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Crowdfunding is a way in which people and businesses (including start-ups) can try to raise money from the public, to support a business, project, campaign or individual.
The term ‘crowdfunding’ applies to several internet-based business models, only some of which we regulate.
The Financial Conduct Authority don’t regulate:
- Donation-based crowdfunding: people give money to enterprises or organisations whose activities they want to support.
- Pre-payment or rewards-based crowdfunding: people give money in return for a reward, service or product (such as concert tickets, an innovative product, or a computer game).
The FCA do regulate:
- Loan-based crowdfunding: also known as ‘peer-to-peer lending’, this is where consumers lend money in return for interest payments and a repayment of capital over time.
- Investment-based crowdfunding: consumers invest directly or indirectly in new or established businesses by buying investments such as shares or debentures.
Further details on their website
The Financial Conduct Authority is proposing that starting from this year inexperienced investors in equity schemes will have to certify that they will not invest more than 10% of their portfolio in unlisted businesses.
Firms that run the website platforms say the rules are too tight and will put off potential investors.
Barry James, founder of The Crowdfunding Centre, says: “Make no mistake, the infamous 10% rule – however it’s dressed up – does just that: it takes the crowd out of equity crowdfunding.”
Despite the crackdown, investors who lend to small companies will not be covered by the Financial Services Compensation Scheme which protects investors if they are mis-sold an investment or if the company they invest in goes into liquidation.
The FCA believe there is high risk that consumers could suffer losses from peer-to-peer lending.
Is the risk too high? would you invest?
Basically research shows that you have the following options:
- Paid Content and Affiliate Marketing
- Paid Subscriptions
- Journalistic work for other media
Advertising is the most popular and is based on:
Popularity of the Blog (number of visitors)
Stickiness (time spent by visitors)
Loyalty (number of repeat visitors)
The visitors are measured in CPM (cost per thousand visitors)
Adverts are 125 x 125 Pixels
A blog with 100,000 monthly hits might charge 50p CPM which works out to £50 per month (£600 per year)
eMarketer estimates that retail sales via smartphones and tablets have more than doubled to £8.2 bn in 2013, accounting for 18% of total UK ecommerce sales. Tablet commerce has seen particularly high growth, reaching £4.8 bn. In 2014 mcommerce is expected to increase by 53.3% in 2014, more than triple the 15% growth rate for retail ecommerce.
UK mobile ad spend is expected to pass the £1bn mark in 2013, according to eMarketer, reaching £1.2bn (19% of total digital) – a 126.1% YoY growth. Mobile ad spend is expected to nearly double again in 2014 to almost £2.26 billion (32% of total digital).
Would you sell advertising on your blog?
Economy in recovery
It now looks like the UK economy is in recovery. Even if this isn’t the case, when people think that times will get better they start to spend money again. With interest rates at historic low rates there is little incentive to stockpile cash in the bank for consumers and for entrepreneurs debt is relatively cheap to finance a new venture.
What’s your plan?
If you are starting a new business, it is important to work out what you will be selling, but to survive the early days of a start-up you will need good projections of your cash flow. As you grow you may need investment from banks or other third parties. Without good quality management accounts is it more difficult to persuade a potential investor to part with their cash.
Ask for help!
You can’t do everything on your own. Work out what your core activities are and how much time you need to do them. If you have time left over for ancillary activities then you are better completing these yourself too. The cost of hiring specialist help, whether it be an accountant, web designer or lawyer can seem to be too much for a nascent company to bear. However if you are spending so much time working out your accounts that you don’t have time for your customers you will cost yourself more in the long-term.
Business booming in Scotland
According to this article from the BBC more Scots are starting up their own business. Records from Companies House show that more than 340,000 companies were formed in Scotland last year. Glasgow and Edinburgh are at the forefront of the economic recovery in Scotland. If you have a good business idea, now could be the time to let that idea take form, especially if you have a service that supports other new businesses.
Give yourself a break
To give your business the best start, make sure you understand your finances. Don’t forget that if you registered a company you are obliged to file accounts with Companies House as well as HMRC. For more information on company formation see my blog here.
For support and advice on the finances of your business contact Alterledger or visit the website alterledger.com.
With over 6,000 investors, Angels Den has already been successfully matching entrepreneurs and investors for the past six years. They have a great track record of successfully funding growing businesses through their unique SpeedFunding and Angel Club events and now offer entrepreneurs and business owners the opportunity to pitch online via their crowdfunding platform.
Angels Den only want to bring their investors the best deals so they spend quality time with each entrepreneur, pre-screening and giving feedback on their business. Those businesses that aren’t quite ready for funding will now be sent to a centralised booking line at CIMA Accountant. Tel 023 8064 3763.
CIMA Members in Practice will provide consultancy in order to assist businesses to present their funding and investment opportunities to Angels Den through its regional offices.
When CIMA Accountant feel they have a business that may be ready for funding, they can now pass these deals onto Piers Lawford at Angels Den.
Order your debts
My advice is straightforward and you will have seen it before, but it is probably one of the easiest ways for individuals and companies to save money. If you have any debts make sure you know which has the highest rate of interest. If you are in a position to repay debt, you should pay off your most expensive loans first. For individuals this is likely to be store cards or credit cards, followed by other unsecured lending to banks in the form of an overdraft.
Even with historically low base rate from the Bank of England, you can pay between 30% and 40% interest a year on store card and credit card purchases.
Maintain minimum payments
For the remainder of your debt, make sure you keep up your minimum payments. Failure to do this may mean additional charges are added to the debt and may affect your credit score.
Check for forgotten accounts
If you have a balance in your PayPal account or your energy supplier you are lending money free of charge. You might be relaxed about this, but while you are paying interest on your own debts you are much better getting the balances transferred to your lenders. Clear out any long term balance from PayPal etc and check your statements from your energy suppliers and any other suppliers to arrange for overpayments to be refunded.
Let’s say you have a balance on your credit card of £200, which you are repaying at £5 a month. The table below shows the total interest you will pay and the time taken to repay the entire balance. At an annual interest rate of 32% (2.34% monthly interest) you will pay nearly £395 in interest on your original purchase of £200 and it will take nearly 10 years to pay the whole balance back. If the annual interest rate rises to 35% you monthly interest would be more than the £5 monthly payment and you would never pay your original £200 off.
|Annual Interest||Total Interest £||No of months to repay loan|
So – if you happen to have £200 in your PayPal account that you had forgotten about at the same time as a £200 credit card balance, you could transfer the cash, pay off your credit card balance and save yourself between £70 and £395!
Manage your cashflow
Work out how much cash you actually need for your day-to-day needs. It is likely that you are receiving little or no interest on cash in the bank. If you are confident that you have surplus cash, use it to pay down any debts you have – but start with the expensive debt don’t share it out equally between the different debts you have.
For support and advice on restructuring and paying off debt contact Alterledger or visit the website alterledger.com.
Cash is vital to you and your business, lack of cash kills businesses.
So how can you improve cash flow:
- Prepare a detailed cash flow forecast, schedule your direct debits and standing orders, knowing how much cash you need and when will help you focus on where the cash will come from
- Invoice your clients as soon as you can, often small businesses invoice late and this just lengthens the time it will take to collect payment
- Get stage payments on large contracts
- Negotiate payment terms with your suppliers, try to at least match the client payment terms with the supplier terms
- If you are able to spread payments do it, for example, most insurance companies will offer you that chance to spread the payments over 10 months
- Adopt ‘just in time’ for stock items, don’t carry more stock than you need to
- Pay sales commissions only after the client has paid
- Change weekly payrolls to monthly where possible
- Sell assets you don’t need
- Sell obsolete and slow moving stock
- Consider paying mileage allowances rather than owning company cars
- Chase your debts
- Get a good credit rating as it will help you negotiate better supplier terms
- File your accounts and tax returns on time to avoid penalties
- Credit check your clients and agree terms based on their credit history and rating
- Diversify to smooth out seasonal trends
- Control your costs and reduce them where possible
- Make cash collection a KPI for your business
- Finance your fixed asset purchases
- Use Invoice Finance if your clients demand long terms
From a business perspective it makes sense to spread the cost of purchasing assets rather than using up working capital and putting pressure on your cash flow. The Matching of Revenue and Expenditure is a fundamental accounting concept.
Assets such as vehicles are often financed over 3 years, generally, the monthly payments are a fixed amount, but when the payments are posted to the Accounts, Capital needs to be posted against the Loan Balance on the Balance Sheet and Interest needs to be posted to the Profit & Loss.
There are basically two methods to calculate the split:
Interest is calculated on the balance outstanding as follows Balance x Interest Rate/12 months
Here is a link to a Microsoft Template for Simple Interest
The standard loan is called “simple interest”. You borrow some money and at the end of the period you pay it back plus interest. For longer term loans, you make periodic payments. With some consumer loans, especially with auto loans, you may encounter a different type of loan which mentions the “Rule of 78”. It is a different way of deciding how much of each monthly payment is interest and how much is principal.
Sum of Digits (Rule of 78’s)
The sum of digits method uses the formula:
(n x (n+1))/2
Sum-of-the-digits method, also know as the Rule of 78s is a term used in lending that refers to a method of yearly interest calculation. The name comes from the total number of months’ interest that is being calculated in a year (the first month is 1 month’s interest, whereas the second month contains 2 months’ interest, etc.). This is an accurate interest model only based on the assumption that the borrower pays only the amount due each month. If the borrower pays off the loan early, this method maximizes the amount paid by applying funds to interest before principal.
A simple fraction (as with 12/78) consists of a numerator (the top number, 12 in the example) and a denominator (the bottom number, 78 in the example). The denominator of a Rule of 78 loan is the sum of the digits, the sum of the number of monthly payments in the loan. For a 12 month loan, the sum of numbers from 1 to 12 is 78 (1 + 2 + 3 + . . . +12 = 78). For a 24 month loan, the denominator is 300. The sum of the numbers from 1 to n is given by the equation n * (n+1) / 2. If n were 24, the sum of the numbers from 1 to 24 is 24 * (24+1) / 2 = 12 x 25 = 300, which is the loan’s denominator, D.
I have created a template for the Sum-of-digits method and you can download it using this link
If you take the following example:
Asset cost £18,000
Repayments 36 x £500
Interest Rate 6.9718%
The total interest charged over 3 years is the same £1,800 but the monthly interest is different, simple interest for month 1 = £94.12 but using sum-of-digits its £97.30. This means that with the sum of digits method the balance due for early repayment will be higher.
The Growth and Infrastructure Act 2013 comes into force on 1st September 2013 and Section 31 makes changes to the Employment Rights Act 1996 inserting section 205A Employee Shareholders.
205A Employee shareholders(1) An individual who is or becomes an employee of a company is an “employee shareholder” if—(a) the company and the individual agree that the individual is to be an employee shareholder,(b) in consideration of that agreement, the company issues or allots to the individual fully paid up shares in the company, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000,(c) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) (“the employee shares”) (see subsection (5)), and (d) the individual gives no consideration other than by entering into the agreement.(2) An employee who is an employee shareholder does not have—(a) the right to make an application under section 63D (request to undertake study or training),(b) the right to make an application under section 80F (request for flexible working),(c) the right under section 94 not to be unfairly dismissed, or(d) the right under section 135 to a redundancy payment.
Giving up employment rights might not sound like a good idea for employees but there are tax advantages for both the employee and employer:
- Dividends are not subject to PAYE or National Insurance
- Dividends would not be used as Pay in Auto Enrolment
- Capital Gains Tax Allowances should make most gains tax free
- The employer will benefit from cost savings on the sacrificed employment rights
As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.
Here is a great example from Steve Grice for an average business
|Average time to collect payment from customers||60 days||Add|
|Average days sales held in stock||25 days||Add|
|Average days taken to pay suppliers||35 days||Subtract|
|Cash cycle||50 days|
Here is a brilliant Cash Flow Improvement Tool from NAB http://oms.nab.com.au/media/10/power_of_one/CF.html
This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.
Having discovered what the cashflow cycle is, what can you do to improve it? well that depends, assuming you have agreed the best possible terms with your suppliers, you need to find ways to speed up cash received from Customers, if your business Sells to other businesses the first thing to look at is Credit Management.
CIMA have produce a comprehensive guide http://www.cimaglobal.com/Documents/ImportedDocuments/cid_improving_cashflow_using_credit_mgm_Apr09.pdf.pdf
But Credit Management may not be enough on its own, perhaps Invoice Finance might help?
Invoice discounting is an excellent, cost-effective way for certain businesses to improve their cashflow position.
- Invoice discounting is most suitable for businesses with good financial controls in place and a strong financial background.
- Invoice Discounting is ideal if you have an annual turnover above £500,000
- Invoice discounting is suitable for business with an established credit control department.
- Invoice Discounting is suitable for a wide range of businesses including manufacturers, wholesalers, transport firms, employment agencies and providers of some business services.
- Suitable businesses for invoice discounting are growing businesses because the level of funding grows in line with increasing sales.
If your business sells to end customers you might consider Card Processing Advances.
You must be masterful. Managing cash flow is a skill and only a firm grip on the cash conversion process will yield
House prices are rising as confirmed by the Land Registry in their report 29 April 2013, the annual change is 0.9%, rent is increasing again after a drop in 2009 according to the English Housing Survey, in 2011 it went up 3% to a mean rent after housing benefit of £132 per week. So let’s see who the tenants are (English Housing Survey 2011):
|social and private renting households receiving Housing Benefit|
|age of household reference person|
|16 to 24||6.3||11.9||7.8|
|25 to 34||12.6||26.9||16.5|
|35 to 44||18.1||24.0||19.7|
|45 to 54||16.3||15.8||16.2|
|55 to 64||14.1||9.0||12.7|
|65 to 74||15.8||7.8||13.6|
|75 and over||16.7||4.4||13.4|
|marital status of household reference person|
|six or more||3.0||3.4||3.1|
|couple, no dependent child(ren)||11.5||8.0||10.5|
|couple with dependent child(ren)||10.1||19.2||12.5|
|lone parent with dependent child(ren)||20.9||35.1||24.7|
|other multi-person household||7.1||6.0||6.8|
|length of residence|
|less than 1 year||8.4||27.7||13.6|
|1 year, under 3 years||15.4||32.5||20.0|
|3 years, under 5 years||13.2||15.5||13.8|
|5 years, under 10 years||20.7||12.3||18.4|
|10 years, under 20 years||22.2||8.0||18.4|
|20 years or more||20.1||*||15.7|
|economic activity of|
|household reference person|
|full time work||2.7||13.1||5.5|
|part time work||9.5||18.1||11.9|
|full time education||*||*||1.5|
|£ per week|
|mean gross weekly income|
|of household reference person||206||237||215|
Yields are looking good, its possible to achieve 8% to 10%, take a look at the examples on http://investors.assetz.co.uk/property-listing.htm
Lending rates are low with Bank of England base rate stuck at 0.5%.
So we should see Buy to Let coming back into fashion with investors, with that in mind here are my top tips to minimise your tax:
1. Claim allowable expenses
- Mortgage or Loan Interest (but not capital)
- Repairs and maintenance (but not improvements)
- Travel costs to and from your properties for lettings or meetings
- Advertising costs
- Agents fees
- Buildings and contents insurance
- Ground Rent
- Accountants Fees
- Rent insurance (if you claim the income will need to be declared)
- Legal fees relating to eviction
2. If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year
3. Claim for repair and advertising expenses incurred in getting the property ready for renting
4. Consider how the property is owned for example your partner may pay less tax or if you own it 50/50 you could use their capital gains tax exemption on sale of the property
5. Consider whether owning the property within a limited company might be better, Corporation Tax is 20% for small companies in the UK which can make dividends more tax efficient than personal income.
6. Make sure any borrowings you have are on the Buy to Let so that you can claim tax relief on the interest
7. Claim the Energy Saving allowance for energy saving work and save £1,500