I am bringing up the balance sheet again as we have been seeing some sets of accounts coming into our business with insufficient information to be a credible balance sheet.

I am seeing far too many prepared using the cash accounting system. I know this is not the easiest of documents to understand when you’re reading a set of accounts so I wanted to tell you some of the differences between a good balance sheet, and one that has been thrown together as a last resort.

I have been preparing and reading this document for a number of years and have seen all shapes and sizes. Part of my training was to read ones prepared by the FTSE 100 companies, not recommended. The financial statements can be complex and lengthy.         But micro and small companies are done fairly simply so you don’t have to read 50 pages of detailed technical language.

Be sure that not only does the balance sheet contain information about the profit or loss you’ve just made during your trading year but has a number of components.

I would expect you to receive a detailed set of pages describing the different figures in the balance sheet. This doesn’t need to go to Companies House as small and micro businesses are abbreviated, but you should have a full copy that you can use for your business going forward, if you don’t you need to question this.

If you are going to sell your business or go to the bank to borrow money, you are going to need this important document. This is an accumulation of your whole trading history whether you’ve been trading for a year, or 50 years. A company that is 50 years old balance sheet will look different and may have complexities that a new business will not.

Components to expect.

Fixed Asset Register

There should be a summarisation of the fixed asset register detailing accumulative costs and deprecation and changes happening during the financial year. There should be a net book value at the end so you know the value of your assets.  Fixed assets are your machinery, vehicles, refurbishment, furniture etc.

Intangible assets

These can be patents, trademarks, goodwill. This needs to be highlighted in detail, with amortisation or not.

Debtors

This can be money in the bank Trade debtors, customers that owe you money Other debtors can be prepayments, accrued income, if the company has loaned money to a member of staff etc.

Creditors

Overdraft facility at the bank Trade Creditors, Suppliers you owe money to Taxation HMRC any of the taxes, Corporation tax, VAT, PAYE Other Creditors Accruals, invoices you havent received from a supplier, but paid, directors loan etc.

Long term liabilities

Can be bank loans, lease agreements, hire purchase. If these components are known to you and are not in your accounts, you must question this.

The balance sheet is a financial document that tells the reader the financial position of your business it is vital to be correct. It is even more important than a profit and loss, that only tells you one year timeframe.

Make your business a strong one, a weak set of information will not help you move forward, it can have the opposite affect and hold you back.

Its in your hands!

We covered looking at your balance sheet some time ago, and wanted to refresh you on why it is so important.

Building up your balance sheet can help you with your future with the business, if you were ever to sell your company on to a potential buyer, this is an important area that the buyer will be looking at.

Its not just about profitability and turnover, the balance sheet is an indication that you are growing your branding, a business that has thought about strengthing and building up the balance sheet is worth considerably more than one that focuses just in the present.  ie turnover and profit.

The example we have below, is fine for a small business and will probably have a good credit score as its positive in both the net current assets (Working Capital) and the overal value.

But if youre talking about a business thats worth selling you are going to need a plan, this could be a 5-10 year plan, its certainly not short term.

Will need to be assets in both the fixed assets sections and current assets, this could be by buying equipment or machinery to make yourself more efficient and do a higher volume, buying a company with skills or equipment that brings Goodwill into the assets section, quite a lot of larger companies do this, they purchase mailing lists, and client lists, from smaller companies, to rapidly increase their net worth, and increase turnover.  

Current assets would be building up your turnover, and therefore your debtors increasing. Keeping an all important eye on the costs, and keeping the creditors to a reasonable level.

Long term liabilities are usually loans that are paid more than one year ahead, and maybe the director loans, if the owner hasnt taken back all of their investment.

The balance sheet value needs to increase tenfold, and self sacrifice for the owner is a must for this kind of exercise.  Its not all about your current year anymore, but your long term future, and future sales opportunity.  Think of it as a potential pension plan?  Investment for the house by the sea, whatever your dream future this is your opportunity to make it a reality.

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.

How Graphs Can Be Used For Your Business

Graphs can be used by Financial and Non Financial managers in a variety of ways.

Sales

Sales Managers have targets that are set for them by the company they work for.  They can track their sales in a variety of ways.

Our example shows Sales split by category/or segment and shown against budget. Targets that were set at the beginning of the year.

This graph also tells you the most popular and productive products on sale.
You can take this further and look at the margins of each product category, you might not sell a lot of something but if it returns a higher margin/profit rate, you don’t have to sell as many to get the same profit figures. There may also be seasonality in that product line.

Ie in hot weather a newsagent may sell a lot more drinks than bars of chocolate.
In cold weather the icecream freezer might go untouched. Easter, Half Term, Christmas. You would tailor your sales targets to match demand.

Apply this method to your particular product line.

 

Cashflow

You might want to set yourself a target bank balance for you to meet your overheads and make a profit.

The graph will show against budget whether you are meeting that goal.

It also gives indication of the business behaviour, see our example the graph shows above the line at first, then dips over February to April then comes back up.  Back into the target position and above.

If the graph had shown erratic it would give an indication of how well the manager is managing the business. In a planned approach, or finger in the air approach.

Gross Profit

This is a key figure in your accounts, it indicates whether you have made enough sales to now cover your overheads and make a profit.

Our graph shows a rise and then a sharp dip in May, this could be down to several factors.  The Sales themselves were generally low that month, an error in charging the right selling price for a new product line, an operational issue.

If you see a dip in any of these things, look for the reason, if easily explained, you could be putting action in to put yourself back on track.  Also look out for high peaks, these should be explainable.  ie a new contract, timing issues, seasonality, or it could be an error.

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own.  It is not intended to be used to make all of your business decisions but as a guide only.

The UK Government announced a new capital allowances relief. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

• 130% super-deduction capital allowance on qualifying plant and machinery investments
• 50% first-year allowance for qualifying special rate assets

This super-deduction is designed to promote companies to invest in productivity enhancing plant and machinery. It is important businesses understand and take advantage of these generous new reliefs while they are available.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive. There is no upper limit set for the expenditure, so as long the expenditure is incurred between 1 April 2021 – 31 March 2023. The enhanced relief also does not allow for plant and machinery that will be made available for leasing (including landlord fixtures within rented property) and excludes cars.

The pandemic has been a big blow for a lot of businesses, if you have been looking at equipment to help you grow, now may be the time to use this relief. If you are not sure on whether it is the right time to make a purchase, or if the equipment qualifies for the super-deduction relief, message us on nicola@crossaccountingservice.co.uk or if you would prefer to chat, call Cardiff: 02920 653 995 or Bridgend: 01656 530 063. Our team is always happy to help.

2019 has not been the easiest of years for many of our clients, the lengthy political and economic uncertainty is making the general public think a lot more about spending their hard-earned money.  Small businesses are having to renegotiate with their suppliers and look at all their costs to ride the storm we find ourselves in at the moment.

Not ones to sit down and wait for things to happen, this blog is about refinancing. 2019 may not have been the best year, but let’s not sit and see if 2020 will be better. Now is the time to review your finances. Autumn is a great time of year to look at this, you’re halfway through the financial year, summer is over, and Christmas is around the corner, the end of the year will be here before you know it.

So, what is refinancing?

Refinancing is the process of replacing an existing loan with a new loan. Typically, people refinance so they can get a better deal on their current loan. For example, you may be able to get a better interest rate than what you are on currently, saving you money. Refinancing also depends on your credit score, current deal and many other factors.

You may also have some assets in your business currently tying up cash and want to get a loan to put more liquid cash into the business, to allow you to put some plans for 2020 into practise right now.

Why refinance?

If you have a loan or a mortgage, it is worth speaking to the provider for refinancing. Some potential advantage of refinancing includes:

• Lowering your monthly payments. You can then put to use your extra saving to pay off other debts or towards your saving goals.
• You can combine your debts into one with some refinancing options. This is good so you know exactly when payments need to be made.
• Usually able to negotiate lower interest rates.
• Cashflow is tight but you have some assets that can assist you gain some cash to put back into the business.

Studies have shown that trying to negotiate a better refinancing deal tends to save people money and a lot of stress. Some questions to ask yourself is if you are paying too much monthly on any equipment that you could possibly lower or if you are too dependent on your bank overdraft as it is one of the most expensive bowing methods. Knowing where all your finances lay can help you budget and with the extra cash you can invest in yourself or your business.

Welcome to our latest blog. Christmas is around the corner and it’s our favourite time of the year here at Cross Accounting. It’s the time of giving and is there any other way to give your business a boost a grant to get your finance in place.

A business or an individual will be given a sum of money for a specific project or purpose. A grant usually covers only partial costs involved. Grants are given depending on your business activity, the amount of jobs that will be created due to this investment or if you are in a specific industry sector. Sometimes grants are linked to geographic areas. Such as those areas in need of an economic transformation.

Business Wales can support in finance, take a look at their finance locator to see if grants and other finance your business may be eligible for at https://businesswales.gov.wales/zones/business-finance/funding-search-tool-form

You should ensure that you meet the requirements of the scheme before applying for grants and finance. You’ll have to ensure you are ready to put up some of your own money as grants only cover partial costs. You’ll also need to have a detailed description of your project or purpose and a work plan with full costings. We can assist with a budget and full detailed cashflow to secure the finance you need.

The application process for grants can sometimes be time consuming and there usually is a lot of competition but on the plus side, most grants don’t have to be paid repaid giving your business that extra boost.

If you’re looking for that push to reach some New Years goals, the Development Bank of Wales can support to get the finance your business needs to succeed. Visit https://developmentbank.wales/ to get you ready for the New Year.

You will need to have a polished business plan at the ready.  If you would like us to look at your business plan, then you can book in for a free one-hour consultation where we can discuss how to start the New Year strong. Visit our website on www.crossaccountingservice.co.uk or call us on 02920 653 995. We wish you all a Merry Christmas and a prosperous New Year.

Methods of Finance

In our latest blog, we talk about the best methods of finance for your business. Sometimes it’s great to have that extra push to take your business to the next level. To attract the best funding for your business, you will need a business plan. We are experts in the field of preparing a cashflow and a business plan and can assist you in achieving the best method of finance for your business.

Finance Wales

Finance Wales are set up to aid in funding. They offer bespoke debt and equity investment packages designed to boost your business and accelerate growth. They offer three types of packages, micro loans under £10,000 have an easy two-day process. Have a look at their website, 

http://financewales.co.uk/business-finance-/growing-a-business/micro-loans-under-%C2%A35,000.aspx 

for more information.

Bank Loans

Bank loans are probably the most common types of finance for you and I. These types of finance are an amount of money borrowed for a set period with an agreed repayment schedule. The repayment amount will depend upon the size and duration of the loan and rate of interest. The terms and price will vary between bank providers. There isn’t just one type of loan, there are many different types, which I will look in to and describe the differences.

·         Working Capital Loan – This type of loan is usually required at short notice or emergency situations. This will usually incur the highest percentage of interest.

·         Fixed Asset Loan – For buying assets, where the asset itself is used as a security for repayment.

·         Factoring Loans – This type of loan is based on money owed to your business by customers or clients.

·         Hire Purchase Loans – For long term purchase of assets such as vehicles or machinery.

It’s best to talk to your bank or bank manager, as they will let you know the exact amount you can get for finance. The bank managers love an excellent business plan and cashflow, so make sure yours is current and polished to get in the good books of your bank manager!

Overdraft

This method of finance is a sum of money extended to you as credit by your bank, set at a pre-arranged limit when your account balance drops below zero. Usually charged interest on any amount of overdraft you use. The terms and price, like the loans, vary between providers. This is a good source to manage cashflow, but it is probably not suitable if you’re looking for long term financing.

Crowdfunding

Crowdfunding, also known as crowd financing or crowd sourced capital is usually carried out online. This allows several investors to individually invest smaller amounts of money in to a business. The individual investments are then combined to help a business reach its funding target. Crowdfunding is an excellent option for businesses that struggle to raise finance through loans or the conventional funding methods. Since crowdfunding is conducted online, you should make sure your idea is protected. In return of the funding, investors usually get a percentage of share of the business.

You can find more information by visiting http://www.crowdfunder.co.uk/help/what-is-crowdfunding

Government Offers

Governments usually offer support to businesses in all different shapes and sizes. https://www.gov.uk/business-finance-support here you can find from funding and finance, to grants and to mentoring for your business.

Caerphilly council are offering a business development grant. This grant can provide up to 45% of eligible expenditure to a maximum of £2,000. Business must be based in Caerphilly and be in the manufacturing or service to the manufacturing sector, or have a minimum of 60% business to business. For businesses in the Caerphilly area, please look at this link http://www.caerphilly.gov.uk/Business/Business-grants-and-funding/Business-development-grant to get more information.

Remember the key to accelerating your business in the positive forward thinking way to get that extra push is to have a business plan and cashflow in place. We offer a one hour no obligation consultation, where we can sit down with a cup of coffee and discuss your business. 

Visit our website on www.crossaccountingservice.co.uk or call us on 029 20 653 995 to see how we can assist you.

Use your business plan to get funding

The essential elements of a business plan

Potential investors and lenders will look closely at your business plan to help them decide whether to risk their money.

There is no standard format but most plans include:

• An executive summary highlighting the main points - to catch people's attention.
• Details of key personnel with an organisational chart showing individual responsibilities.
• Market research - details of competitors and how your product or service fits into the market - eg who your potential customers are and why you think they will buy your product or service.
• Your marketing plan - how you are going to get your product or service in front of potential customers, together with any assumptions made when setting your targets.
• Financial information - eg key ratios. These can be used to compare your business' performance against industry benchmarks. It's also a good idea to give details of any major expenditure you have made on long-term assets and explain the reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance sheet and profit and loss account details. Many lenders ask for three years' financial information. If this is not available, supply details about trading to date.
• How you will manage credit, expenditure, stock planning and control, and debtors and creditors.

When seeking funding, include:

• A cashflow forecast indicating the amount of funding you need and why. For a start-up, include estimates of how much finance you will require for two to three years or until you start to make a profit. Indicate contingency funds that might be needed for rough patches. This is usually between 10 and 20 per cent of the total funding requirement. See our guide on cashflow management: the basics.
• Financial forecasts for a three to five-year period. Try to present this information in the same way as historical financial information, so that straightforward comparisons can be made.
• How a loan will be repaid, how investors can get their money back, and when.

Sources of fund are available in the form of

Bank financing in the form of Invoice financing. This allows you to raise your sales invoice and use a bank or a finance company to get a large percentage of the income immediately. Which will allow you to ease your cashflow

Overdraft facility with the bank - this is normally short term and can be recalled on demand.

A secured long term loan funding equipment or property.

Car financing with your local bank or car retail store.

There is some financial assistance to companies based in deprived areas for equipment, websites and training needs for staff. These are very few and far between and strict rules apply.

There is business assistance and courses available for new start up businesses in the Cardiff and Wales areas.    www.businessinfocus.co.uk

Equity financing.  This is related to gaining finance from private investors, they take a percentage of your company. In return you get business advice and mentoring, along with funding.  This option is normally suitable to fund large expansion plans, or to take your business global.  There is normally a contract in place confirming payback terms, interest and purchase of your shares back.

The Business Link website has an article dedication to informing small businesses about financing available.

Business Link Website

Another link that might be useful is the European Social Fund.  There are trained experts in the field who can apply for funding on your behalf.

http://www.dwp.gov.uk/esf/funding-opportunities/

What banks look for in a business

All investors assess applications for loans or investments using different criteria, and you should ensure you are aware of any specific requirements before making your application to particular lenders or investors.

However, if you are applying for finance from a bank or just setting up a new business bank account, there are some general points that almost every investor will want to take into account:

• a good financial track record and credit history for you and your business – see the page in this guide about credit rating and scoring
• a good management team with the right skills and expertise – involve your senior team from the start
• a business plan that shows clear thinking on ideas and strategy – this is an essential tool for your business and should include up-to-date financial information
• commitment from management and (as appropriate) other shareholders - the investor will need to be assured that the investment is one that everyone at the top of the business is happy about
• security - most lenders will want their money to be secured against tangible assets, so they can be sure of getting their money back
• your understanding of your market - the investor will probably want to make their own investigations of the market, but will need to know that you understand it as well

Even if your proposition is good, there are some things which will weigh against an application for loans or other funding:

• unauthorised overdrafts
• missed loan repayments
• County Court judgements against the business or its directors
• adverse credit rating data, against the business or its directors

This blog is intended for information purposes only and is only advice from past experience, you may have other suggestions of your own. It is not intended to be used to make all of your business decisions but as a guide only.