WHERE LOCAL BUSINESS GROWS

Business Finance Explained

The most suitable finance option for your business depends on many things, including how much funding you need, your current business revenue or if you’re a new business, whether or not you’re willing to offer personal assets as security and whether or not you’re willing to sell shares. This guide explains the different types of funding available.


Investment Finance
 

Investment finance (also known as equity finance) involves selling part of your business (‘shares’) to an investor. The investor will take a share of any profits or losses that the company makes.

Advantages include:

  • investors can bring new skills and opportunities to the business, eg marketing or exporting overseas
  • you won’t have to pay any interest, or repay a loan
  • you share the risks of the business with your investors
Disadvantages include:

  • it can be a demanding, expensive and time-consuming process
  • you’ll own a smaller share of your business (although your share could eventually be worth more money if your business succeeds)
  • you may have to consult your investors before making certain management decisions
  • only limited companies can sell shares, so you can’t raise money in this way if you’re a sole trader or in a partnership
You should get professional advice about business finance.

Crowdfunding
 

Crowdfunding (also known as crowd financing or crowd-sourced capital) involves a number of people each investing, lending or contributing smaller amounts of money to your business or idea. This money will then be pooled to reach your funding target. Your idea will usually be showcased through a crowdfunding website.

Advantages of crowdfunding include:

  • it provides an alternative to funding from conventional means, eg bank loan
  • you can raise finance relatively quickly, often without upfront fees
  • it can raise awareness of your new business
Disadvantages of crowdfunding include:
  • your idea could be copied if you haven’t protected it with a patent or copyright
  • any money you raise will normally be returned to investors or contributors if you don’t reach your funding target
  • crowdfunding is mostly unregulated (but from 1 April 2014, loan-based and investment-based crowdfunding will be regulated by the Financial Conduct Authority)

Loans
 

A loan is credit, usually in the form of cash, that you borrow and repay over an agreed length of time. Banks, community development finance institutions, other businesses and even friends and family can provide businesses with loans. As well as repaying the amount you’ve borrowed, you normally have to pay interest on a loan. The amount will depend on:

  • how long you need the loan for
  • how much you borrow
  • whether the loan is ‘secured’ - eg if you own your home and agree to transfer ownership to the loan provider if you don’t keep up your payments
  • other factors, like the Bank of England base rate
The interest rate may be:
  • fixed, so it won’t change for the length of the loan
  • variable, so it will change with the Bank of England base rate or the bank’s cost of borrowing
Reasons for getting a loan

Loans are generally suitable for:
  • paying for assets - eg vehicles or computers
  • start-up capital
  • instances where the amount of money you need won’t change
It’s not a good idea to take out a loan for ongoing expenses - you might find it difficult to keep up repayments.

Advantages include:
  • unlike overdrafts, loans are not repayable on demand - this means that you’re guaranteed the money for the whole term (generally 3 to 10 years)
  • loans can be tied to the lifetime of equipment or other assets you’re borrowing the money to pay for
  • you won’t have to give the lender a percentage of your profits or a share in your company
Disadvantages include:
  • loans aren’t very flexible - eg you may have to pay charges if you repay early
  • you might struggle to meet monthly payments if your customers don’t pay you
  • if your loan is secured against your personal property or assets (eg your home) you could lose them if you don’t keep up the payments
  • the cost of repayments for variable rate loans can change, making it harder to plan your finances
You can appeal if you’re refused a business loan by a bank.

Grants
 

A grant is an amount of money given to an individual or business for a specific project or purpose. You can apply for a grant from the government, the European Union, local councils and charities. You won’t need to pay a grant back, but there’s a lot of competition and they are almost always awarded for a specific purpose or project.

Advantages include:

  • you won’t have to pay a grant back or pay interest on it
  • you won’t lose any control over your business
Disadvantages include:
  • you’ll have to find a grant that suits your specific project, which can be difficult
  • there’s a lot of competition for grants
  • you’ll usually be expected to match the funds you’re awarded, eg a grant might cover part of the cost of a project but you’ll have to fund some of it yourself
  • grants are usually awarded for proposed projects, not ones that have already started
  • the application process can be time-consuming

Overdrafts
 

An overdraft is a credit facility you agree with your bank. It allows you to temporarily spend more than you have in your account to cover short-term financing needs. It should not be used as a long-term source of finance - if an overdraft is used persistently your bank may question whether you are in financial difficulty. You’ll need to agree your overdraft limit with your bank. You’ll usually be charged interest on any money you use, and may also have to pay a fee.

Advantages include:

  • it’s flexible - you only borrow what you need at the time, making it cheaper than a loan
  • it’s quick to arrange
  • you normally won’t be charged for paying off your overdraft earlier than expected
Disadvantages include:
  • there will usually be a charge if you want to extend your overdraft
  • you could be charged if you go over your overdraft limit
  • the bank can ask for the money back at any time
  • you can only get an overdraft from the bank that you hold your business current account with
You can appeal if you’re refused an overdraft by a bank.

Invoice financing
 

Invoice financing is where a third party agrees to buy your unpaid invoices for a fee. Invoice financiers can be independent, or part of a bank or financial institution. There are 2 types of invoice financing in the UK.

Factoring

‘Factoring’ - also known as ‘debt factoring’ - usually involves an invoice financier managing your sales ledger and collecting money owed by your customers themselves. This means your customers will know you’re using invoice finance.

  1. When you raise an invoice, the invoice financier will buy the debt owed to you by your customer.
  2. They make a percentage of the cost (usually around 85%) available to you upfront
  3. They then collect the full amount directly from your customer.
  4. Once they’ve received the money from your customer, they make the remaining balance available to you.
  5. You’ll have to pay them a discount charge (interest) and fees - the amount depends on which invoice financier you use.
Example

You’re owed £40,000 by a customer. You sell the invoice to an invoice financier for £34,000 (85%). They collect £40,000 from your customer and pay you the remaining £6,000 when they receive the money. You pay them interest and any fees you owe.

Invoice discounting


With ‘invoice discounting’, the invoice financier won’t manage your sales ledger or collect debts on your behalf. Instead, they lend you money against your unpaid invoices - this is usually an agreed percentage of their total value. You’ll have to pay them a fee. As your customers pay their invoices, the money goes to the invoice financier. This reduces the amount you owe, which means you can then borrow more money on invoices from new sales up to the percentage you originally agreed. You’ll still be responsible for collecting debts if you use invoice discounting, but it can be arranged confidentially so your customers won’t find out. Both kinds of invoice financing can provide a large and quick boost to your cash flow.

Advantages of factoring include:
  • the invoice financier will look after your sales ledger, freeing up your time to manage your business
  • they credit check potential customers meaning you are likely to trade with customers that pay on time
  • they can help you to negotiate better terms with your suppliers
Advantages of invoice discounting include:
  • it can be arranged confidentially, so your customers won’t know that you’re borrowing against their invoices
  • it lets you maintain closer relationships with your customers, because you’re still managing their accounts
Some disadvantages of invoice financing are that:
  • you’ll lose profit from orders or services that you provide
  • invoice financiers will usually only buy commercial invoices - if you sell to the public you might not be eligible
  • it may affect your ability to get other funding, as you won’t have ‘book debts’ available as security
If you use factoring:
  • your customers may prefer to deal with you directly
  • it may affect what your customers think of you if the invoice financier deals with them badly

Leasing and asset finance
 

Leasing or renting assets (eg machinery or office equipment) can save you the initial costs of buying them outright.

Advantages include:

  • you’ll have access to a high standard of equipment that you might not have been able to afford otherwise
  • interest rates on monthly instalments are usually fixed
  • it’s a less risky alternative to a secured bank loan - if you can’t make payments you’ll lose the asset but not, for example, your home
  • the leasing company carries the risks if the equipment breaks down
  • as long as you make regular repayments for the period of the lease, the agreement can’t be cancelled
  • it’s widely available
Disadvantages include:
  • you can’t claim capital allowances on a leased asset if the lease period is less than 5 years (or 7 years in some cases)
  • it can be more expensive than buying the asset outright
  • some long-term contracts can be difficult to cancel early
  • you may have to pay a deposit or make some payments in advance

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3 results found 
Smith Brothers appoints finance director as revenues soar

Thursday 20 April 2017

Following unprecedented success over the past twelve months, Elland-based high voltage electrical engineering firm Smith Brothers has appointed Richard King as their financial director. With over 30 years’ experience as a financial adviser, and previous directing roles within SMEs, Richard King brings a wealth of accounting and business expertise at an exciting time in the company’s growth. After a year of significant growth in which turnover increased to over £27m, the power contractor has secured a run of new projects. This will see revenue exceed £40m in the next financial year. Commenting on Richard King’s appointment, director John Smith said: “We’ve expanded our operations massively over the past 12 months, so taking on a financial director was the next logical thing to do. “His impressive track record made Richard an obvious choice for the role, and his effective decision-making and vast financial awareness will be pivotal to our continued growth over the coming year.’ With wide-ranging experience in property, manufacturing, the supply chain and public sector, Richard brings versatile financial management, budget strategy and fundraising skills to the position. He commented: “Joining a fast-growing, end-to-end business like Smith Brothers always brings excitement and challenges in equal measure, but I’m looking forward to both. “The company’s expansion over the past 12 months is certainly something to be proud of, and we’re focused on consolidating that growth this year, with our move to bigger premises and recruitment of additional skilled workers. This will set the groundwork for further expansion into 2018.” Taking charge of the firm’s finances, Richard King joins founders John and Richard Smith, as well as David Ogden and Craig Collinson, on the board of directors. Established in 1990, Smith Brothers works on high voltage power engineering projects up to 132kV, providing turnkey electrical and energy management solutions to a widening client base throughout the UK and overseas.
Posted by Scriba PR
HMRC are “Making Tax Digital”. Are you in the know?

Monday 20 March 2017

The government initiative “Making Tax Digital” was first announced in 2015 and will see huge changes to the current tax system, bringing an end to the tax return by 2020 and requiring businesses to manage their tax affairs digitally. To help businesses understand more about the upcoming changes and how it will affect them, Sheards Accountants will be hosting a free event on Thursday 30th March at Huddersfield Rugby Union Football Club. The event will provide an insight into the operational changes that businesses may face once the new system is enforced as well as the benefits that will be gained from switching to digital tax. Steve Reynard, Regional Manager for QuickBooks, will give an overview of Making Tax Digital and its impact on all businesses, together with an introduction to the QuickBooks platform and how it can assist businesses not only comply with the changes, but take control of their finances.   Digital tax will begin to be enforced in April 2018; self-employed individuals and landlords will be the first to move over to the new system, shortly followed by incorporated businesses. Kevin Winterburn, Director of Sheards Accountancy commented: “We understand that the upcoming changes to the current tax system may seem daunting and that there may be an increased reporting burden, given that financial information will need to be submitted to HMRC on a more regular basis than is currently required. " “But all businesses should have up to date information on their finances in order to make informed business decisions. Making Tax Digital is an opportunity for businesses to get control of their finances, to simplify and modernise their systems and give them valuable information, at the right time.” “Our message to business owners is a simple one. There are fantastic accounting tools now available that can help you improve your business. Look at making them a part of your business as soon as possible, don’t wait for HMRC to enforce it!” The event will take place from 11:30am – 2:00pm and will include a light lunch and an opportunity to network with other guests.
Posted by KC Communications
Sheards Accountancy announce charity partnership with Kirkwood Hospice

Monday 20 February 2017

Leading Huddersfield accountants, Sheards Accountancy, have announced that their charity partnership for 2017 will be with Kirkwood Hospice. The partnership will see Sheards undertake a variety of fundraising activity throughout the year with a target of raising £4,000 which will go towards a piece of vital equipment for the in-patient unit from the Hospice’s Birthday Wish List. Kirkwood Hospice, who are celebrating their 30th anniversary this year, provide free of charge, specialist care to adults across Kirklees who suffer from advanced or progressive illnesses. Sheards will host a number of fundraising events which will include their ever-popular, annual curry night which will be taking place in Spring and has historically seen over 100 local business professionals attend. Kevin Winterburn, Director of Sheards Accountancy commented: “Kirkwood Hospice have been such a huge part of the community for 30 years and have helped so many. We are really looking forward to working towards our fundraising total to support the fantastic work that Kirkwood Hospice do." Kate Leadbeater, Partnership Development Manager of Kirkwood Hospice commented: “Our new charity partnership with Sheards is one that we really value and we can’t thank them enough for choosing Kirkwood Hospice. Sheards have fantastic links to the business community and have some great events planned to promote our work to other local businesses while raising money to support our charity. We really appreciate Sheards’ support and look forward to working with them this year.”
Posted by KC Communications
3 results found 

Events Posted

3 results found 
Image for
Sheards Charity Curry Night
Monday 15 May 2017, 18:00 - 21:00
70, John William Street, Huddersfield, HD1 1EH
£20 - 50 places
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Introduction to Xero Cloud Accounting
Thursday 18 May 2017, 10:00 - 12:00
Abacus House, Pennine Business Park, Longbow Close, Huddersfield, HD2 1GQ
20 Credits - 15 places remaining
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Introduction to Xero Cloud Accounting
Thursday 8 June 2017, 10:00 - 12:00
Abacus House, Pennine Business Park, Longbow Close, Huddersfield, HD2 1GQ
20 Credits - 15 places remaining
3 results found 
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