WHAT IS THE MAIN STRATEGIC REASONING FOR ACQUIRERS OF A BUSINESS? Acquirers do not buy the past performance of business. They buy the future performance of the business, but use the past performance as a guide (along with other things) to establish the likelihood of the future profits. Acquirers can have diverse motivations: ego or status a carefully thought out strategy opportunistic reasons, e.g. see a competitor of failing business up for sale and think a good deal may be had by acquiring it a Seller (or the Seller’s Advisor) has managed to paint a vision for the Acquirer of what the end result will look like of the two businesses once they have been merged. The case will appear convincing, such that the Acquirer will believe that, by acquiring, he or she will be able to generate a value significantly greater and faster than the alternative of continuing organic growth. Whatever the starting point, once an Acquirer is “in play” and considering an acquisition, then it is the … [Read more...]
Small Business, Enterprise and Employment Act 2015 (SBEE Act)
New legislation will require company owners to provide additional information to Companies House. The Small Business, Enterprise and Employment Act 2015 introduces the Register of Beneficial Owners, which requires companies to submit details of all individuals who have at least 25% control. The register comes into effect on the 1 April 2016. As with the Annual Return, there will be a yearly requirement to update the document; however, changes should be updated when they arise. The legislation requires submission of details of owners with 25% control, but the process for determining control is complex. It addresses direct and indirect control, as well as dilution of control, which is particularly relevant if the UK Company is part of a global group. The public register will contain the following details: Name, country, nationality and date of birth Service address, residential address Date the individual became required to register Nature of his/her control and … [Read more...]
Dealing with an under-performing family member
This is one of those predictable problems which takes on additional angst because it involves a family member. As a predictable problem, its’ resolution can be proceduralised by specifically mentioning this situation in a family constitution so that there are no surprises if and when a situation like this occurs. But first things first. Why do people underperform? There are 4 reasons, 3 of which are the responsibility of family business management. The person cannot meet expectations The person does not know what is expected of them The person does not know that they are not meeting expectations The person will not meet expectations The first 3 reasons are management issues. Identifying the reason is the start point for the discussion. Are expectations too high? Are expectations too vague? Is the person’s role clear? Are the objectives set SMART? Are there regular reviews of the person’s performance? Is training or coaching provided to help the person … [Read more...]
Personal Guarantee Insurance
Are you or your clients worried about the Personal Guarantees that you have given? Then think about PG Insurance. Personal Guarantees are the bane of most business owners’ lives and something that they continually ‘moan’ about. Invariably any form of borrowing above say £5-10,000 from a bank or other financial entity will require further security in the form of a personal guarantee from the business owners and directors. This is on top of any security that they may also take over the assets of your company. As has been seen over the recent past, it doesn’t take a lot for an excellent business to be hit by unforeseen factors that may result in adverse trading and the lender may demand repayment of its money. You may well be faced with a call on the guarantee that you have given. At that point your personal assets are at risk. Personal Guarantee Insurance is there to meet that claim up to the amount for which you are insured. Personal Guarantee Insurance … [Read more...]
What do the new accounting standards mean for you?
In the next year your accountant will start talking to you about the changes in accounting standards in FRS 102. This new standard is about moving the UK Accounting standards closer to the International Accounting Standards. The main difference will be an increase in costs and these will come in two parts. In the year that you convert to the new standards there will be extra costs because your previous year’s accounts will have to be converted to the new standards. There will then be higher costs because there are extra reporting requirements. Here are some of the new requirements: There will be new accruals for items such as Holiday pay. You will have to declare any foreign currency transactions you have set up but not actioned. You will need to make declarations about Fixed Assets, Intangible Assets such as intellectual property and Goodwill. What can you do to minimise these costs. Be prepared. Find out from your accountant which of these changes affect you … [Read more...]
Alternative funding for SMEs keeps on growing
As peer-to-peer lending, invoice trading and crowdfunding shift into the mainstream, the alternative finance market is set to double in size next year, with the sector set to reach a value of £4.4 billion The report from charity Nesta and the University of Cambridge said alternative finance to businesses and consumers was set to hit £1.74 billion in 2014, before jumping to £4.4 billion in 2015. The market was only around £666 million last year. A raft of finance providers have sprung up in the wake of the financial crisis when banks cut back on lending to SMEs, forcing them to look for alternative sources of finance. The co-author of the Nesta report, Liam Collins said: “These findings shed light on a growing movement that is revolutionising banking, investing and giving by using technology to simplify the links between those who want to invest money and those who need it. With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast … [Read more...]
Equity Crowdfunding Around the World goes from Strength to Strength
An Organisation called The Crowdfunding Centre takes data from 120,000 crowdfunds across the World The US leads the way in the number of crowdfunds, However, earlier this month, London originated 248 crowdfunds. The city in second place was Los Angeles with 158. London has a 33% success rate compared to 30% across the rest of the UK and around 25% globally. It leads the way in big growth industries like gaming and films, which has fuelled a lot of growth in the US, is increasingly finding a home in the UK. Evidence is also growing of the positive lasting effects of a crowdfunding round. These figures are from a recent report by Crowdfund Capital Partners: - Reward crowdfunders reported an average sales revenue rise of 25% - Equity crowdfunders reported an average sales revenue rise of 350% - An average of 2-3 new employees are taken on after crowdfunding - Just over half of firms that contributed to the report said crowdfunding was their first choice method for raising … [Read more...]
Funding Growth
Now that the economy is firmly on the mend, management teams have a new challenge to think about and that is how do they obtain the funding that they need for the growth that they are now experiencing. It is vital to remember that more companies go to the wall in a recovery than fail in a recession. Over trading is a very real danger. The best place always to go for funding is your own bank. You have a history with them and they should understand your business better than any other funder. Unfortunately over the last 6 months bank lending to businesses has fallen by a staggering £4 Billion. So if your business is growing and your bank is not lending, then who do you turn to? There are many independent sources of finance for growing companies. The independents are much more flexible in their terms and their attitudes and being smaller you are much more important to them. Invoice Discounting and Factoring is one of the easiest to obtain and most flexible ways of raising finance … [Read more...]
Latest SME Monitor from Aldermore
In the latest SME Monitor produced by Cebr for Aldermore Bank many positive indicators show that the economy is on the mend. Here are just a few of the indicators that the report highlights: • The UK economy expanded by 0.7% quarter on Quarter in Q4 2013. • Recovery is expected to gain further momentum over 2014 as a whole, as GDP is projected to rise by 3.3% year on year • Growth is coming from all three major industrial sectors, production, manufacturing, and services. • Annual cost inflation for small and medium-sized manufacturers fell back in Q4 2013 to 0.2% down from 0.7% in the previous two quarters • Borrowing costs continue to fall back for UK SMEs, with the median interest rate offered to medium-sized enterprises falling to 3.2% in November 2013. Rates have not been lower than this since June 2009. • The same goes for small enterprises where the median rate offered was 4.4% down from 4.8% • The confidence level for SMEs climbed to +39.7 this quarter, its highest … [Read more...]
RandD Tax Credits – Massive Boost for SMEs in UK Budget 2014
I was delighted to hear that the government has increased the rate of the Research and Development (R&D) Tax Credit for small and medium enterprises (SMEs) from 11% up to 14.5% for R&D costs incurred from next week (1st April 2014). The increase was announced in the UK Budget Statement 2014. This represents a very big increase, and means that up to 32.6% of what you spent on R&D can be claimed as a Tax Credit, which is a cash payment paid out in loss making situations. It now compares very favourably with the current 26% benefit (for spend after 1st April 2015) available when offsetting R&D enhancements against a profit. (The higher percentages are the result of applying an R&D enhancement value to the amount spent before calculating the rate of the tax relief or credit). It underlines the Government’s commitment to supporting businesses to invest in research and development and will help to ensure the UK is at the forefront of … [Read more...]
Can a recovery in the economy be dangerous for SMEs?
The answer is yes. Naturally we all welcome the emerging recovery we are experiencing in the UK but SMEs should look very carefully at their finances as they need to be very aware that the pattern established following previous recessions is that more businesses go bust as the economy recovers not less. Typically businesses slowly wind down during a recession until they eventually run out of cash. Economic growth is often the last straw for them. They need to fill new orders and recruit more staff to meet demand but just cannot get any more credit and administration beckons. They may also have been slow in paying VAT and PAYE and built up large arrears which now must be paid as during a recovery the tax man becomes more aggressive. Pegasus Funding Resources, a LGBA member company, can help SMEs that find themselves in this situation and in need of growth funds to take advantage of the recovery. Types of funding that are available in this situation include: • Trade Finance to … [Read more...]
Do I Qualify? Research and Development Tax Credits?
Can you recognise qualifying R&D in your Company? you may be surprised how many companies can’t don’t be one of them! What are R&D Tax Credits? The Government’s R&D Tax Credit Scheme was introduced for Small and Medium Enterprises in April 2000 and for large companies one year later (SMEs for R&D purposes are companies with under 500 employees and either less than 100 million Euros turnover or a balance sheet value of less than 86 million Euros). The R&D Tax Credit scheme applies to Limited Companies: R&D costs can be offset against UK Corporation Tax. If there are no profits a Cash Credit is available... ...all subject to qualifying conditions being met. Since April 2012 qualifying R&D costs can be enhanced by an additional 125%, and since April 2015 130% which means that: if profitable you can reduce your corporation tax by 26% of your R&D costs – e.g. by £2,600 for every £10,000 spent or if you … [Read more...]
How do you deal with an approach to buy your business? – Step 5
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. In Step 3, I suggested you decide what you want to do and what you want to get out of it. In Step 4, I suggested you took the time out to prepare all the information you will need to sell your company and provide the necessary information for an acquirer to value it. Now we are getting down to the nitty gritty. This is the real start of the sale process. Until now, you have been involved in a “phantom war” and have set about preparing your strategy to attack and also shoring up your defences. Step 5 – Develop trust between you and the acquirer The acquirer is not in a position to … [Read more...]
How do you deal with an approach to buy your business? – Step 4
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. In Step 3, I suggested you decide what you want to do and what you want to get out of it. Now let us assume that you have decided to pursue a deal with this single acquirer ….. the chemistry is right, the strategic imperatives make sense and you and your advisor feel you could get a decent deal out of it. Step 4a – Get your financial information ready; involve your accountants Then get your accountant involved; make sure your management accounts are up to date, get the last financial year’s accounts and tax returns completed and ready for filing, prepare a detailed budget and cash flow forecast … [Read more...]
How do you deal with an approach to buy your business? – Step 3
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. In Step 2, I suggested it is time to get close to appoint an experienced Mergers and Acquisitions Adviser who knows your market and your business. Things are now getting more serious, and the acquirer will be in what I call the “Discovery” phase. Under a Confidentiality Agreement, this is where the acquirer asks you questions which are intended to provide the following answers: Is your business worth acquiring i.e. does it really meet the strategic criteria set by the acquirer? If so, what is it worth to the acquirer and what sort of deal can be offered Before you can answer any questions, you need to take a “time out” and go through Steps 3. Step 3 – Decide what you want to do and what you want to get out of it – the “Strategic and … [Read more...]
How do you deal with an approach to buy your business? – Step 2
So, someone has approached you to buy your business. It is unexpected and out of the blue. What should you do? In Step 1, I suggested you meet the acquirer and decide whether his vision suits you and whether you like and can trust him. If the company is a listed company, rest assured the deal will be difficult as you will be turned inside out and upside down. If you have a good feeling from the initial meeting, and the acquirer asks you for another meeting, do not set this any sooner than two or three weeks ahead. If, after the initial meeting, the vision of the acquirer excites you, now is the time to start the “sales process”. After all, you probably (definitely?) want to get the best price and the best terms for yourself and other stakeholders. Sitting back and waiting for it to happen won’t get you there. Step 2 – Appoint a Mergers & Acquisition Advisor Ask your accountant or trusted advisor to recommend a Mergers and Acquisition Advisor – warning, accountants … [Read more...]
How do you deal with an approach to buy your business? – Step 1
I am sure you have often heard the legend – no it really is a myth, no more than that, it’s a fantasy …. – about the business owner who met someone in a pub who offered £1m (or any other aspirational number) to the owner to hand over the keys and walk away. I have yet to meet that buyer or that business owner. Nevertheless, what should you do when you are approached to sell your business? Businesses on the acquisition trail, will have a carefully thought out strategy of what they want to buy and where it will fit in with their long term growth plans. They will research the market for suitable targets. Once you have popped up as a potential target, there will be many reasons for considering your business as one to talk to. The most common reasons are to acquire: a new product line or service stream to sell into their customers, a customer base to sell their own products into, specific skills or geographical coverage. You need to find out what the acquirer’s reasons for … [Read more...]
Yet Another War on ‘Red Tape’
David Cameron recently announced that he was going to cut 3000 items of red tape as a way of helping small businesses. For instance out goes that riveting read “Cattle Movement Guidance” – all 640 pages of it! Also 286 pages of hedgerow regulations will disappear! I am not quite sure how that will benefit the majority of companies that operate from an office or in an industrial estate in the heart of some of our cities. He also mentioned that over 600 rules had already been swept away but have small businesses benefited from it? Are they even aware that these rules have gone? But he also said that it would take nearly 2 years to get rid of the rest! A slow motion war indeed. When senior politicians start to talk about the war on red tape, I start to worry. I worry that such a major announcement (it was in all the media including online, print and broadcast) is because the Government is bereft of ideas on how to help small business develop and grow. They always seem to revert to the … [Read more...]
Yet Another War on 'Red Tape'
David Cameron recently announced that he was going to cut 3000 items of red tape as a way of helping small businesses. For instance out goes that riveting read “Cattle Movement Guidance” – all 640 pages of it! Also 286 pages of hedgerow regulations will disappear! I am not quite sure how that will benefit the majority of companies that operate from an office or in an industrial estate in the heart of some of our cities. He also mentioned that over 600 rules had already been swept away but have small businesses benefited from it? Are they even aware that these rules have gone? But he also said that it would take nearly 2 years to get rid of the rest! A slow motion war indeed. When senior politicians start to talk about the war on red tape, I start to worry. I worry that such a major announcement (it was in all the media including online, print and broadcast) is because the Government is bereft of ideas on how to help small business develop and grow. They always seem to revert to the … [Read more...]
Investment Planned by Smaller Manufacturers
The CBI's Latest SME Trends Survey shows that the UK’s smaller manufacturers are planning to boost investment in the coming year. The survey of 335 small and medium-sized manufacturers revealed that total orders and the volume of output increased in the three months to January. Domestic orders rose, while export orders fell. However, in the coming quarter domestic and export orders are both expected to grow more strongly and production is set to rise again. Stephen Gifford, CBI Director of Economics, said: "As the recovery takes hold, the investment cycle is starting to turn. It’s encouraging to see smaller manufacturers planning to boost investment, particularly in their plant, machinery and buildings. Orders and output continued to grow at a healthy pace, although not as fast as predicted. However, firms remain optimistic about prospects, with growth in orders and production expected to accelerate." Key findings – three months to January • 37% of firms reported an … [Read more...]
