Pareto

Playing with the Pareto Principle

It’s the law of the vital few… first articulated by an economist who spotted it in Italian land ownership… and peas… but you’ll have seen various versions of it on Linkedin

80% of your sales come from 20% of your customers

80% of your sales come from 20% of your products

80% of your complaints come from 20% of your customers…

The idea for guys likes us is to use this 80/20 distribution to focus on what really matters… and see some serious performance improvement

… so… I heard one version  of the Pareto Principle recently…

We should spend 80% of our time acting… 20% thinking

I get it… but 20% thinking seems a helluva lot… so if I have to live with an 80/20 distribution I’d like to add one refinement to make Pete’s Perversion of the Pareto Principle this…

Spend 80% of your time acting… 20% thinking…

… but act first

 

 

 

Brett Reasons to Be Cheerful

Brexit : Reasons to be cheerful ?

So we’ve gone and done it… (for now?)… I’m going to leave the hand-wringing, virtue signalling, and Brexit fear stuff to other people… and just see if there aren’t a few reasons to be cheerful for Owner Managed Businesses…

Let me pick some less obvious ones (I do try to work on ‘insights & angles’ in this blog after all)

1. Pricing Power…

The £ dives and the cost of imports skies… leading to inflation… not necessarily a bad thing after close to a decade of ‘disinflationary’ / deflationary pressures…

… and if the general expectation is that prices are going to go up… then you guys may find yourselves with pricing power you haven’t had in a while…

2. Access to Funding…

After the financial crash the Government & Bank of England did a great job of pumping liquidity into the system… problem is it took about 5 years to seep out to businesses like yours… over the last couple of years access to finance for SMEs has really improved, in part due to the new Fintech industry with fast & flexible funders like Funding Circle really helping out

… if the economy wobbles get ready for a wave of money as the Bankers (here & in Europe) try to keep the real economy on track & properly funded… this time it won’t take years for that cash to be accessible by the likes of thee & me… so be ready to have access to more money at better rates

3. Mergers & Acquisitions…

I know Corp Finance guys who are licking their lips right now… as barriers go up they see an increase in cross border M&A deals… and even before any barriers appear they think European companies will be busy ensuring access to our markets by buying UK Owner Managed Businesses like yours… so be ready for the phone to ring

So that’s 3 slightly odd positive takes on the Brexit issues facing SMEs…

There are other obvious ones like amazing Export Opps… with the £ being spanked our exports are way more competitive this week than they were last week… BUT I’m not out to produce an exhaustive list…

What I’d like to do is encourage businesses to leave the passion & drama back home infront of the tele… and flip your mind away from the risks (which are many and scary… and which will be pre-occupying your competitors too)… and ask yourselves are there any opportunities for you from Brexit?

Go on… I dare you…

(and here’s a link to an interview I gave on the Saturday after the vote… bear in mind I was there at Manchester Town Hall through the Thursday night of the count… spent all Friday in meetings pretending I’d had some sleep… and drank slightly to excess on the Friday night… so being interviewed on the Saturday a.m. was not a lot of fun)

Brexit Bits for SMEs interview

 

Innovate

An innovative competition ?

Innovate UK continue to have a ton of money to help SMEs do good stuff… and don’t let the titles of some of their funding initiatives put you off…

You’d think this multi-million pound pot of grant funding to be given away soon applies just to George Osbourne’s ‘makers’ …

Innovate UK Launches Manufacturing and Materials Innovation Competition (UK)

… not true… e.g. it can be the novel application of a digital technology or approach to manufacturing or materials development (such as automation, modelling and simulation, data analysis). 

 

 

survival rates

Survival… a fitness test

Here’s a table I knocked together from ONS data showing the survival rates of companies founded from 2007 onwards

If you’ve survived 5 years, take a bow… one of only 4 in 10 who made it…

And the third year seems to be the toughest

survival rates

Entrepreneurs Relief

Entrepreneurs Relief… great news for new shareholders

Entrepreneurs Relief is no longer restricted to just directors or employees of Owner Managed Companies… external shareholders can now take advantage of the 10% rate of Capital Gains Tax on the sale of your company’s shares.

It came as a real surprise when the Chancellor announced it in his latest budget… and it’ll help investors who can’t take advantage of EIS & SEIS

It’s an attractive addition to a package of measures trying to encourage medium term, stable investment in unlisted companies… and it won’t cost the Chancellor a penny until 2019 at the earliest, because it only applies to shares bought after 17th March & held for 3 years…

But as the adverts say… every little helps..

Entrepreneurs Relief… the new rule

Here’s what the Chancellor actually put in his 2016 Budget

Entrepreneurs’ Relief will be extended to long term investors in unlisted companies. This will provide a 10% rate of CGT for gains on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.

Dividends instead of Salary

Dividends instead of Salary… don’t do it !

There’s only one reason to pay yourself Dividends instead of Salary… to avoid a bit of tax / NI… but here’s 5 reasons not to…

Dividends are not ‘relevant earnings’ for pension purposes.. so payments into your pension can’t be deducted from any Dividend income… but they can be from any Salary

Salary makes your affairs simpler, clearer… with tax paid as you go along… minimising lumpy shocks & payments of extra tax in January & July

Funders don’t really get you paying out their money as Dividends… try telling some of them you’re paying yourselves that way to avoid paying some tax & see how they like it… particularly if you’re trying to raise new money… (I know a Bank Manager who absolutely hates it)… and if you’re looking to work with Venture Capitalists & Angels they’ll often put constraints on the company paying out Dividends

R&D tax reliefs are now so generous that companies will often forego a Grant to keep the tax relief… a Salary for someone working on R&D (that’ll be you too as the company Owner Manager) attracts a lot of relief… Dividends don’t count

Overdoing the Dividends can turn ‘Profits to Losses’… not strictly so… but taking out too many Dividends in any one year can shrink your Balance Sheet… making it look like your company made a loss… when it may have made a Profit… which’ll hurt your Credit Ratings

So… as the tax regime around Dividends gets tightened up… and the smell around some forms of avoidance gets stronger… maybe it’s time to have a word with your accountant… and make sure your Dividend payment policy still suits you…?

 

Source Documents & Calculators

New Dividend Tax Regime

Cracking Tax Calculators to play with

Simple explanation of Pension & Divs for tax year April 2017 and how the company can make tax deductible contributions to your pension… even if your low Salary means you can’t

The picture with this post comes from Salary Versus Dividends & Other Tax Efficient Profit Extraction Strategies: Written by Nick Braun

grants

Grants… saw this, thought of you…

If you haven’t seen it, here’s a great site for sniffing out grants (& other funding for UK businesses & social enterprises)…

… an email address is all you need…

Idox… grants for business

 

Offshore

Offshore Furore

When I was a trainee accountant I sat in a meeting where a client asked one of our Partners to put some of his money Offshore…

The Partner thought about it… then stunned the room by waving at the door and saying “That’s the way Offshore… f*ck off”

Lord knows what that Partner would say to the Prime Minister…

Evading the discussion about Avoidance

Avoidance is legal, evasion is not… but one man’s avoidance is another man’s evasion… whatever the law actually says… and that’s the problem for the PM…

Punting money abroad to manage your tax liability seems tacky, dirty, or downright dishonest to a lot of Brits…

But do they feel the same about putting money into a pension & getting a tax break… or into an ISA where the income is tax free…

Or is it really all about availability… ?

If avoiding tax Offshore was available to all and pushed & promoted by the Chancellor as Pensions & ISAs are … would the PM be having such a tough time… ?

Who’s next in the firing line?

It’ll be interesting to see if this spills over into a more general look at other wrinkles that help some pay less tax… wrinkles that aren’t available to all…

e.g. you guys taking Dividends instead of Salary to avoid National Insurance

e.g the ‘Entrepreneurs-only’ 10% tax rate on Capital Gains made when selling your business…

Both completely indefensible in my book…

But like I say… one man’s ‘let’s do it’… is another Partner’s ‘f*ck off’

Bank Appeal

Bank turned you down?… Is Appealing Appealing?

If your company’s been turned down for funding by your bank is it worth appealing?

Yes !

Roughly a third of appeals succeed… and for some banks it’s higher…

There are a few reasons why appeals work… (e.g. you might supply more or better info on your company during the process)… but I suspect a fair bit of it is having someone else within the bank take a look at your application… someone at a higher pay grade and with greater authority & capacity to take a risk…

Who cares why… appealing works for a third of applicants

Simply follow your bank’s appeals process… or do it totally foc through Better Business Finance 

… but act quickly… there’s a 30 day limit from the day you’re turned down…

… and then within 30 days of your appeal you’ll know if you’re one of the one in three who get what they want…

… and if you’re not… the banks are now supposed to recommend you on to another funder who may well give you the money you need (something I’ll blog about soon)

So why do they turn down companies in the first place?

Bank Appealing reasons for refusal

The single biggest reason for refusal is a poor Credit Score…

… but frankly there’s no reason to let your Credit Score get in the way… if you ‘manage’ it in the month or so before you apply for funding you can get it up where you need it to be…

… it can be easily done (sign up in the sidebar for a free book on understanding UK Company Credit Ratings and boosting them)

… and nobody dies…

My 2p worth… Here’s Hoping the Successful Appeal Rate Falls ???

Professor Russell Griggs OBE  independently monitors and reports on the banking sectors’ appeals process…  and like him I’m hoping the % of successful appeals keeps falling as it has done for several years…

… because I’d take it as a sign that the banks’ appetite for lending to SMEs is improving… so fewer companies that should get funded don’t…

… and those SMEs that get refused & then appeal will increasingly only be those that don’t play the game when it comes to tidying up their Credit Score and fail to prove the affordability of the funding they’re seeking…

.. basic stuff to get right before you apply imo

Sources :

Better Business Finance 

 

Personal Guarantees

No Personal Guarantees… all in Due Course…

Jonathon Grove and the guys at Due Course are daring to be different by offering Invoice Financing to Owner Managed Businesses… with no Personal Guarantees.

Their core online offering uses clever tech to provide a slick, quick & painless way to raise money on your invoices…

All great stuff… but it’s the fact they know their market place that impresses me…

Owner Managed Businesses hate PGs…

… so if the the Fintech industry really wants to innovate & disrupt they need to take a leaf out of Due Course’s digital book… be brave… back their clients by believing in their businesses… and drop PGs

The Due Course 3 second Takeaway

  1. crackingly quick online invoice financing
  2. they’ll back your business… so no PGs
  3. Made in Manchester… a no nonsense Northern Quarter outfit