Interview
Finance
Regulation
Forecast
Enter the dragon
Route one
Cleaning up their act
Scene setting
Entrepreneur and former Dragons’ Den star Doug Richards on UK investment in the UK | Page 5
What’s the best way to raise finance for your business? | Page 7
Industry reform could stifle the markets but prove popular with the public | Page 11
What would happen to UK business if the eurozone crumbled? | Page 12
November 2012 | business-reporter.co.uk
More than numbers How CFOs are coming out of the accounts department to lead companies Distributed within the Sunday Telegraph, produced and published by Lyonsdown which takes sole responsibility for the contents
Finance & accounting
Business Reporter · November 2012
2
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
Publisher Bradley Scheffer info@lyonsdown.co.uk
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Editor Ellen Bennett editor@lyonsdown.co.uk
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In brief
Best of the blogs
Production Assistant Fleur Hollett production@lyonsdown.co.uk
Who? The Accounting Onion What? Tom Selling’s excellent blog on financial reporting issues takes a US-focused view of current financial practice from the perspective of a current practitioner. Analysing current regulatory affairs with a healthy dollop of personal insight and commentary, Selling’s blog is valuable for businesses with US-based accounting operations. It says: The purpose of this post is to review a recently published monograph authored by former FASB Chair Dennis Beresford. To summarise, it supports the status quo for money market funds, and I want to explain why I think the reasoning and analysis leading to that conclusion is flawed, and hence potentially misleading. Where? http://accountingonion.typepad. com/ Who? BookMarkLee What? The BookMarkLee blog by Mark Lee is a UK-based news and analysis blog that focuses on issues affecting today’s accountants, from hints and tips on professional practice to personal anecdotes. Best suited to the business accountant, this blog is a useful resource to keep on top of the accounting world. It says: President Mark Spofforth reports on research undertaken by Oxford Brookes University that contains some
salutary lessons for anyone promoting the accountancy profession as a career choice: “Accountancy is boring, offers little intellectual stimulus and makes virtually no contribution to society…” Where? www.bookmarklee.co.uk/blog/ Who? Ian Fraser What? The widely published Ian Fraser, with credits including the Financial Times, the Sunday Times and Thomson Reuters, maintains an entertaining and informative blog focused mainly on UK banking. From hard-hitting opinion pieces to entertaining titbits about misbehaving bankers, Fraser pulls no punches in telling it as he sees it, while pulling together the best the web has to offer on banking and finance. It says: In a fresh outbreak of Mad Banker Disease, Barclays head of foreign-exchange strategy, Asia-Pacific ex-Japan, Olivier Desbarres has had to be ‘let go’ after an altercation outside his house in Singapore. Desbarres, who was hired from Credit Suisse last year… Where? www.ianfraser.org Who? The Financial Services Club Blog What? Chris S k in n e r ’s blog takes a deeper, more reflective look at the financial services industry in the UK and overseas. From attending a bankers’ fancy dress party wearing a Guy Fawkes mask and
an Anonymous hacker collective t-shirt to dissecting the unintended, and far-reaching, consequences of the American Dodd-Frank banking regulation act, Skinner tackles his topics with an insight born of years spent as chairman of the European networking group, the Financial Services Club. It says: It surprises me that banks rarely get lauded and applauded, it is far easier to critique and blast. A good example is the post Hurricane Sandy fall-out, where banks in the USA are doing everything they can to support hard-hit Americans. I didn’t see much about this in the news generally. Where? http://thefinanser.co.uk/fsclub/ Who? Finance and Accounting for the Rest of Us What? This YouTube video features interviews with accounting professor Richard A Lambert of Wharton College, University of Pennsylvania, discussing how the data collected in companies’ financial statements is an oft-overlooked yet vital management tool. Supporting Lambert is Stephen J Kobrin, a professor of business management at Wharton who discusses how these statements can be used as a central tool for informing business strategy and establishing proper benchmarks. Where? http://www.youtube.com/ watch?v=9944RMOqRqU
Business Reporter · November 2012
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What’s inside? Finance forecast 2.0
The economy emerged from recession in the third quarter of 2012, according to the quarterly economic forecast from the CBI and PWC. However, predictions for the fourth quarter were conservative, with the CBI foreseeing only marginal growth.
Manufacturing output
2.5
Household consumption
8 6
2.0
1.0
5
0.5
4
1.5
3
0.0
2
1.0
-0.5
1 0
-1.0
6
2012
2013
2014
Imports
0.5
3.0
2012
2013
-1
2014
Consumer Price Index
3.5
5
2012
2013
2014
Retail Price Index
Find the right funding route for you Page 7
3.0
4
2.5
2.5
3
2012
2013
2014
Unemployment rate
2.5
%
8
2.0
2012
2013
2.0
2014
Average earnings including bonus
10
£bn
2
2.0
7
Exports
7
1.5
Meet former Dragons’ Den star and celebrity investor Doug Richard Page 5
2013
2014
2013
2014
Net borrowing
8
6
1.5
2012
2012
2012
2013
2014
Meet the CFO of the future Page 8
2012
2013
2014
*All figures show year-on-year percentage growth, unless otherwise stated
How regulated industries are feeling the squeeze Page 11
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On the record
“
Well, I think that there’s a very thin dividing line between success and failure. And I think if you start a business without financial backing, you’re likely to go the wrong side of that dividing line. Richard Branson
“
”
Money is better than poverty, if only for financial reasons. Woody Allen
”
Back in the office: reading list
”
Priced at £16.99, this app is a fully featured doubleentry bookkeeping program for individuals and small businesses.
With thanks to the following organisation:
£16.99
The MBO Guide for Management Teams: Real-life lessons from 20 years in the front line of private equity by Andy Nash £42.50, Amazon
“
In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. Warren Buffett
Bookkeeping
Angel Capital: How to Raise Early-Stage Private Equity Financing by Gerald A. Benjamin and Joel B. Margulis £48.99, Amazon The Future of Finance: How Private Equity and Venture Capital Will Shape the Global Economy by David Rubenstein and Dan Schwartz £28.99, Amazon
Looking for a Funder, Investor, Lender or Adviser? We could be your new best friend. Matchmaking businesses with Funders and Advisers
Business Reporter · November 2012
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an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
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Potential for profit There’s still a lot of money to be made by investing in UK start-ups INDUSTRY VIEW
A
ccording to a recent survey conducted by Venture Giant, an online matching service that connects investors with entrepreneurs seeking to raise business funding, over 72 per cent of its network of private high net-worth individuals, UK-based millionaires and investors from the Sunday Times Richlist believed there was still significant ‘potential for profit’ by investing in UK start-ups over traditional investments such as stocks and property. This is a sentiment shared amongst business angels and investment groups.
so popular. Many people sitting on extra cash are now looking to invest in seed and early-stage investments as a result of low saving rates in banks, diversification from traditional ‘safe’ investments and the recent press surrounding huge buy-outs and pay days for early investors in many start-up companies. The average investor return into start-ups and established businesses has been an impressive 2.6 times the initial investment, according to a study conducted by the Ewing Marion Kauffman Foundation – which is an internal return rate of 27 per cent, similar to the average investor return rate seen by venture capitalists.
Significant return Business angel investors are private high-net worth individuals that choose to invest their own money and experience into unquoted businesses (£25,000 to £500,000), with the aim of achieving significant financial return from a potential exit via a trade sale of the business. According to Barclays Wealth there are now 619,000 millionaires currently residing in the UK and, according to some estimations, only 5 per cent of these millionaires would class themselves as full-time business angel investors. Angel investing in the UK has never been
Venture Giant – in figures
72%
of Venture Giant’s network believe there is significant potential in start-ups
67%
rise in investment proposals from businesses seeking finanace in the past year
£1m
worth of deal funding that Venture Giant has found
Making funding W happen
INDUSTRY VIEW
An online service is here to guide SME businesses through the critical journey of raising money
Now, with an expert team of professionals and a growing UK-wide panel of all types of
So how can a private individual access these potentially lucrative business investments in unquoted companies and start-ups from entrepreneurs? Venture Giant is a well-established online platform that enables potential investors to browse investment opportunities from some of the brightest and most talented entrepreneurs in the UK, looking to raise investment capital to help them start or take their business to the next level.
Increase in applications Given the current tightening of the credit markets for SMEs, it’s perhaps no surprise that Venture Giant has seen an increase in over 67 per cent of investment proposals over the past year from businesses seeking equity finance. Venture Giant has received more than 25,000 entrepreneur registrations, featured
funders and advisers, FundingStore assists businesses in four vital areas: How much funding is needed? More than likely a business will underestimate the amount needed to reach their business milestones. What type of funding? Debt or equity? Both? Where to look for the money? FundingStore has an easy to use search to quickly identify the most appropriate funders. How to best present their case? Montague says: “Think of it as a matchmaking service which combines decades of professional experience, database technology and the power and reach of the internet. “We are the only whole-ofmarket (debt and equity) facility and have a unique, free-to-use
e all know how much of a challenge it is in the current climate to source business funding. Although banks are lending (despite what you might read and hear) and equity providers (business angels and venture capitalists) are investing, the rules of engagement and attitude to risk have most definitely changed. Add to this a myriad of websites and potential funding sources, including new providers such as peer-to-peer lenders and crowdfunders – and it’s no wonder that businesses get confused and don’t know where to turn. This was the backdrop to the development of FundingStore.com, the brainchild of bestselling business author Nick Montague, a chartered accountant with Montague: over 20 years’ experience Decades of in the SME market. Nick professional and his partner Matthew experience Townsend spent 18 across the months developing and team testing the platform before the launch of FundingStore.com earlier this year.
Help at hand
“Anyone looking to invest in start-ups is advised to browse the opportunities listed on Venture Giant” – Anand
Potential investors can browse opportunities from the brightest entrepreneurs
over 1,500 investment deals and received over 2,500 investor applications to use its service. It has funded more than £1m of deals, including finding funding for www.London.com; a tech project set to become a heritage internet property for the tourism sector in the UK. Rishi Anand, managing director of Venture Giant said: “Investment capital may seem vitally important to an entrepreneur, but an investor’s experience, contacts and mentoring can make all the difference to a start-up’s success or failure.” Registration on Venture Giant is currently free of charge for high net-worth individuals and anyone looking to invest in start-ups is advised to browse the opportunities listed on Venture Giant. www.venturegiant.com
search engine which filters requirements using five important criteria.” The inconsistent quality of proposals and lack of filtering has long been a source of frustration for lenders and investors, and this is addressed with the FundingStore system, using an online submission and review process. Investors and lenders can choose to receive only those proposals that meet their own criteria. And if a business needs assistance, they are referred to suitable advisers within the FundingStore community.
Success story The FundingStore platform is clearly working. Ruk Bug, an early stage company that is launching an innovative children’s buggy, approached FundingStore for early-stage funding. The site successfully matched the company with a private investor who provided £100,000. Without FundingStore, this would never have happened as the company and investor were on different sides of the country. As with most things in life, we now turn to the web to find solutions. On FundingStore.com business owners in
Businesses get matched with funders and advisers search of funding can identify funding providers, connect with expert advisers and submit a professional proposal for funding on a site that goes beyond its matchmaking remit, with a portfolio of downloadable guides and a lively stream of educational content delivered via its blog and social channels. FundingStore is unique in its ability to unite these three previously unconnected audiences and is clearly on a mission to help UK businesses find the funders and advisers they need to succeed. That’s got to be worth a bookmark! www.fundingstore.com
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‘I’d rather make an impact than make money’ The charismatic former Dragons’ Den star on how he’s breathing fire into fledgling firms By Dave Baxter “Step into my office,” quips celebrity entrepreneur and former Dragons’ Den star Doug Richard as he motions toward a pair of leather sofas, slap bang in the middle of Bristol’s Colston Hall events venue. Looking every bit the outspoken Californian businessman in his grey blazer, pristine white shirt, dark trousers and a slightly dazzling pair of light tan leather boots, Richard is telling Business Reporter about start-ups, entrepreneurial dos and don’ts and his gripes around ageism. On an unseasonably sun-drenched afternoon, Richard is in equally bright spirits and a tad boisterous – he interrupts his interview to chat with a passing CEO, regularly wisecracks and tells the photographer a member of his (Richard’s) staff is “nicer to look at than you” during the photoshoot. Despite the unusual setting of a concert hall, this Cambridge-based expat is in his element: at the head of a whirlwind roadshow across the UK to promote the government’s Seed Enterprise Investment Scheme (SEIS), which involves hefty incentives – a potential 50 per cent tax break for certain investments, totaling up to £100,000 over a year – aimed at driving funding to young businesses. A poster boy for Britain’s entrepreneurial aspirations, Richard is the perfect man for the job: his track record includes founding and running several technology companies and he has a prolific history of investing in young businesses – including two series on Dragons’ Den – and more recently a stint as an agitator-turnedgovernment-guru on UK business policy. He has also set up the School for Start-Ups, showing people how to found and run businesses, as well as putting in regular appearances as a conference speaker. And boy, does he know how to talk. In between making jokes, expounding on “theories” he seems to develop mid-flow; telling people how tired he feels half-way through his epic roadshow, Richard confidently rattles out points on a whole host of different themes – starting with his old love, the plucky start-up. “I think that there are a series of points in the life of a business when funding is critical and very hard to get,” he begins.
Business Reporter · November 2012
Finance and accounting
5
“One of the hardest parts is at the inception-stage when you are least likely to attract investment, simply because the business is new and by its very nature is a fragmented enterprise. It’s hard for somebody to make a rational case for the business.” These difficulties have never managed to put him off entirely: he briefly loses his trademark cool when asked about his own sum of investments, blithely guessing that he has put “less than a million quid” of his own personal fortune into companies at seed stage – but he has certainly had his fingers burned. Gone for broke He once made the mistake – something he describes as a “haunter” – of giving up control over a successful business in return for shares, only for them to disintegrate in value and leave him almost entirely broke. But he admits blunders are inevitable for the budding entrepreneur. “Generally speaking it’s a natural artifact as part of being an enterprise that you are foolish in your business,” he says. “At the same time, you have to learn to be dispassionate – most young businesses die because they run out of cash, and they run out of cash because of good will.” And he has seen enough of his third-party investments either disappoint or flop entirely. He says: “I would say one out of ten of those businesses have developed really well. Because I invest very early on, a lot of things investors look for are not there and their forecasts are very unreliable.” He clearly likes to take a risk on potential winners but isn’t easily sold – and knows what he doesn’t like. “I was once pitched men’s Star Trek pyjamas,” he says, his eyebrows comically raised.“When I consider investing, I look at two things in particular: the first is the opportunity itself,” he adds. “Do a lot of people want what they could offer, and how deep is the problem? “Just because you have found a gap in the market doesn’t mean you have found a market in the gap.” Richard also unsurprisingly places importance on the person behind the business: do they have sound ideas about the product, the market for it and the risks involved? And he isn’t convinced good talent equals a good business, either. “Great people still run after bad opportunities,” he says. Good and bad start-ups will remain, but Richard is determined to focus on the wider issue of funding – he likes to talk at length, and speed, about financing opportunities. This includes crowd funding, where a project is launched online and people are given the chance to back it financially, and peer-to-peer lending, where predominantly small business groups loan money through a similar format. And, as this former Dragon is also well aware, there are the so-called business angels: wealthy individuals who invest, often in return for a share in the business, and the types most likely to benefit from SEIS. Groups of these, such as the Cambridge Angels which Richard founded, can offer crucial investment for start-ups. With banks bound by their nature to remain as low-risk lenders, Richard argues these alternatives are already making their mark. “If you are looking at the ones lending, they are growing blisteringly fast,” he says. “You don’t grow that fast if you aren’t meeting market demand. “It shows that something has gone right – it’s going to have an impact in changing the shape of finance.” So what remains of Doug Richard, the serial investor? While clearly highly enthusiastic – and experienced – when it comes to backing start-ups, Richard seems focused on the wider picture. “Around the time I turned 50 I decided I would rather make an impact than make money – if you look at the percentage of time I spend, I’m nearly 100 per cent working on social enterprises and social policy,” he says. “I want to be remembered by what I have achieved.” But when it comes to advancing years, Richard – who puts his own age at 54 – wants chances at entrepreneurialism open to all. He says: “There is an entrepreneurs’ loan from the government, but it’s limited to ages of up to 23 – I would want to see that extended to any age. There’s this desire to focus on ages – but we tend to have three or four careers, and I think that strengthens the case for age agnosticism.” And Richard is off again. When Richard is done posing for photos, it is hard to catch him before he melts into a crowd of adoring CEOs – and clear he has no intention of slowing down just yet.
Business Reporter · November 2012
6
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
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Teamwork starts at home Real change is possible when procurement and finance work together INDUSTRY VIEW
I
t may not be the most glamorous of departments, but procurement should be at the top of every CFO’s list. Its impact varies from business to business but procurement can account for between 30 and 80 per cent of company costs. Effective procurement manages costs with a range of measures, from managing suppliers to renegotiating contracts, to bringing efficiency and control in spending on anything from stationery and facilities management, to direct materials.
Meet expectations Most procurement departments work hard to effect cost savings, and diligently record and track these savings throughout the year. However, these savings often fail to be captured in reality so are not visible to the CFO or on the profit and loss at the end of the financial year. This is largely because the business is not compliant with the newly-negotiated supplier deals. To avoid this scenario,
world-class finance functions work remove them (or a proportion with procurement proactively early of them) from budgets on the in the process. basis that, if operational savings For example, if savings were to are not cut from budgets, then be generated from the nothing has changed. company’s marketing As a bare minimum, a Klein: lack suppliers, typically finance representative of compliance procurement would battle should be involved right is a major it out with marketing, from the start of any new problem for procurement which might be defensive procurement initiative in of its suppliers and budgets. order to have a full A smarter approach would understanding of where be for finance to impose a savings savings are expected so they can be challenge top-down, positioning properly monitored and recorded. procurement as the “good guy” who Companies need to have a can help realise the savings through thorough system of compliance renegotiated prices, rather than measurement to ensure the changes through a reduction in the amount implemented by procurement are of service received. It lies within applied. Often old habits die hard so finance’s power to position this is necessary to prevent budget procurement in a helpful way. holders going back to the old suppliers they used to deal with or Managing and measuring products they used to buy. Alex Klein, COO at procurement Finance should also support consultancy Efficio, says: “Lack of procurement on an ongoing basis, compliance is a major problem for by acting as the independent procurement and most companies auditor and enforcer of the savings don’t have strong processes for achieved by measuring and measuring this. But this is clearly an managing savings as they progress. area where finance can help.” Finance can also legitimise the Finance also has a role to play in savings by signing them off, and
defining, together with procurement and the business, what constitutes as a saving (for example, unit price reduction, cost avoidance, specification change). With these definitions clearly agreed upfront, there is less “wriggle room” down the road. Klein says: “Procurement and finance share the same objective, and are ‘on the same side’ when it comes to pushing through savings. In companies that have world-class procurement capabilities, the two functions work closely together in a ‘good cop, bad cop’ mode,
in pursuit of the common goal. At the end of the day, if finance and procurement are not aligned, then there is little hope of procurement working effectively with the rest of the business. Any procurement project needs to be cross-functional in nature, and the first step is for finance and procurement to get in the same boat”. www.efficioconsulting.com
See beyond the numbers There is untapped potential in many companies for finance business partnering INDUSTRY VIEW
C
hief financial officers (CFOs) and finance directors are being asked to add more value to the business. In an economy where profitable growth is hard to achieve, the key financial insights that can identify areas of value, and drive more profitable decisions, are in high demand. Many CFOs now recognise that finance business partners are in a unique position to help meet the challenge. A recent Deloitte survey of UK finance leaders, Changing the Focus of Finance: Finance Business Partnering, found that 83 per cent expect to increase these activities over the next three years, confirming there is still untapped potential in many organisations. If the finance function gets business partnering right, they become an integral contributor to key business processes – including target setting, forecasting, capital investments, risk management and governance. The benefits are clear; effective partnering can ultimately lead to better
business decision-making (according to 76 per cent of respondents), enablement of strategic initiatives (58 per cent) and improved financial performance (56 per cent). However, it is clear that for many, achieving these benefits presents significant difficulties.
Recognise the challenge To support and guide business decision making, finance business partners require a complex mix of internal and external information, and must bring together financial and operational data, some of which is not necessarily within the current reach of finance. Even when finance business partners have the right data they often spend significant time manipulating and checking this data, or producing reports that are of no direct value to the business. While technology is a key enabler of partnering, it can also be an inhibitor; over half the
respondents of our survey believe that their current systems are a major barrier to effective partnering.
Role and value To add value to a business, finance really needs to understand it. That need is driven both by the need for strong commercial awareness in identifying potential highvalue areas and “knowing which questions to ask”, and also by the need to speak the right language to set financial insights in a business context. However, it is clear that there are gaps in this communication – business stakeholders often struggle to understand the value of business partnering. Our survey found that 40 per cent of finance leaders have issues with business buy-in to a partnering approach.
On the agenda Finance leaders must set a clear agenda for
Over half the respondents of our survey believe that their current systems are a major barrier to effective partnering finance business partnering, aimed at the high-value areas. An effective way to get more buy-in to business partnering is to ensure this agenda is explicitly shared with the business – ensuring that finance business partners feel they have permission (and responsibility) to challenge in the identified areas, with a clear agreed mandate. Celebrating success when value is delivered, while addressing barriers such as poor tools or skills gaps, will help to build and sustain momentum, allowing the CFO to see beyond the numbers to become a strategic business partner and a catalyst for change. To find out how your organisation can deliver more effective finance business partnering, download a copy of the survey on our website. Malcolm Wilkinson is a partner and finance business partnering lead at Deloitte www.deloitte.co.uk/ financebusinesspartnering
Business Reporter · November 2012
an independent report from lyonsdown, distributed with the sunday telegraph
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7
Just go with the flow Find out the best way to raise finance for your business, whatever your size or capital
SMEs
Large business
Can leverage assets?
Short
Short or long term?
Short
Short or long term? LONG
LONG
Fixed assets (machinery, property) or current (invoice, inventory)
no
Willing to give up equity?
YES
no
Willing to give up equity?
CURRENT
Single or mixed funding?
Willing to handle own accounts?
FIXED
YES
SINGLE
YES
MIXED
no VENTURE CAPITAL
Venture capital (VC) is capital provided mostly to start-up companies. The VC fund makes money by owning equity in firms with limited operating history and businesses that are too small to raise capital, secure a bank loan or complete a debt offering. Venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership (and value). Other investors can include angels – individuals who provide capital to new companies in exchange for convertible debt or ownership equity.
ASSET-BASED LENDING
Asset-based lending (ABL) allows fast access to working capital by leveraging tangible assets, such as stock, plant, machinery and property. ABL usually has a minimum term of 12 months and is more flexible than traditional lending products, often used in conjunction with selling equity for big deals. The amount of finance grows in line with your assets to accommodate growth and changing circumstances. Asset-based lenders will evaluate a business, the experience of the managers, the financials, and the long-term strategy.
FACTORING
Factoring is much the same as invoice discounting, in that up to 90 per cent of invoice value is provided upfront. However, the collection of outstanding invoices is covered in the service and cannot be done without the awareness of debtors. Factoring removes the cost and administration of running the sales ledger, with factoring companies in charge of chasing late payments. Typically, factoring works better for smaller businesses and start-ups than large companies who already have staff in place to handle credit control.
INVOICE DISCOUNTING
Invoice discounting is a form of borrowing (short or long term) and is often used to increase a company’s working capital. Invoice discounting allows a business to draw money against its sales invoices before the customer has paid, which is done by borrowing a percentage of the value of invoices (usually 80-90 per cent) from a finance company to plug cashflow holes. Your business receives the remainder once your customer has settled the invoice. Invoice discounting facilities often go hand in hand with assetbased lending.
PRIVATE EQUITY
A private equity investment is made by a private equity firm but can also involve venture capital or angel investors. Each provides working capital for companies to allow expansion, new product/service development, or business/ management restructure. Capital for private can also be used to fund new technologies, expand working capital within an owned company, perform MBOs or acquisitions, or to strengthen a balance sheet. The majority of private equity investments commit large sums of money for long periods of time.
Business Reporter · November 2012
8
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
Making dreams a reality For businesses that have started from scratch, asset-based lending could provide a timely boost INDUSTRY VIEW
T
he traditional solution of getting a bank loan or overdraft is no longer readily available for many of today’s struggling businesses in need of working capital. In the first quarter of this year, high street banks turned down 27,000 applications from SMEs, equating to £1.3bn. Fortunately for entrepreneurs who have built their company from the ground up, there is an alternative solution. Asset-based lending is not a new concept; approximately 43,000 SMEs in the UK use it, but there is still little understanding around the benefits – such as flexibility, effectiveness and simplicity – of this solution. However, one of the problems is that many accountants and solicitors don’t recommend asset-based lending, simply because they don’t fully understand it. As a result, neither do businesses. But there is plenty of free advice available. “What’s important is that people understand that they can get help to look for these products in the market, at no cost to them,” says Amanda De Courcy, head of BM Structured Finance. “I work with a large number of businesses, showing them their options and helping them source the right funding solutions.”
Flexibility and freedom Borrowing against assets gives business owners flexibility and freedom. The guarantee on these loans is usually less personally onerous than those given to banks for an overdraft or a loan. Most importantly though, asset-based lending products can be tailored on a case-by-case basis, to suit individual needs. BM Structured Finance, working alongside BM Advisory, the restructuring experts, is the finance brokerage arm of the Beavis Morgan group, a mid-tier accountancy and business advisory firm with a long-standing client base. BM Structured Finance provides a free consultative service that offers impartial advice on all aspects of asset-based lending, led by De Courcy, below, who can speak from personal experience. “My role as a consultative broker is to understand the business and its financial requirements,” explains De Courcy. “We’ll go over various options and look at the most appropriate lenders, we’ll review their terms and conditions to ensure that the business knows what they are signing up to, and that they understand how to get out of the arrangement if they want to.” 020 7549 8003 www.bm-structured finance.com
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Business Reporter · November 2012
an independent report from lyonsdown, distributed with the sunday telegraph
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Finance and accounting
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What makes the perfect CFO? By Bonnie Gardiner Twenty years ago, the chief financial officer (CFO) was often just a quiet accountant – good with figures and an eye for risk, but not expected to run the company. These days it’s quite common for a CFO to aspire to be chief executive, and this goal is hardly unattainable. But how does the modern CFO go from simply doing the books to holding the most i n f luent ia l role i n t he organisation? It’s not just financial know-how that can help businesses become more sustainable, but rather a cocktail of corporate skills leading to a uniquely broad vision. A focus on finance Ever since the financial crisis struck, the response for most businesses has been to focus more on the financial variables, in order to accelerate the development of the CFO as a broader, more strategic role within a company. As well as being ambassador for data insight, investor relations and attitude to risk, their ability to adapt to new fields means CFOs have earned their place in the forefront of business strategy. Indeed, the role of CFO has updated from scorekeeper to strategic partner, with Les Clifford, partner and chair of Ernst & Young’s CFO Program, believing the job title is often misleading. “It’s not about the name, but what
they do. A lot of the traditional finance skills such as analysis, reporting and controls are still there and still very important,” he explains. “But they’ve now moved into much more soft strategic roles, looking at being an enabler for the business rather than just a controller.” To supplement the strategic process, a CFO must understand the ecosystem of the industry in which his/her company sits, identify the business’s strengths and weaknesses and target opportunities. All of this is on top of fundamental financial skills, strategy development, and people management, it’s increasingly common that finance directors are put in charge of areas such as IT, property, treasury, M&A, strategy and logistics. The perfect CFO Today’s CFO must be highly educated, highly skilled and highly motivated. According to research by Ernst & Young, the majority of CFOs today started as accountants and/or MBAs who went on to take up a financial role for a company before being promoted to group CFO. But the path is changing, with many companies looking for candidates who have experience across a number of verticals. “Apart from a strong financial background, another desired skill is commercial insight,” says Clifford. “Boards nowadays look for CFOs who have taken the option to actually step outside of the financial line and
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The CFO of today has been transformed from a quiet accountant to a boardroom-busting leader, adept in strategy and communication
have tried something purely strategic, such as M&A.” On a broader scale, international experience is highly favoured, particularly within the emerging markets. Leadership skills and the ability to articulate strategy is also a key driver for success. More than ever before, the corporate world has seen the emergence of leadership roles where communication and people management skills are crucial. CFOs who must develop relationships with various stakeholders and company departments, while also managing large teams and building diverse skills, are no exception. Major concerns No one expects the top finance job to be easy, because as group CFO, if problems land on your desk they are often the toughest – otherwise they would have been dealt with already. But aside from this influx of challenges, CFOs face their own unique woes. The key issue for many is making sure they have the financial platform they need in order to grow and build the business in any unforgiving economy. As a result, companies are reaching for alternative ways to achieve growth without investing a huge amount of capital. “CFOs see uncertainty in the economy and in the financial system as the biggest risk and dampener on spending and they’re responding to that by being much more cautious,”
CFO case study: Steve Nelson, 4Projects Steve Nelson, who has moved on from his CFO roots to become a non-exec, was named one of the UK’s top Finance Directors in a 2010 joint report by Directorbank and Grant Thornton. I was a chartered accountant and I’ve been the CFO of a few businesses; they’ve all been in the software industry – I’ve always enjoyed working with software. I’ve become more rounded than a CFO over the years, I’ve been COO as well, and right now I’m a non-exec for about five or six software businesses. I am also quite entrepreneurial and have
been with 4Projects since the beginning. For the CFO, it goes way beyond finance these days; you’re very much the partner of the CEO or MD. Economic conditions are as challenging as they have been in this professional career, and it’s
explains Ian Stewart, chief economist at Deloitte. “So aiming to reduce costs and building cash flow, focusing on defensive financial strategies and edging away from expansion and capital spending are all challenges faced by CFOs.” Spread too thin Lastly, there is the expectation that CFOs will take on part-time roles on top of their already growing list of responsibilities in order to gain
Your key to cash
never been more important to both look after your company’s finances and think more commercially and strategically. I have looked after IT, supply relations and the commercial activities within the firm. While anything that doesn’t neatly fall into any other silo tends to land in the CFO’s hands. My advice is to work hard, but work in an industry that you enjoy. There’s no point being a CFO if you don’t like the industry. Get out there and discover all the other functions. Communicate well – and be nice to people.
greater experience. However, they risk being labelled irresponsible if they neglect their executive duties. It’s no surprise then that many CFOs are strapped for time and subsequently rendered incapable, due mostly to the fact that they’re already spreading themselves too thin. While economic conditions remain unpredictable, there will be no simple answers for businesses – but the CFO, with their broad view of the business, should definitely be at the forefront of strategic debate.
Take our test
Most SMEs contain hidden cash. Does yours?
1
Do you know your monthly financial performance during the month?
INDUSTRY VIEW
2
Do you have good estimates of daily cashflows stretching months ahead?
3
Are you aware of the profits on each of your services/products?
4
Do you understand your break-even targets for a given sales mix?
5
Do you regularly use key performance indicators (KPIs) to take business decisions?
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ith regards to finance knowledge, most SMEs clearly grasp their historic sales, costs and profit margins. Hidden cash is simply additional money and profits available to business owners, which in the majority of cases lie unexploited because people often lack the time to do the necessary work, don’t appreciate the opportunity or aren’t trained in how to get it. Owners can access this hidden cash with
Altering the timing of future cashflows releases thousands of pounds in cash
the right financial knowledge. It’s not rocket science, but you need a trained eye to ensure your finance is working for you. You may already possess the data necessary for this.
How can you access hidden cash? l Directly take out cash: With a £1m annual turnover, reducing debtor days by two weeks allows you to permanently withdraw £20k cash from the business. l Increase profitability: Knowing underlying margins by product and service allows you to price more accurately, target your marketing better and remove loss-making lines or sub-contract them out to raise overall profits.
l Reduce the overdraft: Altering the timing of future cashflows also releases thousands of pounds in cash, thus reducing borrowing. l Deliver targets: Establishing a succession of appropriate and immediate financial targets provides a continuous focus and clarity necessary to deliver the long-term profit goals. l Take better decisions, quicker: Linking operational decisions with the relevant, forward-looking financial information improves focus and saves money, even if hard to quantify. 0118 934 9487 www.alphafinancials.com
Unless returning five positive answers, you have clear opportunities to enjoy higher efficiency, greater profitability and fewer headaches. Your input, however limited, repays itself many times over. Don’t miss this opportunity; start searching for your hidden cash now.
Business Reporter · November 2012
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an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
Find us online: business-reporter.co.uk
Open for business
WongaforBusiness.com customers Source: Wonga, Oct 2012
Online service offers quick, short-term loans for companies looking to expand or manage cash flow INDUSTRY VIEW
What are the problems facing SMEs looking for finance? Small and medium-sized businesses are the lifeblood of the British economy. According to the Federation of Small Businesses, SMEs in the UK employ more than 14 million people (around 60 per cent of private sector employment) and account for almost 50 per cent of private-sector turnover. Here at Wonga for Business, we believe it is vital to support these economic heroes and help them develop and grow. The saying that ‘banks only lend money to people who don’t need it’ seems to be ringing true at the moment, however, as Britain’s smaller businesses struggle to find funding. It’s a well-documented problem, but the financial crisis has massively reduced banks’ willingness to lend, hitting SMEs particularly hard. Young, entrepreneurial companies represent the UK’s best hope of a recovery. We speak from experience – Wonga is five-years-old and already employs more than 300 people.
What is needed to fill this gap? Capital is like oxygen for small businesses and access to finance remains a critical issue, but businesses are diverse and their funding needs are continually evolving. Traditional bank finance plays a part but it’s not the only answer. There is now a host of new lenders, such as crowd sourcing platforms , invoicediscounting operators and Wonga for Business, which fills the short-term finance gap. Traditional lenders still use outdated and often biased decision-making criteria to determine whom they lend to – and of course whom they don’t. The rigid products offered no longer fit the need for today’s modern businesses, which don’t operate on a nine-tofive basis. SMEs need access to cash fast, on their terms and around the clock.
What does Wonga for Business offer SMEs? Our aim is to support innovation and growth by making access to short-term funds as easy, transparent and flexible as possible. We do this 24/7 and in real-time, using our cuttingedge technology and data to make fast, unbiased decisions. We put business owners in control. They can choose exactly how much cash they want to borrow and for how many weeks they need it for, while we calculate the full cost of repayment. If they are accepted, the cash is transferred the same day and there are no catches, with fee-free early repayment available at any time. We are the short-term credit experts,
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having already provided over 6m loans to consumers while recording industry-leading satisfaction ratings, so helping SMEs is a natural and exciting progression. We are also a young, entrepreneurial company and we know what ambitious, hard-working businesses need to thrive.
How does Wonga for Business work? Wonga for Business is very straightforward. There’s a quick and easy online application process before an instant decision. For new customers it only takes around 12 minutes to apply and for existing customers it takes less than two minutes. This is the sort of ease and speed you cannot get with traditional credit. Furthermore, unlike a bank, we don’t require a business or marketing plan and owners don’t need to meet us face-to-face. Our unique service is objective and completely online from start to finish. Not only do we offer simplicity, we also offer complete transparency: customers know upfront exactly how much they are borrowing and how much they will be repaying – there are no hidden charges. We are uniquely flexible, allowing business applicants to choose exactly how much cash they want to borrow and for how many weeks they need it. Our business customers aren’t forced to borrow a fixed sum they might not need, or pay interest for longer than necessary. We currently offer business loans of up to £15,000 for new customers (and £25,000 for existing customers) for up to 52 weeks. The interest rate is 0.5 per cent and is charged weekly, equating to a 26 per cent AER. Most banks have a minimum loan term of one year, so if a business only needs to support its cash flow for a few weeks or months this is far from ideal.
What kinds of businesses have been applying? We support a wide range of businesses across the country, often the sort of local businesses seen on the high street. Customers include franchise owners, online retailers, estate agents, wholesalers, solicitors, high street retailers, hair and beauty salons, business service providers, restaurants and so on. www.wongafor business.com
Russell Gould: head of Wonga for Business
Wonga in figures l Founded in the UK in 2007 by Errol Damelin and to date we have processed over 6 million consumer loans on our Wonga.com site l Helped over 1 million customers in the UK solve their short-term cash flow needs l Our services are real-time, 24/7 and entirely online or via mobile l We employ over 350 people globally, of which 120 are in the UK l Products are all founded upon the clear principles of speed, transparency of pricing and control for our customers l In May 2012 we launched our first product for small businesses, Wonga for Business l This year we became the first ever company to be in the top three of the Sunday Times Tech Track 100 list in two consecutive years l In 2012 we also won Fastest Growing Company in Europe by the Media Momentum Awards
Business Reporter · November 2012
an independent report from lyonsdown, distributed with the sunday telegraph
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Is change for finance industry a good thing? Reform is coming. But it’s likely to cause a trade-off between stronger banking sector and economic growth
Finance and accounting
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“To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.” This is governer of the Bank of England, Sir Mervyn King’s (right) swipe at the UK’s bailed-out banks in a 2009 speech to business organisations – and he hasn’t been alone. The 2008 crash was followed by vocal calls – particularly in politics – for systemic safeguards to prevent its repeat. And with a slew of fresh regulation either in play or in the making, this goes further than hot air – legislation such as Basel III and Solvency II means real consequences for institutions such as banks and insurers, with knock-on effects for the surrounding economy. New regulation and accounting standards could prove stifling for markets, but there is the chance of better accountability, a more level business playing field and a financial system which, in theory, could better weather a crisis. Basel III – which officially begins to come into force in 2013 with a final deadline of 2019 – focuses on sturdier buffers for the financial sector.
Banks must hold enough capital to match 7 per cent of the value of risk-weighted assets. These are assets with ratings of risk – a mortgage secured with property may be considered low risk, while a letter of credit would be seen as riskier. And banks can no longer count certain assets – including pension fund assets and liabilities, and certain deferred tax liabilities – as part of this capital. They must also have funds ready for counter party credit risk, to cover any losses incurred if their credit rating worsens, and improved liquidity in case cash dries up as it did in 2008. According to Richard Barfield, who authored a book on Basel III, these other requirements mean the amount of capital needed is actually somewhere nearer 10 per cent. The regulations do offer some hope: with financial buffers in place, banks theoretically have a better chance of surviving a crisis without needing a taxpayer bail-out. But a new crisis could involve different challenges. The rules also make banks less likely to be profitable, and less likely to lend. Barfield says: “Additional capital does affect their ability to lend, and it also hits the appetite for investors to invest in banks. “Economic growth depends on confidence in the economy and the strengthening of the financial sector is an input into that.” Another major piece of legislation is Solvency II, which aims to eliminate disparities between insurers in Europe. They will be required to hold a certain amount of capital, in order to meet a Solvency Capital Requirement – the level needed to give 99.5 per cent confidence that assets will cover liabilities over the coming 12 months – and action will be triggered if it dips below this. Insurance groups will also have to carry out extensive risk management – this will involve examining and monitoring their business models and any company decisions for risks. And this information – tracking the state of the company and the possible risks and rewards of its actions – must be disclosed to the market. Solvency II’s other big drawback is that initial implementation costs for risk modeling are high because involves so much data. Charles Garnsworthy, who deals with insurance
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“Economic growth depends on confidence in the economy and the strengthening of the financial sector is an input into that” practice at consultancy PricewaterhouseCoopers, cites one large insurer which expects this to cost it “hundreds of millions of pounds”, though costs could be much less for smaller entities. But he also expects costs to come down after implementation, and for the regulation to bring real benefits to the market. He says: “This will enhance market disclosure and enhance investor confidence in the insurance industry.” The regulations will have a big impact – but whether this is proportionate is another issue. Barfield says politicians need to be clear about the trade-offs between a stronger banking sector and economic growth – but a climate of “bank bashing” has made sensible argument impossible. David Kenmir, a former Financial Services Authority board member, says: “Regulation has always been a bit of a pendulum – it swings but has had a pretty violent reaction this time. “This time the pendulum is probably the most violent it’s ever been.”
Basel III • Banks must hold enough capital to match seven per cent of the value of riskweighted assets. • Banks can no longer count certain assets – including pension fund assets and liabilities, and certain deferred tax liabilities – as part of this capital. • They must also have funds ready for counter party credit risk, to cover any losses incurred if their credit rating worsens
Saving scandal A new way for investors to beat inflation and avoid volatile markets INDUSTRY VIEW
S
mall businesses have faced major problems since the financial collapse, a fact frequently highlighted by politicians and journalists. But just as serious is the unsung crisis faced by savers and investors. The banking crisis is a disaster for anyone relying on investment income. Interest rates have been at a historically low level since March
financial markets are inherently far 2009 with no prospect of a more volatile than they have ever significant change for some been, involving much more risk years to come. This hits pension and less growth potential. funds, charities, businesses When combined with the and the many retired people difficulty in finding a fixed who rely on their interest on interest investment investment income. offer for savers capable of beating inflation, The FSA has responded those managing an by reducing the guideline investment portfolio face very interest rates for illustrating serious problems. pension benefits by 2 per cent, but not until April 2014. Meanwhile, the Bank of England’s Funding for Shift in lending Lending scheme, designed to Fortunately the new peer-to-peer make bank loans cheaper for (P2P) lending market represents a small businesses, has driven paradigm shift, addressing the down deposit rates even further problems faced by savers and because the banks no longer have borrowers, replacing the banks to attract savers. with a low-cost alternative The financial services industry delivering secured business has changed fundamentally. The loans far quicker and offering
11%
very attractive fixed interest rates. One might assume that any new investment class offering security and 11 per cent fixed interest must involve high risks, but in almost two years of operation ThinCats.com has made 65 secured loans amounting to over £10m – without any losses. It will take a few more years before P2P lenders have built up a sufficient track record of stability and high returns for the dinosaurs in the financial services industry to realise that they have been outflanked by a new breed of leaner, fitter operators who have
their customers’ interest at heart. Now that is a radical idea! Kevin Caley is managing director of ThinCats www.thincats.com
Business Reporter · November 2012
12
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
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What would happen if the eurozone toppled? The ever-increasing threat of bankrupcy and financially crippled countries through the continent may create waves of woe that could head towards our shores
Fast forward six months. Imagine Greece has left the eurozone, and many hundreds of miles away, in the UK, a small business with no links to the continent has been left bankrupt. It’s a nightmare scenario – but it could happen. One third of investors expect at least one country to leave the eurozone shortly, according to the Sentix research group. And when that happens, businesses looking for finance, or those with cross-border trade agreements, could find themselves suffering the consequences. There is already a squeeze on finance in the UK – the Ernst & Young ITEM Club research group recently predicted corporate lending would shrink by 4.6 per cent in 2012 – but it could get worse because UK banks are dangerously exposed to Europe’s weaker economies. In the summer Barclays, HSBC and RBS published figures showing they had a joint exposure of £10.5bn to Spain alone, as of June 30. If Spain or any of the other PIGS nations defaulted on its debts, this could cause the banks to lose money and tighten up lending, as well as dampening general investor confidence. Look after yourself Businesses looking to raise finance would do well to conduct due diligence on banks or other potential funders, such as private equity groups, in terms of their exposure to eurozone fall out – because those with substantial exposure are likely to cut back on lending if things go wrong. Companies with existing finance agreements should check their creditors’ exposure and whether the terms of agreement cover a euro disaster. Companies should also have a good look at the exact basis of any dealings they have with firms in the euro zone, because cross-border contracts are full of potential pitfalls. One major issue is the risk of redenomination. he ng t taki nsure u o e y Are teps to afety? ts ss righusines b
Seven steps to safety British businesses must act now to mitigate the risks of the euro crisis
more specifically, our largest trading partner, Europe. One of the major factors affecting the fate of Anglo-European trade over the next year is the swings we are likely to see in currency markets – swings that could very quickly see the colour of a balance sheet turn from black to red. Over the course of this year alone the sterling/euro rate has moved by nearly 10 per cent. INDUSTRY VIEW Margins are tight, and many businesses could find profits eroded or find themselves losing money because they have not ith the consistent fluctuation in sought to properly understand and mitigate borrowing costs of the so-called the impact that currency could have on PIIGS (adding Italy) and the games their business. of brinkmanship that have dominated the As a trader, I speak to people on a daily financial press over the past year, it is no basis to grasp exactly how foreign exchange surprise that many financial analysts see the affects their business and work with them to situation coming to a head in the not-toomake sure that, at the very least, we are distant future. protecting their bottom line. Only then can Whilst I have no intention of being a we look to drive further efficiency by harbinger of doom, there are very real making the most of volatility and risks that threaten the global economy. positive market movement in order to But there are steps that UK businesses capitalise on windows of can take to protect themselves from opportunity. a more severe downturn Here are some basic advice in mainland Europe. points that I regularly give to my It has long been known that rate that the clients, which may help you and the UK is more of an importer sterling/ euro your business: than an exporter. The service rate has moved l Crunch the numbers: Work out sector accounts for more than this year how much a single percentage 75 per cent of our little island movement in the currency market can nation’s GDP, meaning that the affect your profit margin. majority of goods that we consume so l Set a realistic budget rate: Do not put voraciously come from the rest of the world,
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10%
Don’t buy into complex derivative products if you don’t understand them yourself in a position where, due to the smallest market move, you could risk making a loss. l Be realistic: The market will always do what you least expect, when you least expect it, so be realistic about what is achievable in the current climate and don’t be greedy. l Keep it simple: Don’t buy into complex derivative products if you don’t understand them. l Lock it in: Don’t play fast and loose with your company finances; if you are in a position where you can hedge yourself and lock in profit, do so. l Speak to an expert: An independent currency specialist can help you to objectively understand your exposure. It may sound like I am stating the obvious, but I am no longer surprised at how often these basic principles are ignored. If you stick to these seven simple rules, your company’s exposure to currency will be well managed. Daniel Jack is a senior trader at Monex Europe 020 3475 4910 www.monexeurope.com
Business Reporter · November 2012
an independent report from lyonsdown, distributed with the sunday telegraph
Like us: facebook.com/business-reporter If a country were to leave the euro and return to its former currency, companies could be forced to deal in that currency. And if a company holds credit or expects to receive payment from a partner in the affected country, this money would be paid in the replacement currency. It would then be up to the UK company to exchange it – probably at a significantly deflated value. Roger Bayly, transactions and restructuring manager at consultancy KPMG, says: “People are looking at currency risk a lot – if I’m holding euros, what’s the risk of my currency? “You have got a big issue one way or another, because the country that leaves will probably devalue quite substantially.” There is also the risk that a firm in the eurozone is suddenly unable to honour its agreements in terms of either a service or payments, because its operations are disrupted or it becomes insolvent. Examining and renegotiating contracts is a good way to prepare for both of these risks – companies could specify what to do in the case of redenomination and even decide in advance which currency to work in, but they could also agree on business conditions for the event of a euro zone withdrawal or even a euro collapse, and look at how the UK company could recoup any losses owed to it. Bayly says: “Some people have already renegotiated their contracts into a currency that isn’t euros. “If you have got a customer or supplier in a country that departs the euro and you want to continue operating with them, you are likely to renegotiate.” As a recent Slaughter & May document – Eurozone Dos and Don’ts – points out, companies need to check whether their current arrangements cover counterparty risk, as this could account for a cross-border partner’s collapse or inability to
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One third of investors expect at least one country to leave the eurozone shortly deliver– as well as other issues arising from a euro catastrophe, such as market risk, liquidity problems and redenomination. As with the legal issues around cross-border contracts, this can differ on a case-by-case basis and needs to be closely examined. Dangers ahead According to Deloitte’s Euro Crisis Group notes, companies need to identify any potential risks they are open to: if they are dealing with euro zone businesses, redenomination risk and counterparty credit risk are potential issues, but other dangers include a new volatility in financial markets, a serious disruption to supply chains and, as above, a looming liquidity crunch. It is important to avoid or pre-empt any pain beforehand: if a company has operations which need refinancing it could do this early while it is still a definite possibility, and any exposure to Europe – such as investments with eurozone companies – needs to be reviewed and potentially reduced. Another key area to focus on is business continuity – with supply chains, steps such as finding alternative providers can help you avert disaster, and training staff for the possibility of a euro crisis would make for a smoother transition if worst comes to worst. If the euro collapses or is hit by a withdrawal, the effect could be disastrous for even the least connected UK firm – but by taking a few steps, you can avoid being a victim.
What companies can do, here and now • Check your risks – look at any investments or assets you have in the weaker eurozone countries, and reduce this exposure if possible.
• Bring forward any essential refinancing plans and sort this before a potential liquidity crunch hits.
• See what kind of exposure your partners are facing – from customers to suppliers and financers – and consider whether you can find other alternative partners or spread your risk by finding extra organisations to deal with, such as additional suppliers.
• If you rely on a well-oiled supply chain, think about stockpiling materials which may be short in times of disruption.
• Pick through the terms and conditions of the contracts for both finance and trade agreements and see if any amendments are necessary to make these more robust.
• Put together a contingency plan for how to operate in a crisis and train your staff on their exact roles in this. • Upgrade your IT and administrative systems to cope with anticipated changes – such as dealing in a new currency.
Money too E tight to mention?
receiving a loan from us takes less time than it would take to drive to your nearest bank branch.”
INDUSTRY VIEW
An online loan company can provide instant financing for e-commerce business owners
ZBOB, a hi-tech financing institution, is changing the way customers interact with their banks and the way small-business owners can obtain the capital they need to grow their business. EZBOB offers a refreshing solution for companies in search of financing. Its entire application is web-based and takes less than seven minutes to complete. The process is simple and fast; funding decisions are instantaneous with money arriving in a business’s account within 30 minutes or less. David Cameron recently stated: “This government is determined to back all Application those businesses who takes less than aspire to get ahead... In the current climate, viable businesses can struggle to get the minutes to complete finance they need.”
This summer, EZBOB launched its financing platform, specifically offering loans to eBay, Amazon and PayPal business users. “Our system is scalable. We are in the process of forming partnerships with companies and data providers that can offer us the data we need so that we can get a broader picture of a business applicant. “For example, a business may have a corner store, an eBay store and also be selling products on
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Flow of funds With a strong backing from elected officials, the government has initiated several schemes geared towards increasing the flow of funds to small business. Still, small-business owners find it extremely difficult and time-consuming to obtain any sort of financing.
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Instant decision
his own e-commerce website. Since our risk analysis only allows us to provide finance based on what our system sees, the more data sources we connect to, the more financing we can make available to a business. “In early 2013 the company intends to open up its offering to the entire SME market, including offline businesses,” says Tomer Guriel, CEO of EZBOB. “Our application and decision process is 100 per cent automated. Applying and
Proprietary software allows EZBOB to gather data online in order to analyse a business in real time; there is no need for paperwork, meetings or telephone calls. The lending decision is instant. Once a customer agrees to the terms, he simply clicks “get cash” and the money is transmitted to his bank account,” adds Guriel. According to research by the University of Surrey, ‘not only do banks not provide the capital required, they seem to know very little about what [small] businesses need.’ EZBOB loans are customised to each small business independently using a proprietary risk algorithm based on hundreds of data points. “We want to make sure a business can service its debt and be a returning customer,” concludes Guriel. Business owners in need of financing should see what EZBOB can do for them. 020 3371 1843 www.ezbob.com
Business Reporter · November 2012
14
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
Find us online: business-reporter.co.uk
A neat financial package
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s les ha 00 ,0 ce Wa Finan ested £750 s tly inv isherie recen Channel F in
SMEs can realise their growth potential with confidence and the right funding solution INDUSTRY VIEW
T
hriving small and medium-sized businesses (or SMEs as they’re often called) are said to be pivotal to the UK’s economic recovery, yet their confidence remains fragile and the funding they need to achieve success seems elusive. With no sign of bank lending restrictions lifting anytime soon, alternatives may appear to be few and far between. However, there is an institution that has been pioneering SME investment for over 10 years and today it’s one of the UK’s largest regional SME investment companies. With funds of nearly £400m under management and a refreshing approach to investment, the Finance Wales Group has capital available for SMEs with sound business plans and the confidence to match. With investments of up to £2m a round on offer at all growth stages and the potential for follow-on rounds, the Group has already built a portfolio that’s a healthy mix of debt, equity and mezzanine investments.
and timelier investment decisions. “If a business has realistic plans to grow and our staff want to back them, we encourage them to structure an investment to suit. The right deal structure can have a huge impact on future success and also act as a catalyst for other funding,” he says.
Short and long-term backing
Finance Wales can also be flexible in how it backs SMEs, considering short or long-term solutions, and has recently been involved in an increasing number of short-term project funding solutions. A good example of this is its £1m investment together with Barclays in SystemGlaze, a division of BSW Group, to fund an international contract that is expected to be completed in the spring of 2014. “Where a business is winning new contracts, it needs as much support as it can get. This type of funding would be too risky for some, but we’ll look at their capital requirements to come up with a suitable package,” says Wright. By contrast, Finance Wales invested three It’s all in the structure rounds in Unite The majority of SMEs approaching the Technologies Group apply for a loan and almost over a 10-year always underestimate the amount of period. This investment they require. Finance backing Wales prefers to review a underpinned company’s business plan on an Unite’s individual basis to get a good idea transformation from a of the true funding requirement. A lot product supplier to a of SMEs warm to this pragmatic high-value solutions provider approach. and saw it grow into a £7m Investment director Peter Wright explains: company with a list of blue“A loan may be the right option for some, but chip clients in the financial, we encourage businesses not to pre-judge telecoms, broadcast and retail what they need. We prefer to look at their sectors. This investment also resulted in a particular requirements in detail and come up healthy 2.4X return on Finance Wales’ total with a funding package that suits these investment when it sold its stake in requirements. By doing this we can be Unite to US-based acquirers, the confident that they’ll have a better chance of Panduit Corporation. success because we’ll have considered the Wright explains that Finance suitability of other options, such as equity or Wales is happy to be a long-term mezzanine.” backer because an SME’s growth It’s for this reason that the Group has also journey can have ups and downs brought decision-making closer to the front and sometimes take longer than line. Wright firmly believes this approach has planned. resulted in better Unite’s former chief executive, Simon Terry, summed up the company’s Wright: relationship with its backer: “Our a lot of SMEs relationship with Finance Wales was warm to our an important factor in our success pragmatic because they believed in what we approach were trying to achieve and backed us with the investment we needed. We were also able to take advantage of their valuable experience and expertise of investing in high-growth SMEs.”
Investment is just the start Finance Wales’ investment in an SME is the start of a valuable relationship that brings with it a host of expertise based on a deep understanding of how SMEs operate. This can
include developing practical strategies focused on maximising the benefit of the investment and building a successful business. Having made one of its largest equity investments in a fast-growing waste management company, Wales Environmental, Finance Wales Group introduced the company to its new chairman, who has been instrumental in helping the management team overcome a host of challenges around issues such as structure, finance and management information. Turnover at Wales Environmental grew by 65 per cent in the year following the 2011 investment.
An SME’s perspective An SME itself, Finance Wales has a unique perspective that enables it to empathise with the businesses it invests in. Wright is keen to highlight how understanding and empathy can play an important role in both investment decisions and the eventual success of Finance Wales’ investments. “We know what the growing pains are like and recognise the confidence needed to take some of the big and courageous steps along the way.”
£400m worth of funds under management from Finance Wales Group
More capital to invest The Group has recently announced a £750,000 equity and debt investment in one of the UK’s leading wholesalers of quality fish and seafood, Channel Fisheries, giving the green light to the fish merchant’s ambitious plans. The investment is its first from a new £40m fund launched earlier this year, which takes Finance Wales into a part of the SME market it hasn’t been able to invest in until now. While Wright is keen to emphasise that interest in the new fund is high and that there are more announcements to follow imminently, he’s also keen to emphasise that Finance Wales is employing the same trusted investment approach. With a unique funding model and new funds to invest in new markets, Finance Wales is confident it can offer even more SMEs the right funding solution. www.financewales.co.uk
Business Reporter · November 2012
an independent report from lyonsdown, distributed with the sunday telegraph
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Finance and accounting
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15
Funding is key for growth The asset-based finance sector presents an alternative solution to businesses struggling to find funding in a difficult climate Director Paul Nash says: “Growing at such a rate creates some cash flow issues and we felt that an invoice finance product would be the best way to address that. We spoke to Bibby Financial Services and they were able to set up the agreement within 14 days. That was great for us as things are moving quickly in the business. “With that facility in place, we are able to focus on building the company further and realising our global ambitions.”
INDUSTRY VIEW
F
unding support is at the heart of many of the issues faced by UK firms today, as there is a perception among business owners that they do not have access to the funds they need. However the good news for thousands of businesses looking for financial support is that there are significant funds available from non-bank sources such as the asset-based finance sector. As the leading provider of invoice finance, Bibby Financial Services and other companies in the asset-based finance sector present an alternative to businesses struggling to find funding in a difficult climate. This year approximately 43,000 businesses used forms of funding such as factoring and invoice discounting and, on average, saw their turnover grow by approximately 2 per cent – double that of the Q3 GDP figure.
A winning goal
On the up At Bibby Financial Services we have been able to offer record amounts of funding, with £430m currently available to our 4,000-strong client base. It is a customer base that has grown over almost 30 years of providing the best solutions to fit those businesses, leading to satisfaction rates of 95 per cent and 81 per cent of business being done through referrals. Currently Bibby Financial Services is funding £380m against invoices for a great diversity of businesses. Invoice finance supports cash flow at every stage in the business life cycle. Our clients range from ceramics specialists in the historic potteries region with a heritage dating back to the 19th century, to new businesses thriving off the opportunities offered by the emerging markets such as India. In fact the use of invoice finance and asset-based funding has grown by such an extent that many SMEs see it as the first choice funding option in order to kick-start their businesses.
One of the main reasons for this is that it is a form of finance that helps to develop and maintain a healthy cash flow, which of course is the lifeblood of any business, from SME to corporate conglomerate. In addition, because the finance is advanced based on the value of invoices in a firm’s sales ledger, it creates a stream of funding that grows as the business grows, without the burden of servicing a large debt such as a bank loan. But, perhaps most importantly, it is funding available now from a sector that is continually working to find the best solution for businesses struggling to find finance, rather than close the door and let those businesses fail.
In 1996 businessman Mickey Phillips saw an opportunity to catch the wave of football fever that was sweeping the nation thanks to Euro ‘96 and founded Score Draw, making official retro football shirts for supporters. Despite being turned down for £430m funding by the banks at the time, 16 worth of years later Score Draw has a funding is turnover of £3m a year, selling 250,000 shirts last year. Phillips available to now employs 20 people between his our clients factory in Leicester and distribution warehouse in Cambridgeshire, and the business is moving into the European trade league by exporting to the continent. Phillips says: “We have been able to enjoy growth as a business because of the flexibility of facilities such as invoice finance and international trade finance which has enabled us to have a creative approach to On the back foot opening new markets. As a result we are able For example, BOOM BOOM Cricket knocked to develop and expand to the point where we the sporting world for six when it arrived in are operating across two sites, employing 20 September 2009, building on the legendary people and enjoying the benefits of fanaticism for cricket in countries such as international trade.” India, Pakistan and now Afghanistan. For businesses that may be under pressure They saw the potential to bring a new kind or unsure about how to achieve their growth of professional cricket product to market, ambitions, Bibby Financial Services and the which appealed to the mass of fans around wider asset-based finance sector is here, now, the world with a more streetwise image to with funds available and a shared vision to help push their brand of bats, balls, pads, work together with the UK’s business gloves and clothing. community to drive long-term economic With the company’s HQ based in Coventry recovery. and a factory in Pakistan, the business did not want to invest any more resource in a David Postings (left) is UK CEO of Bibby back-office operation, which is why they Financial Services chose to work with Bibby Financial Services 0800 91 95 92 and outsource the role of building cash flow www.bibbyfinancialservices.com and chasing invoices to a third party.
Turning businesses around Bibby Financial Service’s clients in the manufacturing sector have seen significant growth during 2012. For example, Times Square, which has been in the heartland of the ceramics industry in Stoke-on-Trent since the 1880s. The ceramics industry faced real challenges from the growing economies around the millennium.
When Wedgewood went out of business, Times Square was hit by the closure as they relied on the trade from a number of large customers. The loss of business meant the workforce was reduced from 45 to 27. In 2003 the business went into administration. Mark Chilton bought the company in 2004. By taking on an invoice discounting
facility with Bibby Financial Services to support cashflow, the business has been able to invest in new equipment and rebuild the company, which has now increased its workforce to more than 30 full-time staff. Mr Chilton says: “We made the decision to change the direction of the company which ensured its future. With an invoice discounting
facility in place from Bibby Financial Services we have been able to invest in new equipment and product development, which has put us in a much stronger position for future growth.” In addition to the support offered to manufacturing firms, Bibby Financial Services works with a number of firms that have been able to break new export markets.
Business Reporter · November 2012
16
an independent report from lyonsdown, distributed with the sunday telegraph
Finance and accounting
Business benefits of asset finance There is a way for companies to capitalise on the economic upturn, says Neil Lloyd of Lombard
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With the UK economy showing signs of recovery, it’s more important than ever that businesses to ensure that they have invested in the kit they need to operate in an efficient and cost-effective manner. Those businesses that have delayed making this investment now risk prolonging their own recovery and, ultimately, that of the wider UK economy. Over the past few years, firms have put investment decisions on hold, resulting in extended replacement cycles for equipment. Some manufacturers have found themselves in the sixth year of a four-year replacement cycle for their machinery – and this sweating of assets has a detrimental impact on a business’ efficiency and output. Alternative forms of finance More recently, as the economy has shown signs of recovery, we have seen many more businesses turning to asset finance to help them capitalise on this upturn. We are finding that an increasing number of businesses are seeking alternative forms of finance to help fulfil their capital investment needs, and asset finance is helping. Where overall aggregate lending has been in decline, asset finance has been growing year on year. At the second quarter of this year, the Finance and Leasing Association (FLA) reported that it accounted for over 30 per cent of capital
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£1.6bn
Hills Numberplates has benefited from asset finance
expenditure in the UK and that in the nine months to September 2012, this market had grown by 6 per cent to £1.6bn. This is definitely a trend that we see reflected across our business, where our year-on-year lending has increased by 16 per cent. We expect to see this growth continuing – even despite the recent announcement from ING Lease UK that they will be withdrawing from the UK asset finance market. Why asset finance? So why are more businesses turning to asset finance? The simple answer I believe is this: asset finance is a smarter way to fund assets. It ’s f lexible and prov ides committed finance so businesses can retain their working capital. Lenders in this field are often
comfortable in lending more because they understand the value of assets and the security they provide. Additionally, it allows for Growth in asset budgeting with greater certainty finance in the nine and avoids the unusually high months leading to September peaks in spending that capital expenditure can otherwise bring to their cash flow. making the investment decision at A Lombard customer that the right time, it put Hills in a strong benefitted from asset finance was position to respond to market Hills Numberplates, a distributor movements from both a production of number plate components and and cash generation perspective. manufacturer of finished number plates. The recession hit the Taking advantage automotive industry hard and with Many businesses, like Hills fewer new cars being sold, Hills’ Numberplates, that have used asset domestic demand suffered. Having finance to purchase more efficient decided to expand its export equipment have been able to market, it needed to invest take advantage of the Neil is head of sales developm in production capacity, ent for market, regardless of Lombard ’s bu which came with a economic conditions, siness and commer significant price tag. and are now reaping cial division, whi ch helps Hills approached its these benefits. the UK’s SME s access bank and other lenders As an asset finance funding thro ugh to secure the £96,000 provider committed to asset finance they required, but it was the UK firms, Lombard will u n s uc c e s s f u l i n t he s e continue to promote the discussions. However, because we benefits offered by asset finance. identified the security within the There continue to be businesses asset, we were able to help Hills that are waiting for the recovery to with a hire purchase agreement pick up before mak ing any without the company having to raid investment commitments, but while its cash reserves to pay for it. they wait for tomorrow’s recovery, Through this investment, Hills its competitors are capitalising on was able to sustain and grow its the opportunity to move ahead now. business at a time when the market was in a period of contraction. By Email Neil: nlloyd@lombard.co.uk