So where has it all gone, and is anybody out there lending to SMEs?   Some of the investment banks have recently been declaring stunning profits.  With the departure of Lehmans and Bear Stearns last year, these banks are increasing margins, benefitting from the reduced competition in their sector.

Unfortunately, the commercial banks have not had it quite so easy.   Lloyds TSB and RBS in particular have the highest exposure to the UK property sector, owning close to half of all outstanding UK property loans.   Many of the high street banks are still making provision for further bad debts to come.  In addition to increased regulation from the Financial Services Authority, and increased capital adequacy requirements as a result of Basle 2,  availability of funds to lend is low.

Is there any hope?   Banks are still lending to people they know,  people with a ‘plan B’, provided it is low risk and short term.   It’s not coming cheap though, with 3 or 4% over base being the norm, along with 1-2% arrangement fees.    Over the next few weeks, we will be exploring some of the alternatives to bank loans and overdrafts.   

Have you got appropriate funding for all your financial needs?  If you like an objective view of your current set up,  call us today for a  quick  health-check to see if you are optimising what’s available to you.

1. Keep receipts to support any expenses claim.  Make notes on the paperwork/spreadsheet of any additional details.
2. File things in date,  alphabetical, or numerical order order to save time.   Be consistent in your approach.
3. Have a separate business credit card and file with the receipts.   Keep a separate business bank account and reconcile regularly.
4. Keep cash transactions to a minimum -  it’s messy and we don’t like it!
5. Use a standard accounting package – Sage or similar.  Most accountants have compatible software making integration quick and easy.  Again, when making entries,  give as much detail as possible – e.g.   July 09  rent, not just “rent”!

If you need any help with the basics,  contact Aileen or Julie, or leave a comment below.

The level of award will depend of a number of factors, but the MAXIMUM possible for a regular couple with 2 children would be made up as follows:-

Child allowance ( 2 x £2,235)         £4,470

Family allowance                                     545

Basic Allowance                                   1,890

Couples allowance                              1,860

> 30 hours work pw                                775

TOTAL ALLOWANCE:                       £9,540

Other contributory factors are if you have a disabled child, a new baby, or if you are paying for registered childcare.

The nearer your income is to the upper limit,  the smaller the credit will be.    For example, one of our clients whose combined income was just over £50,000 in the year to April 2009, is eligible for £529!   Small beer maybe, or could be 100 small beers, depending on how you look at it.

The award for this year will be based on last year’s income.   If you have previously been over the threshold and have not claimed in the past, you may now be eligible, due to any change in circumstances.  But hurry!  your claim for this year must be submitted before 6 July 2009.

If in doubt, check it out!!  Give us a ring, or call the tax credits helpline directly on 0845 300 3900

The general reaction from businesses was negative, with little incentive for any entrepreneur.   Quoting Rupert Merson, a partner at BDO Stoy Hayward  “this is playing politics with enterprise.  With the 50% tax on the highest earners, the chancellor has picked on those who have the best chance of pulling us out of the pickle that we’re in”

What do you think?

Has this budget helped you or made things worse.  Leave any questions and comments below.

The Good..

• Loss making companies can reclaim tax paid on profits made in the past 3 years.
• Main capital allowance rate doubled to 40% for 1 year.
• Cash-strapped businesses can continue to defer tax bills, with an extension of the ‘time to pay’ initiative.
• Some improvements to the Venture Capital Schemes may stimulate more capital becoming available.
• £2,000 new-for-old discount on cars, to be partly funded by manufacturers.
• Stamp duty holiday on properties worth up to £175,000 to be extended to 31 Dec 2009.

The Bad…

• Main rate for Corporation Tax unchanged at 28%. Small company rate to remain at 21% for a further year.
• Fuel duty is to be increased by £0.02p from Sep 09 and by a further £0.01p every April from 2010 to 2013.
• Alchohol duty to rise by 2%.
• Statutory minimum for redundancy pay to be raised by £350 to £380 per week

The Ugly..

• The pound suffered an instant hit following the Chancellor’s delivery of the budget, widely perceived to be a reaction to the unexpected jump in the top rate of income tax to 50%. This was seen as an attack on the City and would have the effect of encouraging top people to leave this sector for other shores, reducing long-term competitiveness in financial services.
• The economy is predicted to contract by 3.5%, with public borrowing expected to rise to 12.4% of gross domestic product this year.

What do you have to say?

Cash is currently a rare and expensive commodity and cash management should take priority on any business owner’s agenda.  With banks seeking to reduce their exposure to market risk, and overdrafts being at a premium, businesses need to look internally for their short term finance.

A business may have a high stock value or large amounts of debtors on its balance sheet but, if unable to convert into cash, it may be unable to pay for its wages and other purchases in the short term.  Unless it’s able to convert its current assets to cash quickly, the company could technically be bankrupt, despite making profits and having a positive net worth.

Although cash management is about having the right tools to forecast cash, more importantly it requires the underlying processes such as debtors, creditors and stock to be in place to optimize a company’s working capital.

TEN WAYS TO IMPROVE CASH FLOW

COLLECTION

1) Credit check new customers in advance. You can purchase status reports from a number of credit agencies.  These will include full customer details and financial results, along with payment experience of other suppliers.  Alternatively, ask for a bank reference and a couple of similarly- sized supplier references.  If no credit history is available, ask for cash with order initially, then impose a credit limit;  review it regularly and stick to it!

2) Ensure your customer understands the terms and conditions of sale – make it clear that you are not just selling something, you are also agreeing with the buyer what, how and when he’s going to pay for it.

3) Monitor customer payment practices. The sooner a late payment is identified, the more likely it can be mitigated.  It is important to have a good structure to the debt chasing procedure, i.e, follow-up calls at regular intervals, and statements where necessary.  If invoice terms are 30 days, then a phone call should be made on day 31 to ask why payment hasn’t arrived.

4) Invoice accurately – most of the reasons given for non-payment relate to invoice queries.  Make sure the correct amount is invoiced, the correct reference numbers are quoted, and that it is sent to the correct address.

5) Some of your customers will have set payment procedures and require invoices to be received within so many days after the end of the month. Ensure your invoices are sent out promptly after issue so that you are incorporated into their monthly cheque or BACS run.

6) Consider outsourcing. There are many local collection agencies, or firms of solicitors who provide this service – this can neatly dovetail into legal proceedings for the ones who go too far!

PAYMENTS

7) The easiest way to improve your cashflow is by not purchasing items until absolutely business critical, and then spread the payment instead of taking a lump sum out of cash flow.  More and more goods can now be purchased via hire purchase or leasing, including new and used cars, commercial vehicles, office furniture and computer hardware and software.  A simple rule of thumb is that purchase of asset should be financed over the life of the asset; if you are expecting your new computer to last 3 years, spread the payment over 3 years.

8) Supplier payments should be made on the last day they are due, except if it makes sense to take advantage of any early payment discount.  Schedule any purchases to maximize credit allowance, i.e. by buying early in the month.  Purchasing goods by company credit card can often increase time before payment is taken.

9) Have a watertight purchasing policy. Approval processes for expenditure should be in place and the ‘sign off’ threshold strictly adhered to.  Consolidating suppliers, where possible, will allow a business to place larger orders, thereby increasing negotiation power around price and payment terms.

10) Good stock management will be critical in reducing a company’s working capital requirement.  A Just In Time (JIT) system will avoid cash being tied up over an extended period of time.  Any old, slow-moving or obsolescent stock should be reviewed and sold.  (E-bay can be a good outlet), or it may be possible to return goods to the supplier for a refund or credit.

And finally….

If you haven’t already, implement a rolling cash flow forecast.  Today.  It is not a luxury; it is a necessity.  Review it regularly and update as required.   Identify and have a contingency plan for any cash gaps.  An early warning can give the business time to prepare appropriate actions.