WW FD Club

Number of SMEs on the increase but then what?

2012-01-11T01:33:00.000-08:00

As the UK economy hits hard times and redundancies, pay reductions and unemployment rises, one might expect to see a fall in the number of registered companies. However, the opposite is happening; the UK has seen a surge in the registration of new companies in the last year. Research by Creditsafe found that there was an 18% increase on 2010.

It is thought that university leavers finding it hard to secure employment and those being made redundant have decided to go for it and open up business for themselves. Initially this seems like a very positive move and could help with the UK recovery but looking at what we already know about small-to-medium sized companies (SMEs) it may be just another route to the same old issues.

Online lender borro.com found that 24% of SMEs claim to have missed out on growth opportunities due to the lack of accessible finance, and it was widely reported in the financial press that realistic finance was not available to SMEs.

This is further confirmed by the figures released on Project Merlin. Merlin was a pledge made by most of the high street banks to lend £190bn to businesses in 2011, £76bn of which to go to SMEs. At the end of the year it was expected that they would fall short of the SME target by over £1bn. Also they classified an ‘SME’ as a company with a turnover of less than £25m. This implies the lending that did get approved may not have even reached the smaller businesses where it is most needed.

However, the SME Finance monitor found that many SMEs knew there was finance available but did not follow through with the application process; as they did not wish to be tied into repayments when the coming year looked uncertain. They chose instead to use their own funds or ask friends or relatives to assist with additional capital.

This was confirmed by the findings of borro.com who found that 57% of SME owners had used their own funds to inject capital into their business. They also found that 66% of SME owners lacked confidence in their bank and were unsure whether their bank would lend to them. Only 19% of those surveyed had actually attempted to secure bank finance in the past year and only 31% of those had been successful.

So it may be a positive sign that more people are confident enough to start up a new business in the face of uncertainty, but how long will it be until these start-ups require some finance?....what happens then?

When considering finance options the best thing to do is speak to your accountant/business advisor who can provide guidance and advice on the relevant options available. There are various routes to explore, so make sure you are well informed before using your own funds or assuming finance is not available at all.

For further information or advice on this topic please visit http://www.wardwilliams.co.uk/

The Chancellors Autumn Statement – Our Comment

2011-12-02T04:05:00.001-08:00

The Chancellor’s autumn statement focused on managing the UK debt burden as a means of keeping the interest cost for the country down. The measures looked to balance the economy and make sure that the UK remains competitive in the challenging economic environment. Key to all the numbers is economic growth and therefore has he done enough to encourage growth of UK business and particularly SMEs?

The announcement that caught our eye was a new relief for investment into start-up companies. Very few details are currently available and should be announced on 6 December. Under a new Seed Enterprise Investment Scheme (SEIS) will be introduced that will attract 50% income tax relief for individuals who invest in shares in qualifying companies, regardless of the rate they normally pay. The scheme will be subject to an annual investment limit of £100,000 for individuals, with a cumulative investment limit for companies of £150,000. There will also be a one year CGT exemption on gains realised in 2012/13 which are invested in SEIS in the same year. With the lack of bank financing many SME’s have looked to private investors for additional capital. For the private individual they have looked for other places to get a return for their money given the poor returns from traditional investments such as bank deposits. These proposals change the balance of risk and reward for these private investors and should encourage further investment, particularly when set along side the cap on annual pension contributions.

The Chancellor also announced his intention to simplify the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) rules. This will include a relaxation of the connected party rules as well as excluding companies ‘set up for the purposes of accessing the relief.’ In addition the statement confirms the intention to remove the £1m investment limit per company for VCTs.

The plans for credit easing worth £21bn that will see the taxpayer underwriting lending to small businesses and their will be the creation of an SME company bond market. The problem with the credit easing proposal is that it still leaves lending to SME’s in the hands of the banks who, on the whole, have showed a lack of support and understanding of this sector and in some cases have failed SME’s woefully.

Other announcements included the business rate holiday for small businesses being extended to April 2013. The Government has committed to introducing an ‘above the line’ tax credit in 2013 to encourage research and development but this will be more beneficial for large companies.

Please click here to view the facts and figures from the Chancellors 2011 Autumn Statement.

SME Finance - Don't ask and you don't get

2011-11-16T06:56:00.000-08:00

According to the recently released SME Finance Monitor, only two thirds of small firms (those with fewer than 10 employees) are getting the finance they need, leaving a third being turned down when they apply for loans.

However, the news for small firms is worse than this statistic suggests, as half surveyed said they wouldn’t even apply for a loan in the first place. Well why? This is because they believe they will simply be turned down in any case.

Old style branch banking has disappeared and this has not helped together with a widespread distrust of the larger banking institutions.

How do these firms survive meanwhile? Are they relying on other sources of finance, including factoring and leasing? – plus extended payment terms too – of course they are.

The downside – watch out these SMEs may be using your credit line as a bank!

For further information/advice on this topic please visit www.wardwilliams.co.uk

Credit Risk Part 3 of 3: Internal Risk Data

2011-11-10T01:49:00.000-08:00

In the current economic climate, managing a credit rating and obtaining finance is more important and difficult than ever. It is vital that companies are provided with the right information from the market and credit rating agencies, to ensure their credit and risk evaluation shows them in the best light.

Part 3 of 3 Internal risk data (part 1 managing risk information, part 2 external risk data)

Internal risk information usually falls into 3 categories: strategic, financial and operational. Users of company risk information will be looking for, and expecting to find information under these headings, so make it easy for them by proving the information in this way:

Strategic

Risk assessors will be looking to see that the company strategy is well thought out, researched, tested and revised inline with real world developments and expected future events. With this in mind; provide a commentary on changes to previous strategy or expected future changes and the reasons for this, explain how risk factors are being monitored and managed.

Some of the basic points to cover are:

· Market position of key products

· Ability to differentiate from competitors; maintaining a competitive advantage

· Product life cycle and distribution patterns

· Sourcing of key materials/ skills

· Ownership of IP and copyright benefits

· Trade or pricing regulation and litigation risk, changes in legislation or regulation

· Reliance/dependence on specific customers, suppliers or markets

· Outline of your current strategy, approach to risk management and business continuity plans

Financial

Start with a brief outline of the management and legal structure, major shareholders and stakeholders and the business plan. There should be a clear link between the company strategy and the business plan, if not, this should be explained. If specific developments or risks have been identified, model their effects, applying various scenarios to demonstrate how the situation would be managed to ensure compliance with loan covenants or other limiting factors, always include cashlfows in this analysis.

In terms of figures, financial forecasts and company accounts will cover most expected data but cashflow will be of most interest to a risk assessor, so explain the key drivers and ratios including gearing and trend analysis. Strip out any unusual cashflows such as share buybacks or exceptional transactions, explaining what you have done and why. Discuss the balance sheet, commenting on liquidity and like cashflow, strip out or highlight any distorting transactions. It may also be relevant to comment on the following: Contingent liabilities, pensions, onerous contracts or large capital projects as well as commentary on current finance including possibility of renewals or additional draw downs.

Operational

This is all about management, who they are, their track record and approach to risk. How have management reacted to previous unexpected developments? Have the changes made by management had an impact? If there are developments that may be seen to affect the company, it is probably wise to contact any parties that may be concerned by the news, be it creditors, banks or investors. Proactively advising of changes and what actions are being taken will be met with less scepticism. If there are concerns about releasing commercially sensitive information it is possible to put confidentiality agreements in place.

For further information on this topic please visit www.wardwilliams.co.uk or email enquiries@wardwilliams.co.uk

Regus' Bracknell Networking Event

2011-11-08T01:49:00.000-08:00

Ward Williams will be exhibiting at Regus' Networking Event in Bracknell on 30th November 2011.

Why not pop along to this free networking event for an opportunity to discuss your business needs, and meet Ward Williams staff in a relaxed and informal networking atmosphere.

Venue: Regus, Venture House, 2 Arlington Square, Downshire Way, Bracknell, RG12 1WA
Time: 11am - 2pm
Light buffet lunch included

Ward Williams participates in ICAEW’s Business Advice Service!

2011-11-01T04:16:00.000-07:00

Ward Williams Chartered Accountants have signed up to participate in the ICAEW Business Advice Service (known as BAS).

ICAEW firms who participate in the Business Advice Service are able to offer SMEs and start-ups an initial meeting at no charge to discuss their business needs. After the initial meeting, SME can decide whether to continue. Under the ICAEW Business Advice Service, it would be made clear that no financial commitment is made by the SME in the first instance. ICAEW believes this will encourage SMEs and start-ups to seek support from ICAEW Chartered Accountants rather than resorting to unqualified alternatives.

Firms participating in the service are identified on icaewfirms.co.uk with the 'BAS' symbol (above). This allows users of the site to easily identify which firms are participating in the service.

ICAEW is launching a campaign about its new Business Advice Service to promote the use of ICAEW Chartered Accountants to businesses

Please visit http://www.wardwilliams.co.uk/ for more information.

Credit risk part 2 of 3: External Risk Data

2011-10-28T07:48:00.001-07:00

Part one of this series covered the basics of ensuring information is available to relevant parties to help them better assess your company risk. Parts 2 and 3 focus on the types of information you may need to provide. This issue covers the types of external information that potential investors, creditors or credit rating agencies may find helpful when assessing your business.

Outline the industry and its environment in general

Start by compiling a list of external factors to view the bigger picture and then take a closer look at the details. Some solid foundations would include:

· Maturity of the market and technology

· Cyclicality – if income is seasonal provide percentages showing how income and activity is spread across the year

· Competition – detail who the top performing companies are and who you compete with directly

· Barriers to entry

· Substitutes for the industry’s products

· Sectors

· Demand factors – explain if and how the business is affected by specific issues. For example an expected change in legislation.

· Customers

· Environmental impact and Social responsibility issues – This area has a much higher profile than a decade ago, If your policies are green and cost-effective you should be letting people know. If they are not, then maybe you need to revisit this area.

· Geographical information

· Regulatory environment

Set out specifics affecting the business

Outline the risks from the point of view of the company, and how they are likely to develop over time. Are there any issues with under or over capacity? If so, how are these issues expected to progress in the coming months/years. Is there growth or decline in specific product lines? What are the plans to maximise the income or minimise the possible loss? What about the product mix? Is it changing, does it need to in the future? Think about out what your audience may want to know, an investor may be interested in the capital intensiveness of the business or the supply chain and any potential synergies. A potential business partner may want to know how you plan to manage upcoming changes such as the phasing out of a specific product or service.

Don’t assume

Finally - Don’t assume people know what you know; even industry analysts will not have your level of insight. There may be a competitive cost to providing all the information a risk assessor would like to see but most external information is already out there. It is just a case of collating and making it focused and easy to use. If this seems like a daunting task ask your business advisor for assistance.

For more information please visit www.wardwilliams.co.uk

Keep in touch, Part 3 of this series: Internal Risk Information coming soon...

Credit risk part 1 of 3: Managing Risk Information

2011-10-20T01:38:00.001-07:00

According to the ICAEW report, Reporting business risks, the demand for better risk reporting has grown in recent years. This does not mean we need more legislation or regulation; most businesses are already struggling to keep up with the existing regulations, it is more a matter of education. Many company Directors are well aware of the issues and are managing them as effectively as possible, but for those who are not sure what they should be doing, here are Ward Williams’ 3 key points on managing risk information:

1. Information availability

If you are looking for investors or trying to manage your credit rating, then go direct to the source; approach the agencies, and offer to provide more up to date financial information or trade references. The agencies tend to have processes for dealing with these requests. This is bound to help them better asses your company. The same goes for investors. You may not know who they are yet, but if you are trying to attract or obtain funding, then make it easy for them to get the information they need. This could be as simple as adding an ‘Investors info request’ option to your website and having an information pack ready to send out.

2. Relevant and helpful information

Review the information you are proving to ensure it is relevant to the intended user. There should be qualitative and quantitative data, headline figures and sector beak downs but also commentary where the figures only show part of the story. Relate the risks to your business model, putting them in context makes them much easier to understand and thus assess.

3. Keep it current

Stop thinking in accounting cycles! Your business changes and grows throughout the year. At Ward Williams we recommend sitting down a couple of times a year and reviewing your business risks. Look back; did you identify the risks for the previous period correctly? Were there some issues that you overlooked? Did you manage the risk as well as intended/expected? Could you do something differently going forward? Can you learn and evolve your business to better deal or cope with risk?

The risk profile of your company and how it is perceived not only affects your ability to obtain funding, but also affects a number of wider issues, including: Negotiating credit terms, maintaining/increasing your company credit rating, providing employees with some job security, achieving a higher price if selling and negotiating better prices if purchasing. Your company risk profile has a huge impact on your business, so it is vital you are managing it as effectively as possible.

For more information please visit www.wardwilliams.co.uk

Keep in touch, Part 2 of this series: External Risk Information coming soon...