to a manager whenever necessary and their local manager even came to visit us to learn more about our business.
“If you don’t like your bank,” I asked, “why not find another one that will offer your business the same level of service?”
I even offered to help him move, as we have done for several clients, because a good relationship with your bank is crucial for smooth financial management.
He stared at me blankly. It had never occurred to him to move.
We often like to complain about our bank, but the trouble is we seldom do anything about it.
Here are some factors to consider:
- What facilities do you need? Will you be cashing cheques, or depositing large sums of cash frequently? Do you need a deposit box? If so, you’ll need a bank with a physical presence near your headquarters. As I said, this is no longer a given for many banks – and over the next decade, will become even rarer….
- Internet banking: Banks are doing more and more of their business online. If this is a facility you intend to use often, you must know that their security measures are up to scratch. I’ll go into this in more detail soon so watch out for the next blog.
- Foreign payments: Do you conduct businesses overseas? If so, what are the fees like for foreign payments? This area is becoming much more competitive.
- Charges: How much does the bank charge and what for? Make sure you understand all the charges because banks can be slippery about this.
- What kind of relationship do you want? Do you expect to have a relationship with your bank manager, for example? Depending on your size, not every bank will be able to offer this.
Wednesday, October 26, 2016
At the Astounding Leadership Insights conference which we sponsored in September, one of the presenters told the following powerful story.
A man was in a road digging a hole, surrounded by a group of people directing him. Each time he’d finished they told him, “That’s not what we wanted, dig another one.”
Before long, the street was littered with holes – and the man digging them was frustrated and annoyed. He had no idea why he was digging, so he saw the whole exercise as pointless.
Eventually, one of the supervisors mentioned the truth: They were looking for the gas mains, because there had been a leak. However, they’d lost the plans and had no idea where the gas mains were.
Immediately, the digger’s attitude changed. Now that he understood why he was digging a series of holes, he worked with renewed enthusiasm, and even made his own suggestions about where it made sense to dig.
The moral of this story? If you want your staff to engage with what they do, make sure they understand why they’re doing it.
It’s particularly relevant when it comes to your budget.
Many companies have trouble getting their staff to take the budget seriously, and stick to their spending limits and priorities.
One of our directors, Shirley Hoy, loves to relate how in a relative’s company, this became such a problem that he handed his staff Monopoly money. Every time they wanted to spend money for their department, they had to hand some over.
The point was to help them visualise their share of the budget, and make them more accountable for how it was being spent. It was certainly a creative solution!
But it’s just as important to explain to staff why the budget looks like it does, and how their own portion of the budget fits into the overall strategy.
Understanding where your piece of the jigsaw fits in is a very powerful motivator.
Without that context, the figures in the budget look random and abstract – especially if the
budget is divided up in the plain, faceless way that so many companies insist on.
With that context it gains meaning and purpose.
So tell your staff how the budget helps your company achieve its goals. For example, it is designed so that you have everything in place to raise turnover by 20%, or to help you conquer a new target market.
Then explain their portion of the budget.
Tell them: “Your branch is getting £X in order to make it a flagship for the UK,” or “We are increasing your budget for communications training, so that we can ensure the team works together seamlessly – and is ready to take the lead next year in a major project.”
Do that and not only will you have them fully on board with the budget, but – like our man in the hole – they may be able to make valuable suggestions about how to work within the budget, too.
If you’d like help creating a budget that will push your business forward and engage staff, let’s chat. It will help your business run much more smoothly.
Wednesday, October 19, 2016
We all know someone who’s always going to the doctor, worried about their health. They’re never truly ill and it seems like they never get sick.
I don’t think it’s a coincidence. Because they spend so much time obsessing about their health, they never miss a thing.
That’s why you need to check you business’s budget more often, too.
Many businesses never revisit their budget. They draw up a comprehensive set of figures, then put it away in a drawer for the next 12 months.
That’s a mistake.
When you set your budget, you are setting your goals and spending priorities for the year.
Inevitably, things will change – there will be unexpected expenses, the areas where you want to invest will shift, you’ll bring in more revenue than expected or there will be crises and emergencies.
That’s all natural and normal; Business is hard to predict.
But the budget you set months earlier is like a roadmap showing what you expected to be spending and bringing in. It allows you to compare where you wanted to be with where you actually are.
If you find there’s a significant difference between your budget and reality, then you need to understand why that’s happening.
Think about how close you came to the budgeted figures, what adjustments need to be made, if any, and what changes should you make to improve performance.
It’s not a question of right or wrong, or good or bad. It’s simply a way to help you understand more deeply what’s happening in your business, a benchmark to measure your performance.
I recommend you looking at your budget at the very least quarterly, preferably monthly, but this could vary depending on the nature of your business. Your budget should be an integral part of your monthly management accounts pack.
Is it highly volatile? How important is it that you stick to your budget closely? If you’re working to ensure your business can make loan repayments, for example, the risk of falling behind could be high. Depending on your needs you might need to look at it very regularly.
That’s no bad thing. Just like the hypochondriac whose obsession with health keeps them healthy, keeping a close eye on your financial figures will keep your business healthy, too.
You’ll get a deep understanding of what’s really going on – and never miss a thing.
If that’s a result you’d like to see let’s chat. The more insight you have into your own business, the more success you’ll see – and we’d love to help get you there.
Wednesday, October 12, 2016
Several years ago, an acquaintance of mine bought out the company he had been working for, together with four other managers.
To raise the capital they needed, they went all-in and re-mortgaged their houses.
It was an enormous personal risk, so why did they do it?
Because the company’s budget stated that the following year sales would rise rapidly, and they would quickly recoup their investment.
Unfortunately sales stuttered, and 18 months later the business was in trouble.
In this case, whoever drew up the budget (possibly one of those managers…..) was guilty of a classic and very common error. They had assumed a rise in sales, but the budget didn’t say how this was going to happen – what they had to do to achieve their goal, how much they would need to spend or where they would have to invest.
So it never happened…..
Your budget is worthless if the figures it is based upon are no more than wishful thinking.
To create an effective budget, you need to work differently.
Start with the question: “What do we want to achieve, and how much will it cost us to get there?”
So for example, if we want sales to rise by 20%, what do we need to have in place? Do we need to hire two more sales people? Buy a certain amount of equipment or give a particular department more funds?
The actions you need to take become your budget.
When that happens, the end point - that 20% rise in sales - is no longer an optimistic dream, but the natural consequence of your game-plan. And it becomes an entirely reasonable figure upon which to base your budget.
Don’t get me wrong: Optimism in business is great. It can sustain you through some of the darkest times your business will face and if there’s one thing for sure, you will face some dark times.
But when it comes to budgets, you don’t need optimism. You need realistic, concrete plans.
All the more so if the stakes are high – for example, if you’re re-mortgaging your house!
If you would like to formulate a useful, realistic budget for your business, please get in touch.
With a good budget, you are far more likely to see the growth you want.
Monday, October 10, 2016
“Plans are nothing, planning is everything.”
That was General Eisenhower - and as the man who oversaw D-Day, he should know. Before the greatest invasion in history his army spent, quite literally, years working out what resources were necessary, consulting 125 million maps (yes, that is the real figure), developing transport arrangements, and training troops.
Too many businesses fail to give budgeting the care and attention it deserves, throwing together some optimistic figures and then promptly forgetting about them for the year.
I believe this happens because they don’t really understand why budgeting can be so useful.
As Eisenhower was aware, the true value isn’t necessarily in the budget itself but in the process of drawing it up.
Some of the plans he drew up for D-Day needed to be adjusted on the ground – indeed, he very nearly postponed D-Day because of bad weather. Nevertheless, all those months and years he spent working out exactly what was necessary to win paid off, because the fundamentals were all in place.
He had the right troops, with the right equipment, and the right training.
Putting together a good budget is exactly like that. To really come up with meaningful numbers, you are forced to analyse your business in depth.
Why are you pouring resources into a certain area of your business? Are all these activities really necessary? What do you need in place to achieve your growth goals? Are those growth goals even realistic?
Only then can you decide on what your final budget will be for the coming year, and how to allocate available funds.
Just like on D-Day, you’ll probably have to make adjustments to your budget almost as soon as the ink has dried (as Harold Macmillan put it, “Events, dear boy, events”…).
But by taking the time to assess every part of your business, you’ll develop a deeper understanding of what’s really going on, and be able to make better decisions even when circumstances change.
So, try not to think of creating and managing budgets as an unpleasant task. Instead, view it as an opportunity – one which could be key to the success of your entire enterprise.
Wednesday, September 14, 2016
All businesses need money to invest and grow, but finding it can often be tricky.
The banks were unwilling to lend him more money.
Yet with a little bit of hard work he managed to come up with thousands of pounds – all of it interest-free.
How did he do it? Well, he realised a simple truth. The money he needed was sitting right under his nose, locked up in his own business.
Like all businesses, Brian’s company had a huge amount of money tied up in things such as property, equipment and slow moving stock. It was just about knowing where to look and how to free up the money.
Start by taking a look at your own business. Where might that hidden cash be hiding?
Do you have any property which is unused? Brian realised he had a lot of spare office space, so he started renting it out – giving himself a much needed source of additional income.
He also needed to upgrade to new, more sophisticated, IT systems. He paid for part of this by selling off his older equipment. This gave him a timely boost which meant he could afford the much-needed investment.
Do you have any old stock which has not been sold or is moving slowly? Why not sell this at cost? It will free up some much-needed funds.
Get in touch with any debtors who are slow to pay. Most companies have these – it’s one of the leading causes of small business failure. So chase late payments more effectively.
You might also encourage other customers to pay up more promptly by incentivising prompt payment plans. Give them a discount for fast settlement of a bill. From a cash flow point of view, you may well prefer to have a bit less money today than a bit more money in a month’s time.
Speak to your suppliers and try to negotiate more favourable payment terms. If you are a regular customer, they may well be willing to give you more time – allowing you to do more with the money.
As long as they trust the money is coming in at some point – and it doesn’t impact their own cash-flow too much – they will probably be willing to offer some flexibility.
Shopping around can also be surprisingly lucrative. Many businesses are paying well over the odds for basic bills such as energy and business insurance. Don’t accept the price your existing suppliers are offering – there’s almost certainly a better deal elsewhere.
Kill waste. Every business has it. Examine all your processes and make certain they are as efficient as possible. If you can make multiple small savings across the scope of your business they will add up in time to something quite significant.
A more effective pricing structure can also unlock more profits. Businesses in the UK miss out on millions of pounds’ worth of extra profits because their products and services are priced too low. Work out if there’s any wriggle room and if you could get away with charging a little more.
The point is this: Almost every business has money to be found somewhere, whether its unsold stock, unused property, equipment or infrastructure. Examining your business can not only unearth some of these hidden cash pockets, but they can also help you refine your business operations.
We can help you take a look at your business and unlock some of that hidden cash. To find out how, hit ‘reply’ and let’s chat.
Wednesday, September 07, 2016
You’re looking to raise cash for your business, fast. Perhaps there is a piece of equipment you need to buy, or you want to open another office.
But the thought of taking out a bank loan makes you squirm.
A decade on from the 2008 crisis, banks are still making it difficult for small businesses to secure finance. You know that you’re going to have to jump through hoops with your bank manager. Somehow, visiting their office feels like visiting the headmaster as a child: Daunting.
You also know that bank loans are risky. What happens if you have a couple of bad months, and can’t make your repayments?
Business is stressful enough without having the threat of a loan default hanging over your head.
Then there’s the expense…. Those interest rates make your eyes water.
So what are your other options?
Luckily, you do have alternative sources of finance. Here are some you should consider, before taking out a bank loan:
Finance Lease or Hire Purchase: Do you need money to buy equipment? If so, a hire purchase arrangement might be the best option. This is in many ways a loan, but you’re borrowing the money from the company which sells you the equipment, rather than the bank. Your loan is tied to a specific product. And at the end of your payment term, you own it.
Many people take this option with a car, paying monthly instalments to the company until they own it outright. You can do the same thing with equipment.
The downside is that this can be more expensive over the longer term than buying it outright, but there’s less immediate impact on your cash flow.
Operating lease: This is a slight twist on leasing. At the end of the deal you give the equipment back. This is a good idea of you only want it for a short time, or it’s the kind of equipment which goes out of date quickly, such as IT. You can then organise a new operating lease agreement – it’s a cost-effective way to always have latest technology available.
With these deals you should always read the small-print carefully. What happens if your circumstances change? Do you have any flexibility to get out of the lease agreement? Never assume things will be alright – being stuck in an inflexible arrangement can be difficult.
Peer-to-peer lending: If the banks aren’t willing to lend, perhaps the crowd might do it. Peer-to-peer lending is growing, with companies such as Crowd Cube offering private individuals the chance to give loans to businesses.
Each business is given a credit rating based on the level of risk. This can be more affordable, but as with ‘regular’ business loans, you will still have to make interest payments.
Lending the money yourself: You might be able to invest your own cash in the business. If you decide to do this, you need to protect yourself in case things go wrong.
Set up the loan in much the same way as you would any other loan – that means taking security, arranging interest and a payment plan, just as any other lenders would do.
Friends and family might also be willing to help out with a loan. Again, set this up with all the professionalism and due process you would any other form of loan. You need to protect them too.
All these have their pros and cons – the decision depends on the exact circumstances of your business. But there is another option: to find the cash hidden within your company. Every company has some – I’ll tell you how to find it in my next Blog!
In the meanwhile, if you’re ambitious for your company but are not sure exactly how to finance its growth, let’s talk. We can help you organise your finances in the way that makes most sense.
Wednesday, August 31, 2016
“William” owns a small company which runs hunting, climbing and fishing trips in Scotland.
It’s still early days, but so far things are going pretty well. The trouble is, his business is very seasonal and sometimes cash is tight.
What are his options?
Like many business owners, “William” assumes that he’ll have to take out a bank loan. After all, he knows his business will come back – he just needs the cash-flow to survive this difficult time.
But in reality, a bank loan wouldn’t be appropriate in this (fictional) scenario, nor would he get one.
A bank loan is something that every business owner should think about very carefully.
Yes, a loan provides much needed capital, but it also comes with risk and cost.
There’s the chance you might struggle to make repayments, and land your business in serious trouble. Interest rates can be a drag on your business when the money does come in; your loan can end up being very expensive. There’s also the difficulty involved in securing a loan. They’re not given so easily nowadays, and it will take a lot of time and effort on your part to arrange.
Reality is that loans have weakened, or destroyed, many a business – and you should think long and hard before you take one.
So in what scenarios should you apply for a bank loan? And when might you be granted one?
Here are some key considerations:
- Are your needs short- or long-term? Do you need the money for something which will have a long-term impact on your business – namely something which can help it grow and thrive?
If so a loan might well be a good idea. However, if like “William” you only need it for the next few months to cover a short-term gap, it’s not worth the risk, nor will you want to pay the interest over the long-term. You’d be better off with an overdraft.
The rule of thumb is: Get long-term funding for long-term needs, and short-term funding for short-term needs.
- Are the costs justified? You must always make a business case for a loan, but the first person you must convince is yourself. You need to prove that you have a really good reason for taking on so much risk and paying so much interest. For example, let’s say you’re investing in equipment. Is the benefit it will give your business enough to justify the expense? If you can make the case to yourself, you’ll have a better chance of making the case to a lender – and getting a more favourable deal.
- What if the worst happens? You know the old saying: Plan for the worst, hope for the best. What happens if – for some reason – you can’t pay it back? You’ll be asked for security or collateral – think about whether this is something you can afford to lose. Sometimes the lender will ask for the equipment you’re buying, but some people will make a personal guarantee against another asset such as their home. Think long and hard before you do this.
In the meanwhile, if you want your business to grow fast, but need help finding the money to do so, let’s talk. There may be plenty of options you’ve never even considered.
Wednesday, August 24, 2016
When I established Insight Associates, now nearly 25 years ago, I had a pretty clear idea of what it was going to look like today.
I knew approximately how many employees I was going to have. I knew what turnover we were going to reach. I knew what my role was going to be, over two decades later.
Some kind of prophet?
The boring truth is that I had a very particular vision of what kind of business I was going to build.
And then I went ahead and built it.
Insight Associates looks the way it does today not by accident, but by design.
And that’s how you should build your business, too.
It all boils down to a question you need to be asking right from the start: “What will my business look like when it’s finished?”
In my last blog I talked about the three life-stages of a business: Infancy, adolescence and maturity.
You need to decide at the outset which of these stages your company will be at when it’s “done”.
Do you want to be a small firm with just five or six employees in one office, or do you want to grow into a much larger £10m company with 50 employees, several branches and an international presence?
As the CEO, do you want to be hands-on, or to sit back and take a more strategic view? Are you starting a business because you want a comfortable income, or are you looking to create an organisation which can go on without you?
There’s no right or wrong answer, but if you don’t already have those answers, you need to think about them – fast.
You see, that will allow you to lay the foundations accordingly.
It’s like building a shed. You start off by putting small concrete foundations in place – that’s fine - but it’s no good then trying to build a skyscraper on top of it.
If you want a lifestyle business, you’ll be able to get away with simple systems and infrastructure. If you aim to build a much larger company, you’ll need to put in the right processes, technology and people from an early stage.
When it comes to the financial side of things, a bigger company needs more effective financial management. This means thinking about who’s doing your accounting, what kind of information they’re giving you, how useful it is, how you handle your invoicing, how you ensure your cash flow is smooth and so on, very early on.
If you want to become a big company, start acting like one!
So what will your business look like when it’s finished?
If you’re aiming for a business that grows well beyond £1-£2 million, we can help you put in place the financial management you need to get there.
Wednesday, August 17, 2016
If you’re like most business owners, the holiday period has been rather stressful.
Taking the family away was wonderful. But you had to spend an equal amount of time – if not more – working like a dog, to make sure all loose ends were tied up in the office before you went away.
You burnt the midnight oil to finish off several important projects…. Held extra meetings to give your staff everything they need to forge ahead without you….
And even then, you spent some of your holiday on the phone to the office.
Lying on that deck chair, exhausted, you couldn’t help but fantasise about how your business is going to look in five years’ time – when you can get up and go on holiday at just a moment’s notice, confident that everything will run like clockwork without you. Your wonderful staff will take care of everything.
Heck, they won’t even notice you’re gone.
Of course, that doesn’t have to be a fantasy. Many businesses work just that way, and yours can too – if you take it through a period of transition.
You see, there are three key business stages. The first, in which the business is highly dependent on the owner, is called “infancy”. Many business owners are perfectly happy to stay at that stage, because they enjoy the work and get a nice income.
Others want to reach the other end of the spectrum, a “mature” business which functions well without the owner. Indeed, they’re not dependent on any one member of staff. People come, people go, and the work still gets done.
This is a business which can be sold, because its value isn’t tied up with any individual. It’s inherent in the business.
In between, just as in our own lifecycles, you have that awkward, messy, exhilarating stage called “adolescence”.
It’s typically associated with companies turning over £1-£10 million. It’s the period when you make a deliberate decision to break with infancy, and equip your business to function well as an “adult”, and go out into the world without you.
You decide need to learn to let go, and allow other people to do the jobs you did right at the beginning – so that you can concentrate on the really important, strategic decisions.
You need to put in rock-solid systems, so that everything’s done exactly the right way – the way you want it to be done – no matter who’s doing the job. You need to ensure the right technology, approaches and high standards are in place, and professionalise.
This applies in every area: Marketing, service delivery, customer service….
You see, an infant business can stumble along while you do some of the bookkeeping yourself, take financial decisions without really referring to your financial reports, and put up with basic or old-fashioned accountancy software.
But can you imagine the owner of a £10 million company doing any of those things?
No. Experts manage their money day-to-day, using industry-standard accountancy software, delivering reliable financial reports, forecasting and planning. The owner uses all that information to take important financial decisions about the future of the business, based on real data – not intuition.
Their financial management is professional.
The secret is that you don’t have to wait until you’re a £10 million company to have all those things.
In fact, if you ever want to reach maturity, you need to put them in place now. It’s part of the journey of getting you there.
If that’s your vision, hit ‘reply’ and let’s talk. We can professionalise your financial management, and help your business grow.
Wednesday, August 10, 2016
- The E-Myth Revisited: Why Most
Small Businesses Don’t Work and What To Do About It by Michael E Gerber.
One of the great misconceptions is that businesses are created by entrepreneurs when in fact most are created by technicians – people who love what they do, and want to build a business around it. The problem is just because you have the skills and experience to do a particular job, doesn’t mean you are any good at running a business.
Gerber advocates building your company as if you were creating a franchise - in other words, a business model which can be repackaged and sold on without needing you, its founder. By creating processes and systems which even the most unqualified employee can follow, you will create a well-polished, professional business that will run just the way you want - and can scale quickly.
It’s brilliant advice, which reflects exactly what I believe you need to do with your financial management as well (and in fact, I’m going to delve into this more deeply in next week’s email).
If you read one thing this summer, make it this.
- Stickier Marketing: How to Win Customers In
the Digital Age by Grant Leboff.
My Bible for how to market your business in the Internet era.
Leboff argues that the concept of the Unique Selling Proposition is ancient history when every idea and everything you say about your company can be copied almost instantly by the competition.
What differentiates you, he says, is not what you do – but how you do it (and who for).
Can you give your fans and followers online a unique experience? What emotions are they going to associate with you? How can your marketing get your prospects involved, instead of simply talking to them?
Leboff does a terrific job of explaining why the Internet has changed marketing and giving really practical, solid examples of how companies of all sizes can adjust.
- Start With Why: How Great Leaders Inspire
Everyone To Take Action by Simon Sinek.
You know what your business does. But can you articulate why you do it? That is, not just to make money – but what your business’s higher purpose is?
Sinek argues that your business won’t truly flourish and be exceptional unless you, your employees and clients understand why it exists. This is what inspires. This is what gives a leader charisma and the ability to inspire change - not the mechanics of what you do.Sinek is, in effect, providing a different answer to Leboff’s question: “How do we differentiate our companies in today’s day and age?”
This one appeals to me personally, because part of our own work is to help customers figure out what they really want to achieve with their business, and give them the financial tools to do so.
If you don't have time to read the book, make sure you watch Sinek's popular TED talk on the same subject.
- The Beermat Entrepreneur: What You Really Need to Know To Turn a Good Idea Into a Great Business by Mike Southon and Chris West.
How do you grow a company, from the moment you think of setting one up, until you sell it?
Southon and West argue that entrepreneurs are mavericks who love a good idea, but find it hard to see them through (if the entrepreneur was in charge of running the back office, they joke, you’d come into work to find an advanced phone system, but no milk in the fridge…).
If you want to grow your business, you need to surround yourself with key people in key areas such as sales, production, technical and – of course! – finance. They can build the right team for you and create the processes you need to make your business a success.
They set out the stages of business growth clearly, and give every entrepreneur a really practical map for building a business that works. Invaluable.