Is this the end for buy to let investment?

butoletBuy-to-let investments have been a great source of income especially with fluctuations in stock market prices and declining interest rates. However, some changes in the UK property market, especially on taxation is likely to reduce the income that landlords get from these properties.

Buy to let homes have been better income investments for those capable of raising a large deposit, than those in low savings rates and those experiencing falling stock market prices. The decline in mortgage rates has also been another motivation for going for buy-to-let investments.

However, there is more and more restrictive taxation that is reducing the benefit from buy to let properties. Although there is still a chance of making a decent return even after considering the incumbent tax bill, investors should still consider whether the returns are worthwhile. The trick is to invest in UK property in a decent location with good tenants.

Buy To Let Taxes

The law requires landlords to declare how much they make from rent and any capital income after selling property. There is going to be a distinction between residential mortgages and buy to let mortgages. This mortgage will be a separate product from the one you get for your home. The lender will also have records of whether you are renting the home or living in it. Residential mortgage does not permit renting of the property, and this is only allowable under a buy-to-let rate. The rate for this kind of mortgage is higher than for residential ones because of the dependency on income from tenants and the risk associated with it.Buy-to-let is an investment which is subject to tax on rent and any gains on sale. There is also a stamp duty rate on the purchase of the property. Details are as follows:

stampdutyStamp Duty

Stamp duty is the initial tax that comes due when you obtain your buy to let property. The proposed rate for stamp duty is 3 percent, and this will take effect from April 2016. The tax law will change from the current requirements where the first £125,000 is tax-exempt. The next £125,000 attracts a 2 percent stamp duty, and anything between £250,000 and £500,000 attracts a 5 percent stamp duty; with a higher rate for each bracket.The proposed stamp duty rises to 3 percent for property from £40,000 to £125,000, 5 percent for homes to £250,000, and 8 percent for those between £250,000 and £500,000 from April 2016. You can read more about the new stamp duty levels here.

Income Tax

Any rent from buy to let will attract income tax. In addition, the owner of the property needs to declare this income while completing the self-assessment for tax purposes. The income tax rate with subsequently depend on your tax bracket which can either be 20, 40 or 45 percent.

You are only exempt from tax on allowable expenses such as interest to acquire the property. However, there is likely to be a change in this benefit to limit the tax relief to only 20 percent from the current 45 percent from April 2017.

Capital gains tax

This tax arises when you sell the property and make profit on the sale. The profit is then taxable for any amount above the annual allowance of £11,500 for individuals, and £22,000 for married couples and civil partners. Capital gains tax is at 18 percent for basic rate payers and 28 percent for higher rate taxpayers.

Declining Relief From 2016

Chancellor George Osborne is behind these tax changes which he announced in his 2015 budget. They purpose to lessen the tax reliefs that landlords get on buy to let properties. He proposes scraping of the wear and tear allowable expense that lowers income tax for landlords. Before April 2016, landlords can claim this allowance even without incurring any expenses on their properties. However, from April 2016, only the incurred costs will be an allowable expense. In addition, the allowance on finance costs such as interests will not be deductible from property income from April 2017. Instead, there is a proposed basic rate reduction from the income tax to cater for the finance costs. There has obviously been an outcry from landlords with Cherie Blair even stepping up to fight the new tax law.

How shall I set up my business?

When setting up a business in the UK, you will have to choose between 3 main types of businesses. These types of businesses determine things like the responsibility you will have within the businesses, how the profits will be shared, what kind of taxes you have to pay, the paperwork involved in registering the business and so on.

The 3 common types of Businesses are:openbusiness

1- Limited Company

2- Sole Trader

3- Partnership

These 3 are geared towards making profits while those that have not been listed revolve around providing services not particularly for profit. So let us focus on these 3 that are focused on profits.

Limited Company

A limited company is set up to run the business in its own right with its finances separate from yours as an individual. The profits it makes belong to the company and are shared among the shareholders after payment of corporation tax. Limited Companies are further divided into 3 types:

  • Private company limited by guarantee (it doesn’t have share capital but has the guarantee of the members in case of liquidation)
  • Private company limited by shares (Share capital is provided by shareholders and not offered to the public)
  • Public limited shares (It can be traded on the stock exchange markets)

Before you set up a limited company, you may want to consider the benefits and drawbacks of this.


  • Investors will find it more attractive to invest in a limited company
  • Banks trust limited companies much more that the other 2 kinds of companies so it is easier to get bigger loans
  • It is much easier to transfer shares between members
  • You do not have to pay as much taxes on dividends as you would in partnerships or sole companies
  • National insurance is not imposed on dividends from limited companies


  • There is very little privacy of your accounts and other business details since these are part of public records which even your business rivals will have access to.
  • Although the finances of a limited company are separate from personal finances, in case the business fails to pay a loan, the bank can still hold the directors accountable and they will have to pay from personal finances.
  • Directors can be subject to late filing penalties or accusations of criminal activity if they fail to deliver statutory documents to Companies House.
  • It is not as easy as it may seem to separate personal finance from that of the business.
  • You will need to spend much more on accountancy fees as the load is greater.

Despite the drawbacks, it is still very profitable to set up a Limited company. In the UK, you can do this at Companies House which oversees the registration of Companies.

Sole Trader

This is a purely private business, as a sole trader you are responsible for running of the business, you hire people to help running the business but after payment of salaries and taxes, the profit is entirely yours. This also means you are the business so all responsibilities including legal ones fall on your shoulder.

So what are the advantages of this?


  • Since you are the owner, decision making is very easy you can change the structures of the business as you please with no interference from partners.
  • It is also very easy to set up and register at Companies house with no payments needed.
  • The cost of accountancy is much lower than a limited or partnership company
  • There is less paperwork to be submitted every year to the Companies House.
  • You are your own boss and you answer to no one but yourself in the case of losses.


  • You are likely to have less profits considering everything you make is going to be taxed
  • Banks are usually very critical when dealing with sole traders.
  • Your personal finance and property are at risk if the business fails to honour its debts
  • It is not easy competing with Limited companies.


This is just as it sounds, the business is partly owned by 2 or more individuals and at times even a Limited Company can count as a partner in a business, so it is not always actual individuals that would make up a partnership. In partnerships, each partner bears a percentage of the finance burden and profits are shared according to partners input and taxes paid individually on profits.


  • There is shared responsibility for the business start-up capital
  • Shared losses
  • You are able to combine efforts and compliment each other’s business skills
  • The risk is split between partners
  • Banks may look more favourably on a partnership than a sole trader business
  • There is the possibility of making more profits due to combined efforts
  • You can be held liable for your partner’s failure to honour their debt
  • You have to share the profits with the partners
  • Decision making may be slowed down by consultation with partners
  • If you are partners with a friend, it may put the friendship to a big test.

In the end, the type of business you choose to set up will depend on your goal and which kind of business will help you meet that goal effectively. In the UK, you can receive further guidance on setting up a business from Companies House.

The Top Five SEO Mistakes Made By Companies Online

Ten years ago very few businesses would have even heard the phrase Search Engine SEOOptimization. Nowadays, however, if you’re running a business that has an online presence you cant possibly ignore it. So here are some of the most common errors people make with their websites:

1. Not keeping up to date with changes

You must have an SEO strategy in place for your on-line marketing. But it must be regularly reviewed and updated as the search engines change their algorithms for ranking websites. Your strategy cannot remain static. From April this year Google made it clear that it would favor mobile friendly sites, as so many of us use our mobile devices to search the internet for information, or to shop. Keep your eyes peeled for the next major change that will affect your website and keep up to date, to stay ahead of the competition.

2. Inefficient and ineffective design

A poorly designed website that doesn’t flow, that potential customers find difficult to navigate around and is not fit for purpose, is a waste of money. Your designers must understand what it is you are trying to achieve and ensure they produce the relevant goods, otherwise you might as well not bother because people wont be drawn to it, wont stay on it and wont come back. It is as important as the interior and exterior design of a physical shop, or office. Make sure it gets to the point quick. If your message is to gain enquiries, make that the goal.

3. Badly written copy

Copy that is poorly written, with bad spelling and grammar; or copy that is merely copied from another website; or copy that is duplicated across your own website, looks highly unprofessional and affects the impression people have of your company and its goods and services. Keywords are essential if you want people to find your site but copy that is too dense in keywords is clunky and does not read well and will put potential customers off. This tactic is long gone and stuffing loads of key words into a website is more likely to get the site penalised in some way.

4. Duplicating meta tags

Many database-driven websites all carry duplicate meta data such as title tags and descriptions due to poor content management system (CMS) setup. By installing a plugin or having custom formats for dynamic database-driven pages this mistake can be overcome.

5. Not using analytics to ensure your website is working

It’s pointless having a website if you don’t regularly check to see how it is being used and by whom to make sure it is working as well as it should be for your business. Analytics’s highlight areas that could be improved upon and therefore bring in more customers, or keep them on the site longer so that they spend more.

If you are serious about SEO and its important to rank your site then don’t try quick fixes. Do things the right way. Spend money on a reputable marketing company and make a site that is interesting and direct to your goals. Below is a great video from the experts at where you can find loads of great tips on doing SEO the right way.

5 Business Insurances That You May Not Know About


BizInsuranceWhen you get into business, there are plenty of risks that come along. As a result, it is prudent that you get check out all the different forms of insurance to protect your company and income. While you probably know about contents insurance, can insurance and so on, we’ve listed another five types of businesses insurance policies out there that you should consider. We take a look at the main ones that maybe you haven’t thought about such as relevant life, key man insurance and shareholder protection along with indemnity.

Relevant Life Insurance

This insurance plan is great as a perk for employees is a small to medium size company. Like death in service, if an employee dies, a relevant life policy pays a lump sum of money to the family via a trust. Like discount life cover but placed on the company expenses. Terminal illness is normally included and you also have the option of transferring the policy to a new company or to a personal life insurance if you retire. However, most relevant life insurance policies do not cover for terminal illness if they occur in the last 12 months of the policy. It is also a good alternative for group life insurance because you can selectively choose the employees to be under the cover. Relevant life insurance is based on multiples of income and currently you can take up to 25 x your income depending on age. Premiums paid by the company are tax deductible so helps to get that corporation tax bill down too.


Key Man Insurance

In your business, you probably have one or two employee’s that you rely on heavily for most of the work or profits. Have you ever thought about what would happen to the business should that person die or become ill? No, most people haven’t which is why there is a huge gap in the amount of keyman insurance taken throughout the market.  Key man or key person insurance is the perfect solution for such a scenario.

Key man insurance offers your business financial protection in the form of a lump sum of money in the event of death or critical illness of a key person. Covering your company against loss of profits, loss of revenue and or capital value of your business. It is more like a life insurance for the person, and it is ideal for an employer whose knowledge, work or contribution to the company is uniquely valuable to the business. With this insurance, you can offset hiring costs or losses until the right successor is identified. Its best to use a whole of market broker when looking for a keyman insurance quote as you get to compare all the UK providers for cover making sure you get the right product at the best price.


Shareholder Protection Insurance

Your business needs a safety net, and things can get difficult if one of the shareholders gets incapacitated or even dies. Issues will arise, and shareholder protection insurance handles that.

For the company, loss of a shareholder or director means you will probably need a new partner and you could also lose control of the business. Furthermore, it may not be easy to buy out the new shareholder. This insurance eliminates all this because the money received can be used to buy back his or her shares and cancel them or even keep them as treasury shares. Shareholder protection insurance can also save your business from nasty succession wars. Along with the insurance companies will normally set up a cross option agreement which forces the money to be used to buy the shares from the deceased estate.


Indemnity Insurance

Mistakes and accidents s happen in business, and some could be so costly that they leave the business on its deathbed. If a client or any other person decides to sue you for services that were not provided as agreed, you can avoid hefty legal fees through the professional indemnity insurance.

No matter how many years your business may have been running, mistakes happen, and when they do, you need indemnity insurance. Some of the scenarios this type of insurance cover can take care of include loss of data, professional negligence, defamation, loss of money or goods and unintentional breach of confidentiality or copyright. Therefore, as your business continue providing services to your clients, make sure unforeseen legal battles do not make you close down.


Business Loan Insurance

To grow your business, you need financial assistance from a bank in the form of a loan. As you are taking the loan, it is your belief that the business will be able to repay it as it continues growing and making profits. Unfortunately, this is not always the case. The unexpected can happen and make it impossible to repay the loan meaning that you could lose the security that was used to get the loan. Luckily, with business loan insurance, you will not have to worry about losing anything.

This insurance cover can help you offset an existing loan or cover loan repayments for a certain period until you get back on your feet again. There are two ways to purchase loan protection insurance cover. First, you could go for it as soon as your loan is approved. Alternatively, you can take it up any time after you have received the loan so that it takes care of the existing balance should a tragedy befall you.

There is a lot that can change the dynamic and position of your business. Regardless of how well it may be doing, it is important that you have all potential areas where you could lose money covered and going for the above insurance types can guarantee you that. The government share a lot of information on business loans for star ups which you can read here.


So where do I find this kind of insurance?

There are plenty of provider of these types of insurance but of course you want to try and make sure you are getting the right policy for your company and of course at the best price. Whole of market brokers or key man insurance specialists are often where you will get the best deal. You can of course go direct to the providers but of course they will only have the option of advising on their own products. We found it best to use specialists in key man insurance as the better option as they tend to be more geared to offer the right type of advise. Many of the providers will have variations on the contract, so its best to get advise from a broker on things like critical illness and variations on small print.

Business Grants

Business Grants

Everyone likes the idea of small business grants. Free money for your business has an everlasting appeal. The reality of obtaining a business grant is more like the quest for the holy grail, and often fraught with the perils of bureaucracy along the way.

Be under no illusion that it will take time and effort to search out and apply for any kind of grant.bizgrants
Grants are generally awarded by local, regional or national government. Sometimes (but much more rarely), they come from industry bodies, foundations, trusts and educational establishments.

Finding a small business grant is difficult because schemes normally have a limited amount of funding distributable within a definite time frame, they are normally targeted at local areas, with specific aims (e.g. urban regeneration) and change over time to reflect different objectives. Because they are aimed at different and ever changing target groups the amount of information available about them becomes layered and confusing.

Furthermore, it is unlikely that you will be allowed to use any granted funds for any purpose you wish, they nearly always are constructed with restrictive criteria. Perhaps the most common ones are:

Encouraging investment in areas of poor economic standing, including assistance for relocation, creation of jobs etc.
Agricultural, farming or fisheries assistance.
Aims of increasing overseas exports
Investment in new technologies or ‘state of the art’ plant and machinery
Research and Development

As well as the restrictive end use, there will be qualifying criteria which will depend upon the location of your business, its legal form, and the size of it. Almost always you will be expected to produce your business plan with any application and contribute a “matching element” of funding. Most often this is to invest an equal amount (50%) to what you are granted. Although the contribution you are expected to put in can be up to 85% in some cases

Small Business Financing

SmallBusinessFinancingSmall Business financing

All Small Business Financing requirements are fulfilled from one or more of 5 different sources.It usually takes the owner(s) of the business to invest their own capital, before any of the others can be made to happen.

1. Investment Capital from yourself, family or more formal investors such as business angels or shareholders.

2. Small Business Loans from any traditional financial lender – comes in a number of different formats.

3. A loan from a Peer to Peer lending organisation.

4. Proceeds from Small Business Start Up Grants or any of the other kinds of Small Business Grants

5. Profits of the business.

Key small business financing concepts

If you intend to use any funds raised for a long duration (e.g. purchase of property), then you should match funding to a source that will last the same duration (e.g. Commercial Mortage)
Aim to raise your sources of finance in a balanced way using a combination of business finance products and providers to reduce risk and avoid endangering the long term viability of the business
Your business plan (and your current trading performance) will help you determine the amount of funding you need, and where it should be applied.

It is important to look at your cash forecasts, and decide whether you will have enough resources, or whether you will need to raise more. Don’t forget to build in a contingency for unforeseen circumstances.

If you decide you need further finance, start looking well in advance. Not only does this give the impression that you are in control and organised (because you are!), it avoids the stress and ultimately loss of control should the business get into difficulty.

It is also possible for your business to be adequately financed, but be in difficulties as a result of poor short term access to cash.
The 5 major and escalating symptoms of insufficient liquidity in your business

  1. The bank balance is in a continuous trend of decline.
  2. The number of days it takes to collect money from Customers starts rising. Here’s how to compute debtor days
  3. You will be unable to pay suppliers you owe money to on time. Some of them might stop delivering supplies to you until you pay what you owe. This can cause severe operational problems. For example if you can’t pay for goods that are required to fulfil orders!
  4. In more chronic cases you will be struggling to pay essential creditors, such as wages tax and sales tax or VAT on time. These kind of creditors are governments, and will not accept this. At this stage your business may be in jeopardy.
  5. The end of the line is usually the inability to pay wages on time or if a supplier presents a court order to wind up your business.

The main difficulty if your business is in or gets to this situation is your loss of control as owner. If you recognise any of these symptoms in your business you must investigate and take action immediately. By having appropriate working capital management in place you can take preventative rather than corrective action.

The situation of inadequate liquidity is known as over trading. The causes can be as a result of negative events, such as continuing losses, the insolvency of a sizeable debtor, or over indebtedness, but they can also be caused by expanding too fast. Expanding too fast requires working capital to be added to the business. More than can be supplied by the profits of the business alone. Here’s how to compute the working capital ratio to establish how much you need.

Prevention is always better than cure, It is therefore best to install early warning systems by using your accounting software and management information reports to prevent the situation developing as far as this.

Calculate how fast your business can expand without the need for extra funding. And be sure to start sourcing extra finance if growth exceeds this limit.

Establishing Business Credit

businesscreditEstablishing Business Credit

The first golden rule to establishing business credit lines is to ask for them. If you don’t ask, no one is going to come over and say “hey, here have some credit”.

There are two main sources of business credit. That granted by a bank or other financial institution, or credit terms given by suppliers. Upon requesting a supplier line of credit – or trade terms, don’t be surprised if they perform some business credit checks. After all, you would, wouldn’t you?

Using a planned approach is essential if you are to successfully build business credit. It is important to have an idea of what you need to prove about your business, if you ever want to consider a business loan, or negotiate credit terms, or extend existing credit terms with suppliers.

It is quite common when you start a business to have to pay for things before you collect monies in. This delay requires funding from somewhere, and normally, either a bank facility or some form of supplier credit will be needed to ease the strain on the owners own capital investment.

Lets look at how credit worthiness is determined. All lenders are concerned with the granting of and repayment of small business loans in accordance with their terms and conditions.

They use what is commonly called the five “C’s” of credit. Cash flow, Capital, Collateral, Conditions, and Character.

The 5 Cs of Credit

Business Cash Flow, or Capacity to repay is always the primary factor. The lender needs to know how your business will generate the repayment.

Establishing business credit needs proof of affordability, and you will often be required to provide detailed cash flow figures from the business.

Your cash flow ultimately determines the timing and the probability of successful repayment of any loan or small business line of credit. A review of your past credit payment history both personal and commercial, will also be undertaken.

Consider using business secured credit cards as an interim measure, whilst you build your proof of ability to repay.


Capital is the money you have personally invested in your business and is an indication of how much you have at risk should the business fail.

Lenders will expect you to have contributed from your own assets and to have undertaken personal financial risk to establish the business, before they will commit to providing a loan or any other kind of business funding.

In the eyes of the lender, if you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.


Collateral is an additional form of security or guarantee that you will be asked to provide the lender.

For a start up business, the lender may require that you pledge some of your personal assets whose titles would be handed over to the lender if you failed to repay the small business loan.

As an existing small business owner you may be asked to pledge business assets such as equipment, buildings, inventory, or accounts receivable.

A personal guarantee could take the place of secured business assets or could even be required in addition to them before establishing business credit. A family member or friend may need to sign a guarantee document promising to repay the loan if you can’t.


Conditions focus on the intended purpose of the loan and how that relates to the general business climate. Will the money be used for working capital, additional equipment, or inventory?

The lender uses its’ network of information sources to determine the relative stability of the environment in which your business will operate. It often has greater insight into local and regional issues that could affect your industry. To be successful in establishing business credit you’ll need to persuade a lender of the merits of a small business loan.


Character is also a critical factor in establishing business credit. Character is how you present yourself to the lender along with your credentials, your educational background and experience in your industry.

The lender will form a subjective opinion as to whether or not you are not only sufficiently trustworthy, but professionally competent enough to repay the small business loan and generate a return on funds invested in your company.

Character plays a large role in negotiating credit terms with suppliers. Before granting you terms, you will have to fill out a business credit application, and give trade references from suppliers who will vouch for your repayment record.

At first you will be granted maybe only a small limit (low risk to the supplier) on short payment terms. Pay this on time, every time and after a number of months you’ll be in a position to negotiate a larger limit or longer terms.

As a small business owner be conscious of the fact that establishing business credit is not something that needs to be done once, but it is a part of an ongoing process, which will contribute significantly towards any business success.

A history of steadily improving business cash flow as a result of effective business cash controls, retained capital in the balance sheet from making profits, and a clean payment history to your trade suppliers will rapidly build your creditworthiness.

Book Keeping

Small Business Book Keeping

God book keeping is SOOOOO Boring!zzz

If you’ve ever been slightly overwhelmed by small business book keeping, then take comfort in the fact that since the beginning of bookkeeping history, mankind has often struggled with keeping track of his finances.

All that testing and refining by our predecessors, means that small business bookkeeping is now straightforward, logical and has the purpose of helping you fulfil 2 basic goals.

Keeping track of what you receive, and what you pay out using effective business cash controls. When you have learned the basics, and have had a little practice, its really not too bad. (No, really!)

Whether you use bookkeeping software or a more traditional set of handwritten ledgers, a well kept set of financial records can help you understand how to make changes in your business so you become more profitable, not to mention, save you money on accountants fees and make filing your various tax returns and claiming your Small Business Tax Deductions less traumatic.

There is no official “right” way to organize your small business book keeping. As long as your records accurately reflect your business income and expenses, official bodies such as tax authorities will generally find them acceptable.

As your business grows, you can expect the quantity of records, and the kinds of records you must keep to increase. One example of this is the difference between the cash method of book keeping (usually used by smaller businesses), and the accruals method.

The cash method records cash received (income) as amounts in the books as they happen, and records payments when they are physically made.

This is pretty much like most of us run our own bank accounts. We collect what we earn from our paycheck each month, then pay the bills, and if we’re lucky, there is a bit left at the end (our profit). And if we go overdrawn, we made a loss.

The accruals method is a major concept in book keeping, and aims to match the amount of income or expenditure to the time that it related to.

For example. It is possible to pay for something after you have used it. In an accruals based small business book keeping system, we would record the expense as we used it, and elsewhere the fact that we owe someone some money – in the “amounts payable” account.

At a later date when we have paid the supplier, we would reduce what we owe in the amounts payable, and our bank balance would reduce, because we spent the money by giving it to the supplier.

The actual process of small business book keeping can be made easier when broken down into three action steps.

1.Keeping the paperwork

Comprehensive summaries of your business income and expenses are at the heart of the book keeping process. Each business sale or purchase must be backed-up by records containing the amount, the date, and details of what the money was used for (e.g. I bought a power tool from Josies Toolshop for $150 on 31st March) or received in respect of (Mrs Smith paid me $100 to fix her Shower on 1st April) . This is true whether your accounting is done by computer or in a book in hand written ledgers.

From a legal point of view, your method of keeping receipts can range from slips kept in a cigar box to a sophisticated cash register hooked into a computer system. It is best to choose a small business book keeping system that you understand and can use, but also meets your business needs.

2. Summarize your income and expenditure records on a periodic basis

A Profit and Loss account is nothing more than a summary of Income and expenses, taking into consideration the period when they occurred, as opposed to when they were really paid for.

Your analysis of the records, will help you understand your business, and give you ideas about how to control it.

On a regular basis, like every day, week, or at minimum once a month, you should transfer the amounts from your receipts for sales and purchases into your books. In the trade this is called “posting”.

Your volume of transactions will normally determine the frequency you must do this. The higher the number, the more often you should post everything, to avoid losing control.

A retail store, for example, that has hundreds of sales amounting to thousands or tens of thousands of dollars every day will be using an automated point of sale system that records everything on a computer as it happens. With that volume of sales, it’s important to see what’s selling well, and what isn’t. The Devil is in the detail as they say.

If you want to leave the small business book keeping process to your accountant then don’t be surprised when he insists on your keeping some controls over receipts. With the many bookkeeping software programs now available, it is very easy to “post” to the ledger. You’ll save a lot of money in fees and leave the more critical year end and tax functions to the accountant.

3. Use your summaries to create financial reports

Financial reports are the small business book keeping prize for having taken the effort to keep your books in order.

The profit and loss report and balance sheet are the terms everyone has heard, but you may also of heard of cash flow summary and ratio analysis. It is a general rule that the more customers, and inventory your business has, the better your business will be served by more comprehensive reporting.

For example they will help you understand things such as which products make you the most money, which customers aren’t worth doing business with, and which geographical markets really don’t pay for themselves.

In summary, keeping a good set of small business financial books, will more than pay for itself with what you learn about your business, and will give you the power to make decisions in confidence that will improve your business profitability.

Small Business Valuation

BusinessValuationGetting to the valuation before the negotiation

Using a commercial finance specialist to source and arrange your small business loans will give you access to a wider range of finance sources than any one bank can offer.

Once you’ve learned a few small business valuation principles computing your own valuation based on some subjective assumptions is not as difficult as you might believe.

While facts are irrefutable, there are subjective judgements to be made by you about your required return on investment, and external market factors that are open to interpretation, that may ultimately determine your valuation outcome. It’s best in fact to come up with a range of valuations – good value, OK, and Oh that hurt’s.

If you’re seriously considering buying a business, some of the wisest words I’ve heard were, “Before you enter into any negotiation, write down the maximum price you are prepared to pay, and if you can’t get below it, walk away.”

Once you’re happy with your small business valuation(s), the trick is in convincing the other side of the transaction to see eye to eye with you on your decisions about those assumptions, and that’s where good negotiating skills, and creativity come into play.

This is where the money is to be made or lost in a business transaction, and why it pays to take good advice from a qualified small business valuation professional in your area of the world

So what about some key business valuation principles?
Going Concern Principle

Before you start applying any business valuation method, you need to consider whether the transaction is going to be treated as a going concern or not. But, what is going concern I hear you ask?

An analogy would be to think of the business as a car. A car that is a going concern, will continue to provide many years of reliable service, and happy journeys, providing that it’s looked after and serviced appropriately.

A car that is not a going concern is a wrecker. What it’s worth to you, is what it can be broken down and sold for. It may be worth patching up, but unless you’re an expert, this could also mean throwing good money after bad.

Instinctively you know which car is worth more. The one with the road mileage left in it. A business is no different. A going concern business is worth more than a going/gone bust business.

Thinking about a business that cannot continue to trade though brings us around to the second principle of small business valuation:
Assets Based Approach

As soon as you start to think about the break up value of a car, you’re thinking about taking it to pieces and independently assessing the most valuable components on an individual basis, who they could be sold to, and the used value they might fetch in the classifieds.

There is absolutely nothing wrong with this approach in business. To identify each of the assets of the business, and appropriately value them.

This is where it becomes subjective. Not to mention that assets being sold in a distress situation are always worth less than when you can take your time and find the right buyer.
The Concept of Goodwill

In finance and accounting terms, goodwill is defined as the excess of price paid less the assets of the business at fair value (the value they can fetch in an open market).

Hmm. Back to the car analogy. When you buy a car you can drive away in, you place some kind of value on the freedom it will give you, that it has been serviced regularly by a dealer, that the owner was a little old man who only used it three times a week, and washed it every weekend. That’s goodwill.

In a business, you have to think differently about goodwill that will be recognised when the transaction happens, and the economic goodwill that the business has in terms of it’s customer relationships, intellectual capital such as patents, brands and their value etc.

They’re pretty intangible things, and difficult to value without subjectivity. Each of the different small business valuation techniques has goodwill within it somewhere even if not explicitly recognised.

For UK companies there is a great article written here by

Small Business Loans

SmallBizLoanMaximizing your application chances

Business owners in the U.S. and Canada use Commercial Finance Brokers to source their loans much more than other territories.

Whilst not as well known in other countries (In the UK for example, 70% of business owners go first to their bank – M&A March 2003), they are to be found if you look for them, and using one will be a great help in increasing your chances of finding a suitable loan, and in fact any other kind of small business financing

You may also want to consider a private business loan from family members, or seek funding from an angel investor (who would generally be more interested in equity funding). Though seldom used, these untapped sources are at least worth a try!
9 things you must do to maximize your chances of obtaining a small business loan

To get approval for your loan application, you must be able to meet the lending criteria set down. Some organisations are more risk averse than others, and will therefore have more stringent criteria. To vastly increase your chances of a successful funding application, you will need to present the following information.

  1. The reason for the loan. The lender will be looking for something that fits within the normal range and expertise of your business. The amount may cover a number of items, so you will need to cover each.
  2. The amount required, and the repayment term of the small business loan you want. (e.g. $10,000 term 5 years, payable quarterly).
  3. Details of how you will repay the amount borrowed. For example, “From the increase in profits of reduced running costs of the Whizzbang Go4It and ongoing business cash flow.
  4. Details of security you will be able to offer to the lender. This will act as reassurance for the lender. If you’re not prepared to put up some aspect of security, then why should they?
  5. You will need to include your business plan which will serve to answer essential questions relating to management capabilities, information about the market in which you operate, and the kind of business you are etc.
  6. 3 Years financial statements. You will need to present quality financial information from your small business book keeping software, preferably signed off by your accountant or tax advisor.
  7. Latest Set of Management accounts. Again produced from your accounting software.
  8. Accounts receivables (debtors) and payables (creditors) ageing reports.
  9. Principals financial statements. – Particularly required if some form of security is necessary.

If you are a new company, the emphasis is going to be on your business plan, and the security (also called collateral) you or your business can provide against the loan.

If you are currently relying on your accountant to provide you with the information outlined above, I recommend that you make a small investment in small business book keeping software such as Accounting software will prepare the necessary reports from your data entries, and also helps you reduce the amount of time the accountant needs to prepare your statements, which should reduce their fees, more than paying for the investment.

You must take the time to practice presenting your business loan proposal to iron out any glitches. Practice on your colleagues and family (you never know, they might be so impressed, they’ll invest or lend!)

It will also help if you role play the lender and come up with as many objections to accepting the deal as possible. The more time you take the better your chances will be. (But Remember don’t fall into the analysis paralysis trap!)

One of the reasons why using Commercial Finance Brokers to find you a Small Business Loan is on the increase is that they are experts in packaging your request and searching out a lender that is interested in your kind of business.

They will save you the time and hassle of pulling all the information above together, leaving you to get on with running your business.

Check out the below video for further information.