Here’s a nice article from inc.com on way to finance your business 10 Ways to Finance Your Business. Yes, it’s aimed at a US audience but is good summary for any start-up. Item 3 refers to getting money back from you taxes as an employee. This is also possible in Ireland (see here) under the Seed Capital Scheme. Not all options may be relevant to you, but it’s worth a read.
I’m in holidays at the moment, so I am taking a short cut by referring to another blog! SmallBusinessCan is a website set up by an Irish bank and other sponsors to help small business by giving practical advice through its network of users and sponsors and through regular postings. Here is a recent post from the websites blog. Controlling your cash flow provides 15 suggestions to help control your cash flow.
All businesses are finding it hard manage cash flow in the current economic environment. Even harder is trying to raise finance for a new business venture, for working capital or for expansion. Media reports seem to indicate that bank lending to small business is particularly difficult.
Let’s assume you do get a hearing with your local bank manager. You’d probably plan on being bombarded with questions and maybe even grovel to get the money your business needs. Why not turn this on it’s head? Why not approach a bank with a list of questions to ask? The first question would be “is your bank suited to my business needs?”. A simple question, but some banks just don’t deal with small business or particular sectors (even in good times). Christine Lagorio (Inc magazine) writes eight more questions like this (9 Questions to Ask a Small Business Lender) with the help of Bob Seiwert, a senior figure in the American Bankers Association. The questions are (click the link above to read the answers):
Does the bank have any questions about your character?
Does the bank understand your reason for borrowing?
Is the amount you’re asking for reasonable?
What’s your cash position?
What are the risks to loan repayment?
Can these risks be mitigated without adding tough terms to your loan?
Do you think my company’s financials are strong?
Do you trust me?
Read the full piece, it’s really good advice.
As a small business, getting finance is always a big problem- even more so nowadays with poorer economic times. And let’s not say too much about the banks! An alternative funding source to get you off the ground might be crowd funding. What you ask? Well, the basic idea is to get a “crowd” of people to all provide a small amount of money to help start your business venture. So if you needed €2,000 to kick start you venture, could you get 200 people to “donate” €10 each – I say donate as they may not get any return from it. But where’s the crowd you ask? Well, social networking is the “in thing” nowadays it seems. You could use you business and social networking contacts as a start. If this is not sufficient, there are some websites out there you may help. Kickstarter.com is one such site ( here’s a recent piece from inc.com “How to Use Kickstarter to Launch a Business“. While such site are in their infancy and may still be more common in the US than Europe, don’t rule them out straight away. Crowd financing may be a viable answer to those smaller one-off ventures, but you know what, sometime these turn into a great and booming business.
One of the most common issues in small business today is cash flow. As sales decrease and consumers have less cash, smaller businesses are finding it difficult to get paid in some cases. I have spoken to 3 or 4 small business owners here (in Ireland) in the past week or so and while they are all “ticking over”, they all recounted difficulties in getting paid – none are cash only businesses. Some are sailing quite close to the wind with their bank overdrafts. Trying to live within the overdraft limit can become a daily task. And of course, it’s a viscous circle and both suppliers and customers are often experiencing similar cash flow issues.
To relate the kind of problems businesses are facing, and maybe you’ll get some help here, read the 5 blog posts by Paul Downs in the NYTimes. He has a small cabinet making business in Pennsylvania. Yes, ok it’s a US example, but the problems are the same as those in Ireland and elsewhere in Europe at the moment. Here’s a link to the first post from a week in Paul’s business.
Links to the other four posts follow on from the above link.
Jennifer Hughes writes an interesting piece in the Financial Times (London) which reminds us of one of the basic concepts of the accounting world – “true and fair view”. The recent investigation into Lehman Brothers revealed how $49billion had been “moved off” the balance sheet in 2008, a move which was supported by the now defunct banks’s directors. And we don’t have to look as far away as the US – what about Anglo Irish Bank moving (was it) €6billion in to and out of its deposits at year end to make things look nice. And, as Hughes says, this kind of thing has happened before – she cites the case of London & County Securities back in 1973, who were up to the same sort of shenannigans as Anglo Irish.
Can we stop this kind of tom-foolery in accounting? Maybe not completely, but as Hughes says, a global set of accounting standards might help. Let’s wait and see.
I read this piece (http://bit.ly/aAKjUL) on The Economist” website recently. Some words from the piece struck me immediately. The words are “For all this to happen, banking regulations in many countries need to become more flexible”. Okay, if you read the full piece you’ll see I am paraphrasing to suit myself. BUT, what a contradiction. The developed world is in the throes of a severe economic depression because banking regulation was “light-touch”.
As this piece reports, micro-finance institutions are essential for farmers and small enterprise in developing countries. The majority of these institutions (approx 70%) only offer credit, but not savings products. Encouraging “micro-saving” may not be an easy task, but all banks need liquidity to survive and some should come from locally-held savings. So, on the face of it, deregulating to allow more micro-finance institutions (MFI) to take savings seems like a good idea. Let’s hope the lessons of scant regulation has been noticed by MFI’s. Or maybe it’s time for someone like the IMF to take a “real” global view of regulating the banking sector.
I had a guest speaker at one of my lectures recently. The talk was about accounting software, but during her presentation the speaker mentioned that accountants should be translators for their clients – especially to new small business clients who may not have much knowledge of accounting terms. This made me think about the role a good accountant should work link a language translator with clients. One of the key functions of accounting is to communicate information. But what happens when the language used to communicate is too complex to be understood without translation? Personally, I can speak both English and German quite well. While learning and using German I know that some things just don’t readily translate. On top of this, my German is not fully fluent, so I sometimes need to ask the speaker to slow down or use simpler words. Now think about what a small business owner or up-and-coming entrepreneur knows about the language of accounting. Let’s assume nothing, but they know things like how much money comes from sales, they have a pile of receipts in a drawer somewhere, they have an office computer, owe some suppliers and have invested a lump-sum in the business. To accountants these are:
|Business owner’s term||Accountant’s term|
|Money from sales||Turnover/Revenue|
|Receipts in a drawer||Expenditure|
|Computer in office||Non-current (fixed) asset|
|Money owed to suppliers||Liability -trade payables|
|Lump sum put in business||Capital/Equity|
So some advice to the accountant’s out there – be a translator if you need to be. Translate your jargon into understandable language for the business owner – especially new business ventures. Over time, both accountant and business owner will start to understand each others language.
A good business plan is something like a map in that it should help you to navigate to where you want to go. It is a necessity not just for you but also for potential investors or banks that may finance your business. A good business plan needs many things, one of which is financial projections for income, expenditure, capital and cash requirements of the business.
These financial projections will take some time to prepare. It’s worth it though as you need them to complete a business plan and tout it to banks and potential investors. You should first try to plan how much you can sell and at what price. Then, work out how much it costs to buy or produce what you hope to sell and any other costs. These plans won’t be 100% accurate, but they should be based on reasonable assumptions. You should also try to plan your capital requirements i.e. how much you need to buy equipment and other assets for the business. Plans for capital are very useful when approaching banks if you need to borrow to buy the equipment.
Finally, you should also include a cash projection in your business plan. This involves predicting when cash comes in to the business and when cash needs to be paid to suppliers, employees etc. This can help identify any cash shortages which might arise and plans can be made to rectify this.