Finance

Commercial bank managers have long complained that it is much easier for clients to get unsecured loans personally, where no evidence is required as to how the loan will be repaid, than it to get unsecured loans for a business, no matter how good the business plan.

As set out in previous articles, if you do have to provide a personal guarantee, make sure it is not secured against your home. This way if the business goes belly up, and the guarantee is called in, you have a strong position and will in all probability keep your home, if you go about things carefully.

If the loan is secured against your property and the business fails, its hard to increase the mortgage, as your income has gone, and you stand every change of losing your home. 

Of course many businesses are mostly conducted as sole traders where there is no legal separation between business assets and personal assets and by the largest sector is Buy to Lets (BTL).

The Forum of Private Business (FPB) is welcoming the Payments Council’s new National Payments Plan, announced this week, in which it agrees not to phase out cheque payments until adequate alternatives are in place. Research carried out by the FPB at the end of last year revealed that most of the smaller businesses surveyed want market forces to determine when they should switch payment methods.

I see a lot of businesses that are very busy but they just aren’t making any money.   Let me give you a recent  example of a small telemarketing company that carries out business to business marketing.
This story is a classic story of a couple of guys who had worked in the industry for many years deciding to set themselves up independently.  They rented an office, recruited a few telesales staff and set about building the business.

In a competitive world where costs are key to success, employee retention plays a vital part. Long serving employees save on recruitment costs and the training of new staff. Due to the public perception of the state of the NHS, an employee benefit package that contains Private Medical Insurance can be more attractive to new and existing employees.

Any item for sale benefits from quality presentation, whether it be a bottle of perfume or a three piece lounge suite. Businesses are no different.  An owner manager who allows him or herself time to gift wrap their company and put on a big bow for good measure will reap substantial rewards.
Undertaking the “wrapping and packing” takes time – anything up to three years – but it is time that is so so well spent.

Banks and building societies are reporting an expected cut in the amount of secured lending they will offer after the Bank of England admitted the credit squeeze is set to intensify.

The credit crunch is forcing some lenders to take fewer risks whilst at the same time, the cost of borrowing on the money markets remains high. As a result, SMEs could find it difficult to secure traditional loans or receive overdraft facilities from their bank.

With spring time now officially upon us and a new tax year started, there has never been a better time for small businesses to spend some time spring-cleaning their finances to help get their firms into ship shape condition for a successful 2008.

Insolvency practitioners are warning that banks are forcing entrepreneurs and family-run firms to take second mortgages on their homes and offer personal guarantees before agreeing to provide business loans.

Many banks also charged penal rates of interest or refused to extend loans to small businesses unless they agreed to offer their personal assets as security, and in particular their main home.

Remember the boom in stockmarket flotations, at the end of the last century and the start of this one? That was the time when companies came to the stockmarket for its IPO – Initial Public Offering – armed with a prospectus, a narrative, a prominent bank to manage the offering, and a cabal of venture capitalists hidden off-stage, sniggering, rubbing their hands, and revving the engine of their getaway vehicle. For civilians and non-City people, in a week dominated by all-too-credible stories about economic cataclysm and global recession, that may seem a long time ago. The biggest IPO in history, for instance – what and when was that? AT&T in 2000? Google in 2004?

As a result of a recent legal case, businesses which have had VAT claims restricted to only three years, or have not made claims believing they had missed the deadline, now have the chance to revisit their claim. Kingston Smith LLP believes that this latest change in legislation will result in claims totalling over one billion pounds.

It is one of life’s certainties that life is full of uncertainties and business life in particular has a habit of presenting us with all kinds of uncertainties – through situations and circumstances, both good and bad, which arise completely unexpectedly.  
We all welcome the unforeseen opportunities. They’re one of the things that make business exciting. Usually we need to act on them quickly because it’s unlikely they’ll recur again.  And if we don’t make the most of the opportunity, someone else will. It could be the chance to buy a competitor’s business or acquire a property that has tremendous future potential.

So you’ve decided you can’t carry on as you are and you’ve decided not to simply inject more capital.
If the business is viable if it did not have debts then you have one set of choices.  If the business isn’t viable even without debts then there are another set of options.
Let us first look at your options if the business is viable, were it not for the debts.  As we discussed last month, your energy levels and attitude to the business are as important as the balance sheet.  Let’s assume that you have energy and you want to continue; essentially, there are two possible approaches: the first is a formal negotiation with your creditors; the second is an informal one.

When you’re starting up a new business an accountant may seem like an added expense that you could do without.  What do you need one for? After all you’ve got a calculator, it can’t be that hard!  Think again –    A good accountant isn’t just a number cruncher, it’s someone who understands how to run a business in today’s economic climate, an experienced professional who will get to know you and your business and will provide you with essential support.
Ultimately your accountant is someone you should regard as a trusted business advisor.  When you are starting out your accountant can help you evaluate your business idea, help you plan for a successful future and make sure you keep proper financial records.

There are so many reasons for businesses to run out of cash.  Sometimes the causes are clear, sometimes it’s a complex web of reasons.  Sometimes it’s been building for a while and other times it’s more sudden.
Either way the effect is usually the same, you find you can’t pay your bills.  It’s a frightening prospect; there is a list of bills on your desk and not enough cash in the bank to pay them.
I remember a friend of mine who works in the oil exploration industry in remote parts of the world, Chris used to get into really scary situations and developed an interesting crises response methodology: “If there is a crisis and you need to respond absolutely immediately (such as using the fire extinguisher) do it.  If not, have a cup of tea and plan your actions”
It is not so different in business.  Is the lack of cash simply because of an admin error, a cheque that has genuinely gone astray (it has happened), or sadly, as is increasingly likely, is there something more serious?  Is this is a short or a long term problem? Remember cash is king, if you don’t sort it, you won’t succeed.