I recently ran a training event, ‘The Price is Right’, helping creative businesses to set the right price for their work . I just got the feedback through, so I thought I’d share the good and the bad points here.
What did you like about the event?
- Open, honest, really great info.
- Comprehensive info that was well delivered. What the info can do for business could ‘make or break’ it, so was directly relevant to business and personal financial survival.
- The pricing exercises – applying it to ourselves.
- Easy to understand. Lovely and friendly. Didn’t make me feel stupid.
- Relaxed, straightforward.
- Very accessible information and relatable analogies; great delivery and engaging speaker in Julia.
- Julia was excellent.
- Good presentation by Julia. Interesting and thought provoking.
- Julia Chanteray!
- Educational, fun; Julia was excellent.
What could we have done to improve the event?
- More slides of points made during talks.
- Would have liked more worksheets!
- More discussion.
- A handout with pricing models/summary of tips and things to try as it’s hard to take in all at once, so the future reference would be great.
- The ‘maths’ bit was a tad confusing.
- Help from facilitators; a bit more ‘get to know you’ or icebreaking things to meet others.
- Table swapping at end.
- Water on table.
- Could have covered what to do about slow payers.
- Pre-homework – to think about numbers. Worksheet to use before event.
- More food!
If you were at the event, I’d really welcome your comments here, and if you weren’t there, I’m repeating it in January (it’s for all small businesses this time, not just creatives) so you can book your place here
Here’s a random nugget from my big bag of business tips. If you’re paying charges per item for your business bank account, you don’t want to shell out 70p every time you buy a £3.60 train ticket to go from Brighton to Shoreham.
Image by Images_of_Money
For all the little expenses, get yourself a regular, personal, bank account, which is free of bank charges, put £100 in, and use the debit card for all those annoying little items. It’s a bit like the old petty cash tin, but a bit more 21st century.
And then you can keep track of all the items, put it through as a block of expenses, or get the bank account to automatically talk to your online accounts software. No charges. Lovely. Easier. Brill.
One of the things I’m always trying to impress on my business advice clients is the need for some spare cash in the business. On different days, I’ll be found talking about building up a war chest for further expansion, or getting some slack in the system so that we have the resources to develop new things, or keeping the owner’s remuneration down to a minimum to make the business’s cash flow healthy, and then having some money to pay out a nice dividend when it’s built up to a nice lump sum.
A healthy business doesn’t worry about corporation tax.
Very often, business owners with very nice, profitable businesses have a big panic when it comes round to paying corporation tax. Corporation tax sometimes feels like a disincentive to make money – the more you make, the more you have to give away. And you have to give it away to the government all in one lump sum, causing a panic wave to crash through your cash flow.
Image by 401(K) 2012
A healthy business doesn’t worry about corporation tax. Sensible, prudent business owners have stashed away their corporation tax (or their personal tax liability) in a nice savings account, earning interest. Sometimes, the business needs to borrow a little from this account, just to avoid going overdrawn, or because a client takes a while to pay an invoice, but then the healthy business can pop the money back into the savings account.
Can you be sensible?
Some business owners are born sensible. Some of us are a little more reckless or entrepreneurial, and have to learn to put the money away. And for some people, being sensible and avoiding the headaches of cash flow nightmares is just plain boring, and none of us want to be boring, do we?
Where, when and how much?
So, here’s some free advice. For every £1000 profit you make, put £220 into a savings account. An ISA is a nice idea, as you can get free money (interest from the bank) and not pay any tax on it. Do this every month, for every single £1000 you make.
Don’t leave it in your business account, it will make you feel more rich than you really are, and then you won’t push to get the new money into your business account, or you’ll spend it.
Why the extra £20?
Ah, you thought I’d used the wrong corporation tax figures, didn’t you? I’m suggesting 22% of your profit should be stashed away into your ISA or savings account, not just the 20% you need for the corporation tax (or your personal tax if you’re a sole trader). That way, when you pay your tax bill, you’ll have some money left in the savings account. And you’ll be able to spend it on marketing, a new member of staff, or a big pile of chocolate. Whatever you do with it, I guarantee that it will put a huge smile on your face, which is what I like to see.
This is the next instalment of a series of blog posts I’m writing about how and why you need to get some extra cash into your business, so that it can grow and flourish as a grown up business.
Image by bubbo.etsy.com
Today, I’m going to look at how to bring angel investment into the business. This is an equity investment, where you give shares to someone else in return for a wedge of cash which you then to use to grow the business. The central idea is the same – although you own a smaller share of the business, that share of the grown up business is worth much more than if you still owned 100% of a little business.
Often you’ll find that someone you know already is happy to put in 10-50k, maybe more, in return for a share of your business. This might be someone in your family, a friend, a customer, or another business person you know through networking. It’s worth asking around, even putting it on your website so that people know that you’re interested. 40% of angel investments come from people who already know the business owner.
If you don’t have any luck that way, you might try one of the organisations which broker angel investment. I’ve worked with clients who have had success through Angel’s Den and Finance South East, both of whom have courted groups of angels, and will sell the idea of investing in your business for you. Be aware though, that this is only really worth doing if you need more than 50k, as by the time that you’ve paid the broker fee, and the lawyers, you’ll have probably spent about 10k.
These are some of the areas I look at when I’m working with clients on bringing in angel investment:
- A clear business plan which shows how the investor will get back at least 3 times their initial investment.
- The recent growth of the business – don’t allow the process of seeking investment to slow down your organic expansion, as you can make a much stronger case to an investor if your business is already growing.
- Suggesting a mix of angel investment and bank finance – an investor will be much happier to invest if a bank has said they’ll lend half the money. Everyone likes to share the risk and back a horse which other people are betting on
- I’ve also been able to introduce clients directly to investors, because I’m constantly networking to find opportunities for my clients, so I have my nose to the ground with right people.
I’ve also looked at how you can persuade the banks to lend you money next time, so make sure you don’t miss out by subscribing. If your business wants to grow and you know that you need some money to develop, do feel free to get in touch for a chat about how I might be able to help.
Other articles of interest about shares and equity in your business are:
How Can I Make My Company Eligible For EIS?
How to give away shares in your business
Getting someone to invest in your business
Giving shares and equity away
One of the major doom and gloom statistics reported in the news is that banks are lending less and, in particular, are lending less to smaller businesses.
Photo by Lucy Hill
I checked some of the figures out at the Bank of England’s website, and they say that banks have lent 4% less money this year than they did last year. But then I thought, hold on a minute, that’s 4% less than last year – 4% isn’t that much, is it? And then I delved a little deeper into the Bank of England figures, to find that they think that banks are lending, albeit less than a few years ago, and that although they say the availability of credit for small businesses is “variable”, the banks are lending to some small businesses.
Which fits with what I’m seeing with the companies I’m working with – there is money available, but the banks are being very choosy about who they lend to.
So much for the doom and gloom: how do we get some of that bank finance into your business?
You have two options here. You can either borrow personally and put that into the business, or you can get the business to borrow the money directly.
When and why is personal borrowing a good idea?
You might want to borrow the money yourself if you can get a better interest rate through remortgaging your house. Mortgage rates are 2-4%, whereas business loans are 9-12.5%. However, remortgaging is a hassle, so this is only worthwhile if you need upwards of 10k. Even a personal loan (rather than a mortgage) will often be less time consuming and at a better interest rate than a commercial loan to the business.
If you need less than 10k, say to pay for some business advice, a rebrand and a new website, you’d probably be better off getting a 0% credit card, and making sure that you pay it off before the 0% bit turns into 26%.
Remember that if you borrow personally, you’ll have to pay it back yourself if anything goes wrong, so you’re taking the liability yourself, not the business.
Getting the company to borrow the money
If you want to limit the potential liability to yourself, or if you don’t have enough equity in your house to remortgage, and you need more than 10k for the business, you’ll probably want to get the business to borrow the money. I’m assuming that you’re a limited company here, by the way – if you’re a sole trader or a partnership and you borrow the money, it’s exactly the same as borrowing the money yourself.
In this case, you’ll want a commercial loan. Here are some tips to help you get the bank to lend you money:
- Banks like you if you’ve been going for a few years, and you have been producing profits for a while. Their rule of thumb is that they’ll lend you 3 times your net profit, plus the director’s drawings.
- Banks will want to see a good (but brief) business plan, with a clear focus on how you’ll be able to pay back the money you want to borrow. Remember that the banks want to lend you money, as long as they are confident that they’ll get it back, because that’s how they make their giant profits.
- Do be prepared to offer a personal guarantee. They’ll definitely ask for it, and if they don’t ask at the beginning, they’ll sneak it in later.
- Banks will also ask you for security. Remember, they want to be absolutely certain that they’ll get their money back, so they’ll ask you to back it with a second charge on your house. Providing security makes it more likely that you’ll get the loan, but you have to think carefully about the increased risk to you.
- If you can get someone else to put some money in, or you can put some in yourself, this will make the bank more likely to lend to you.
- Banks prefer it if you’re buying things. They would prefer you to borrow to buy a new truck than a website, even if the website is going to generate lots of new business for you. Old fashioned and ludicrous, but that’s the way it works.
- Go to lots of banks, not just the one you have your current account with.
If you don’t have any assets for security, consider the Enterprise Finance Guarantee, where the government will guarantee 75% of the loan, which makes the banks more likely to lend to you. They’ll still ask for a personal guarantee, and EFG loans are more expensive, but it’s definitely an option.
This article is one of a series on how to get money into your business so before you run off and borrow money, check out my guide to the organic cashflow model (which I always prefer to borrowing) and subscribe to the series to make sure you get all the instalments. And of course, if you need some help with getting money into your business, do get in touch for a chat to see how I can help you.