And we assume that you want to make some money at that point, right?

Hopefully you will have identified what you wanted in the end and have structured your business plan to deliver that – that you haven’t just got yourself stuck in a cycle of doing the business to survive and haven’t acquired any capital, equity, or saleable value.

In addition, the formal structure of your business may limit the options available to you.  Your Memorandum and Articles of Association may limit the business activities so much that potential investors or buyers could be restricted.

Wider options that should be available for you to consider are:

• Selling on the Stock Market or ‘going Public’
• Passing the business on to a family member or successor
• Taking a non-executive role whilst retaining part ownership
• Selling the business

There are implications on all of these so inform yourself.  For example you can request a hard copy of Succession Planning in Family Companies here and reading through some of our other blogs can help you move closer to other options that require business planning and evaluations.

It’s a common occurrence and one that belies a greater problem, that you are too busy doing the business to manage the business.  We have written on this subject before – the multitude of jobs and tasks that you need to perform as a new business owner, and book-keeping can be one of the first tasks that you simply have to pass on because you don’t have the time any more.  This is the beginnings of your wider business team, an intricate network of people that can plug in their expertise and networks for the further benefit of your business.

So why do so many business owners fail to keep building this team?  Yes there are financial constraints, but if you view it as an investment to be able to hand over tasks to another person so that you can:

• Renegotiate your supply chain prices
• Go and land that corporate account
• Identify a part of the market that is untapped and implement a strategy to own it

Doesn’t this all create more income or profitability for you?

Ask yourself these questions, and if any are ‘yes’ then you should take a long hard look at your business plan and decide whether or not someone else can do a part of the job better, cheaper, or quicker:

• Is it fair to say that I don’t know my hourly rate?
• Do I micro-manage?
• Do I want to grow my business but there aren’t any more hours in the day?
• Do I spend most of my time with customers and little time in developing future business?
• Am I only just getting by?

Sometimes downsizing or bringing tasks in-house is right, but if in acquitting those tasks you are not delivering a key aspect of your business’s needs or the role of Business Owner – move over, let someone else do it, and reap the benefits.

Debt financing this is what you borrow and can be expected to be repay over the lending period.  Your bank or lender will want information on your profitability (see our blog on Ratios) so that they can assess the risk and reward related to likely future profitability.  If you have to provide security for your loan, your personal financial and credit history will be assessed.  Unlike equity financing, debt financing does not transfer ownership of your business – you retain control.

Equity financing can be public or private.  Public equity comes from floating on the Stock Market andoffering shares in exchange for capital.  Once your company goes ‘public’, investors buy shares of your company and become shareholders. They are repaid through profit sharing mechanisms such as dividends or when the stock is sold.  Private equity comes in many forms (see our previous blog here) such as friends and family, angel investors and venture capital.   Angel investors provide capital to start-up companies in exchange for partial ownership and control of the business.  Most new businesses obtain their first round of financing from angels, who make up 5-10 times the numbers of institutional venture capital organisations.  Venture capital businesses (VCs) have large amounts of capital and seek out companies in which they can invest in exchange for a share of the ownership in the company and some control of the business.   Venture capitalists typically invest in amounts greater than Angels.

A major difference between equity and debt capital is that equity investors expect a far higher return because of the greater risk involved, remember that they have no claims against the assets of you or the business so are not guaranteed repayment.  This means that equity investors investing in your business are likely to expect 20% to 50% returns.  Think of the negotiations that you regularly see on Dragons Den.

To make your business attractive you need to enhance the following aspects:

• Industry experience and success
• Potential growth
• Proprietary technology, patents or other barriers to entry
• An exit strategy within a reasonable time frame
• Your knowledge of your numbers

Three Steps To Take To Make It Happen

First Step – Develop a business plan: see our blog on this subject and this helps you build a valuation on your business

Then – Networking: the best way to expose yourself to potential investors is to be out there doing business and putting yourself in environments where there are likely to be higher levels of people or businesses to invest – such as Seminars.  Your Solicitor and Accountant are great places to start to make important first contacts, rather than a straight cold call.

Finally – Key Questions for A Potential Investor:

• Do they have knowledge as well as capital from which the business can benefit?
• How does the control and decision making become affected by shared ownership?
• Can they provide additional capital if necessary?
• Do they have a good reputation?
• Will they stay the course of business fluctuations or bail in the bad times?

Remember that all enquiries of this nature are going to end up as a negotiation before you can come to final decisions on either side.  Finding the right investor may mean that compromise is made on both sides, but that is a good indication of a strong and balanced working relationship.

1. Look at paying a bonus that does not take the Director in to a new tax band

2. Reduce Corporation Tax with salaries and bonuses that usually attract Corporation Tax relief (dividends do not) so , if the company pays salary or bonus, its taxable profits will be reduced and it will pay less Corporation Tax

3 Know the difference in personal rates of Income Tax on Salary and Dividends – Directgov has a useful site:

Dividend income (2010-11)                                   Div Tax      Income Tax

at or below the £37,400 basic rate tax limit                10%                        20%

at or below the £150,000 higher rate tax limit           32.5%                    40%

above the higher rate tax limit                                           42.5%                    50%

4. Make a Director’s Loan and receive Payment From Director Loan Account

Remember Dividends are paid out of profits after corporation tax has been paid so Dividends never reduce the tax liability of the business. If you do plan to take dividends rather than salary, make sure those plans are within HMRC tolerances.

Individual Tax burdens vary, and you should also be looking to retain company funds in order to enhance capital growth.

If you want to talk about this in more detail, please do call us and we will be happy to help in the first instance and then suggest you confirm your decisions with our specialist Tax Accountant partners.

Of course not.  Why would they? After all, professional tender writers (well, the good ones at least) should cost you around £500-£1000 a day, even more for highly specialised sectors.  Considering that a tender can need around 7-10 days planning, writing, and evaluating – it is a big cost for a smaller business.

But consider the benefits.  A 7-10 day tender writing exercise is usually warranted for business that will be increasing your income by around £100k (as a guide).

Just like the House Doctor, that investment up front that is a fraction of the overall value when you get the money coming back in.

And just like the House Doctor, if you don’t sell – you find yourself living in a better house because of all the work.  Most business people are astute enough to realise that an expert outsider coming in to their business and reviewing it to see if it is fit-for-purpose within its sector and operating environment.  The cost of that?  Around the same day rate as a business consultant.  Tender writers should be exclusively focused on assessing your business in terms of being able to answer to a tender within your sector, and then presenting it in a meaningful way, that is relevant and defines what differentiates you and your business.

So you get a tender written that can win you oodles of new business, when you probably did not have time to write it yourself or from within your staff team, and you get the inside track on the health of your business and its competitiveness all in one fell swoop.

Sounds like a bargain to me.

When you look at tender writing services as an additional cost to your business, it can look like a high price, but on balance it is exactly the kind of investment that many businesses could be making, and reaping the many rewards associated with that.

The Capable Manager

But first, think BP.

With the explosion of social media use driven by technological advances and social behaviours, it can be very hard to hide from the wrath of the masses once there is traction on a story, opinion, or issue.

Think Cheryl Cole and ‘Gamu-Gate’ on X Factor in 2010.  Within a few short hours of the programme ending, ‘Hate Cheryl Cole’ was in the top three topics trending worldwide on Twitter.  Unsurprising then, that within the month Cheryl was appearing on Piers Morgan’s Life Stories and reminding us all that we loved her really.

Cheryl, unlike BP, was able to ride the bad publicity because she had already built up positive emotional capital within her audience.

Some business people are frightened to death of bad publicity, testimonials, or gossip about themselves or their business and they hide from social media use and guard themselves fiercely.  Do these behaviours sound familiar:

• They won’t tell you their name on the telephone or put you through until you state your business
• They are not on Twitter or Facebook, or sometimes even the web!
• They don’t smile when you walk in the shop
• They don’t make recommendations or talk about other businesses positively

But how do you find them to do business with when they are hiding under the bed?

You can welcome any publicity, enquiry, telephone call, and venture out in to your market whenever you want and without fear when you do these two things:

1. Do your business in an ethical way
2. Build up positive capital so that you can tip the scales if occasionally you make a mistake, don’t deliver, or if someone just plain doesn’t like you

Manos Schizas, SME Policy Adviser at ACCA (the Association of Chartered Certified Accountants) said that the Spending Review could have a marked impact on small businesses:

“Cuts to local government expenditure will have a knock-on effect for SMEs. The central Government procurement market represents about £26.6bn of business for UK SMEs. The Local Government procurement market represents another £34.2bn.

Even the ACCA as of October 2010 could only offer comment without clear impact statements.

However, instead of seeking an answer to ‘how government cuts will affect SMEs’ in terms of what exactly and specifically can someone tell me do, we need to look at the wider economics answer, because there is a lot of rhetoric out there.  One thing is certain – that this is the classic Economic Problem played out for real: scarity of means and unlimited wants.  There is less money, and we all want some of it.

There is only one answer, that the market will adjust itself, and a certain level of Darwinism will ensue.  The weaker businesses will fail, and stronger businesses will thrive in the gale of innovation that will follow when fundamental aspects change within the market.

Think of it this way: at a high level Home Office meeting of charity CEO’s about funding and their role in delivering to the government’s Social Exclusion agenda, one CEO stated that charities should be seen to be delivering central services and therefore enjoy the stability of long term funding and essentially become a part of Public Sector.

A dissenter stood up immediately and railed against this, saying that the one set of skills that charities have that sets them apart is the innovation required to build services and resources that deliver to the ever changing needs of grant requirements and social issues.  It was in this very innovation where their skill-set resided.  Making charities stable means losing innovation skills over time – much like the tone of muscles rarely used.  Charities MUST remain as an extension to central services in order to remain lean, flexible, and innovative. It is no different for any SME.

Keeping a hyena hungry will keep it fast and keener in a hunt.  Yes, if it fails in the hunt when it is really hungry – it will die of starvation, but it is the CEO’s job to ensure that the proper resources are applied at the proper time to deliver financial benefit without burning out the staff in the chase or leaving them too lean for too long and fail in the delivery of services.  That is a thought for another day about Risk and Resource management.

Anyone that tells you stability is one answer is speaking hubris.  At the turn of the last century at the meetings of the Royal Society it is said (without citation) that Lord Kelvin, he of ‘Absolute Zero’ fame declared the project of Physics to be complete.  The twentieth century, he declared, would be dedicated to filling in the details.  Within five years special relativity (and later quantum mechanics) reduced Kelvin’s alleged quote to an amusing footnote.

How will government cuts affect SMEs?  In a multitude of different ways, and the response required by us as business owners may need to be just as multitudinous. That’s the issue with economics.  Nothing can be for certain and the market will adjust itself from a series of actions that were prescribed by no one!

Niche Marketing can be a Market Development tactic within the pursuit of your overall strategy of creating a stable and profitable business.  If you are an accountant and you specialise in working with small, one outlet retailers in Grantham – you have your niche.  But then you can create another niche by taking that specialist service to another geographical area such as Lincoln.  THAT is a new niche.  Or, you could target another niche within your geographical area, say for example Garage Services in Grantham.

There are two key aspects to look at here:

• Have you acquired skills or success to transfer your product or service to that market?

• Is it easy to represent/market to your new niche?

The reason these are key is really an assumption that you want to minimise the risks and investment needed to open up a new market.  New markets need new marketing strategies such as:

• A new website address that will return a search result for that niche e.g. Accountants, Grantham or Accountants, Grantham, Garage Services
• Attendance at networking events where those business owners will be present
• Time to research and understand the needs of that niche by environmental scanning and reading of industry specific journals and blogs or websites
• Literature that reflects the needs, language, and skills needed in that niche

Which Niches?

 One way to view where your niches are is to use a map, and a little creativity.  Here is where your friends, family, and colleagues can help.  Think of it as an exercise to write down on a page all the different ways that you can develop your market by taking one step away from what, for whom, and where you currently do business.  Then, join them up with the market you currently operate in and along that line assess what would need to happen for you to open up that market, and more importantly how much business is there and is it profitable?

Bring the least resource heavy niches nearer to your current business, and you have yourself the headline of a new marketing plan.

The main lesson in this is that a niche can be as small or as broad as you define it to be, and will have a relevant density of competitors too, dependent upon its size.  Finding a niche that is untargeted and un-competed for is the like finding the Golden Goose.

If you want to apply the well known Ansoff’s Matrix, this is really a more formal kind of mapping tool which tells us which strategies we need to develop in order to do more business:

Ansoff's Matrix

For example, if you want a strategy to penetrate your current market i.e. do more business within your current market you will need a Market Penetration strategy, and so on.

Too Many Niches

In answer to the question how many is too many you need to ask yourself these key questions:

• Do I have the resources to develop a new niche market
• Is there a risk to the overall business if a new market fails
• Is the new market populated enough
• Is the new market profitable enough

If the answer to 1,3, & 4 is ‘yes’ and to 2 is ‘yes but it can be mitigated’ or ‘no’ then the only real question is this:

How much more business do you want?

Develop your business plan and realistically consider how you plan to finance your business.  Just like on Dragons Den, your bank expects you to know the basics before you walk in their door.

• Know what your assets are – lending will probably require security
• Personal security make you liable – don’t risk what you can’t afford to lose
• Understand the grants that may be applicable to your business sector by networking and seeking specialist advice from free organisations such as UKCeed

Through your loan application and any available returns if you are a current business, a Bank will start to make as assessment of the risk that the institution will be taking by providing you with finance.

If you are in a specialist sector such as Farming, there are usually experts within Banks in these areas, so make sure you get yourself one of these.  Their experience and networks make it easier for them to understand the levels of risk and provide excellent knowledge that benefits your business.

We all know a Banker within our networks, but you must ask yourself – do they know your business?

The Business Plan

Once you have your plan and it is in front of the Banker that you choose, they will be looking for this type of information to help them make their decision:

• Your expertise.  If you want to open a Consultancy, but you don’t have a qualification or experience, would you lend to you?
• Your financial plan.  Know your numbers and be assured that your projections will be measured against the industry standards for that sector.  If you are planning to buck the trend you need to have detailed information on this.

Sounds simple?  Yet budding entrepreneurs fail in this time after time and their loan applications are turned down.  If you think that lending is rare, surely due diligence in the early stages is a pre-requisite to increasing your chances?

The blog of local businessman Crispin Read has won a top award at the recent inafishbowl.com Awards event, held in Nottingham.

Crispin, part owner of Optimum Financials, which also trades under the name of 80:20 Financial Management, won the award for his blog ‘How to Write a Business Plan”.

The event, hosted by Daily Telegraph Enterprise Editor Richard Tyler, brought together business owners, entrepreneurs and the team behind the business reality website www.inafishbowl.com, which offers advice, case studies and resources to new business start-ups.

 “I am really excited to have won the award for ‘Most Useful Blog’” said Crispin, clutching his ‘Fishbowl’ award; “I hope that start-up businesses find the guide to writing a business plan of use.”

 80:20 Financial Management provides outsourced financial management to local, regional and national companies.

 To see the blog, visit www.inafishbowl.com/how-to-write-a-business-plan.