Raising Funds Using EIS and SEIS Tax Relief Schemes

Angel investors, by putting their own money into a business, are taking on risk, but will almost always seek to mitigate this by claiming tax relief through EIS or SEIS schemes, which allow investors to offset their investment against income tax and capital gains tax. The Enterprise Investment Scheme (EIS) gives tax relief of 30% on up to £2,000,000 of investments from individuals. If the shares are held for more than three years, proceeds from a subsequent sale are also exempt from CGT. Tax relief under the Seed Enterprise Investment Scheme (SEIS) is even more generous, with tax relief of 50%, but limited to investments of £100,000 per individual. For companies, the first £150,000 raised will be eligible for SEIS relief, after which investors will only be eligible for EIS relief. Companies will also need to confirm that they have spent the bulk of money raised under an SEIS scheme before they can start raising further funds under an EIS scheme. Investors will almost always ask if the company has received advanced assurance from HMRC to show that it is eligible for SEIS/EIS tax relief. Gaining this is a moderately complex task, requiring companies to provide copies of their busies plan, articles, details of trading activities, share prospectus and other information to demonstrate that the company is likely to be compliant. HMRC say they will give a response within four weeks of application and my experience is that they usually meet this, but as with the rest of HMRC, it’s run on a shoestring and I have heard stories of applications taking longer. A change to the scheme in...

Ten things to consider when selling your business

Having just worked with a client on a successful trade sale, I thought it might be useful to put down a few key points to consider from a financial point of view:   If you’re thinking of selling your company, starting your preparation early is essential. Make sure your record-keeping is immaculate – a potential buyer is likely to want to see three years trading records. Make sure everything is fully recorded, meetings minuted and key emails filed somewhere accessible. Look at your monthly reporting pack. A trade sale may well be the first time anyone outside the business (apart from perhaps auditors and your bank) will have seen your monthly management packs, so they will need to make sense to outsiders. Does it make sense? For example, commentaries should avoid acronyms and company-specific jargon. Management accounts should be complete and fully reconciled to the statutory accounts. If you have taken advantage of the removal of the requirement for SMEs to have an annual audit, it’s well worth while reinstating it. An audit might seem like an unnecessary expense at the time, but the extra due diligence costs will cost a lot more later on. Make sure the numbers are tight and our balance sheet doesn’t contain any surprises. The sale price will be based on a multiple of historic earnings, so adjustments resulting from changes to provisions and accruals, property revaluations and stock write-downs will all need to be explained. Far better to get as much bolted down before you start the sales process. Building trust between the parties is more important than squeezing a few thousand more...

Managing a downturn

  The current crisis in the UK steel sector has dominated the headlines with 40,000 jobs said to be at risk. But other sectors, lacking steelmaking’s iconic image, have quietly haemorrhaged even more jobs. The oil and gas sector had shed 65,000 jobs to September 2015 with many more since then and the four main high street banks cut 189,000 positions in five years to 2013. Losses ripple rapidly down the supply chain from blue chip multinationals to SMEs, and it is at the bottom of the pyramid that firms find themselves under most pressure. So how should management react to a downturn in their sector? The first question to ask is, is the downturn cyclical or structural? The only way to adjust to structural decline is to move quickly while your balance sheet is still strong, and move the focus of your business to areas which are growing and your company’s skills and experience can be profitably employed. IBM spotted the decline in the mainframe computer market and in the late 1990s moved decisively into IT consultancy. In 2015, its revenues were over $80bn. Blockbuster Video on the other hand, had 60,000 employees and 9,000 stores in 2004. As the market went digital, it could have become the next Netflix. It didn’t and instead has disappeared completely. Cyclical downturns require a different set of judgements; estimating how long the downturn will last and determining where the market’s hit bottom. Survival becomes a question of hoarding enough cash to last until the market recovers. Downturns are very difficult to spot at the beginning and typically a company may make...

Five key considerations for choosing accounting software

Choosing an accounting software package is a major decision, the results of which you’ll inevitably end up living with for many years, so it’s important to get it right. “Nobody ever got fired for buying IBM”, as the 1960’s maxim went, and more recently, the same could be said for those buying Sage accounting software for SMEs. But in recent years, the choice of software packages for small and medium companies has expanded considerably. Here are a few key points to consider in deciding which is best for you:   1. Does the package meet your core requirements, (ideally without customisation)? All accounting software packages perform a core set of processes – managing invoicing, processing payments to suppliers, reconciling bank balance; but you may be looking for additional requirements such links to your MRP or CRM systems, or the provision of a particular metric for management reporting. A well-tried method for deciding which package best meets your needs is to carefully list all the accounting processes in your organisation, identify those which are (a) essential and can’t be modified, (b) those which can be tweaked to fit and (c) those which could be dropped. When you come to either running the software for a free trial period, or for larger packages, at the reseller’s demonstration day, this should be your checklist to determine the extent to which the package meets your critical requirements.   2. Cloud or server? Key considerations here are cost (see point 3), access to upgrades (usually free on cloud packages) and security (cloud data is backed up automatically, server based data will be down to your own routines)....

A choice of accounting software (at last…)

For many years the default accounting software choice for small companies has been Sage – Instant Accounts for micro companies and Line 50 or 100 for small and medium enterprises. With a huge share of the SME market, Sage have been able to dominate the sector for years whilst offering customers only small changes in functionality. Users have been pushed to buy annual maintenance packages, with support being withdrawn from older versions, forcing them to work with unsupported software or splash out on upgrades. This has now started to change, as cloud-based packages from companies such as New Zealand’s  Xero, offer a whole new set of features at considerably lower prices. This has started to eat into Sage’s market share: With around 100,000 users in the UK and over 600,000 users worldwide, Xero reported year-on-year growth in 2014 of 80%  making them the world’s fastest growing accounting software company. Sage, with annual growth in single digits, is finally starting to stir. Their recently installed CEO Steven Kelly admitted they had been slow to adapt to the cloud-based approach and would need to catch up. At the Sage Summit last August, Kelly also promised to end forced end-of-life migrations to new versions. Sage One launched in 2011 and by June 2015 had built up 92,000 customers in the UK, charging £10 per month, the same as Xero. However, this is hardly stellar growth and only represents a tiny fraction of Sage’s total revenue of £1.4bn. Their website boasts how they had developed Sage Live, a cloud based successor to Line 50, in just 26 weeks, although apart from a rather irritating video,...