Tag Archives: sme

What is the Regional Growth Fund?

Regional Growth Fund for SMEsThe Regional Growth Fund (RGF) is designed to provide money to SMEs who cannot access funding from other sources. The money comes from central government but is partly distributed by around 100 regional and national partners. These vary from big banks to local councils and non-profit organisations. Some of the money is also being given to the new Local Enterprise Partnerships (LEP) which are partially replacing the Regional Development Agencies (RDA) which the government scrapped in March 2012.A list of the current Regional Growth Fund programs and their criteria is available as a pdf or excel sheet.

There is a mixture of money going direct from the Regional Growth Fund to businesses and money going from the Regional Growth Fund to organisations who will then distribute the money to small businesses. Most of the money that goes direct from the Regional Growth Fund to businesses ends up with large companies such as Airbus and Rolls Royce. Smaller businesses will normally have to approach one of the regional partner organisations to get funding. In many cases these will be CDFAs, local councils or other traditional sources of business support. This means that some small companies receive Regional Growth Fund money without realising it as they will apply for help from a partner organisation rather than direct to the fund itself.

Companies applying for the funding (directly or indirectly) have to be UK based and looking to grow and employ more people. It is intended to help companies expand into new areas and develop new products but can also be used to ‘strengthen’ a business and ‘protect jobs’.  It is claimed that 2600 SMEs have already received funding through the Regional Growth fund.

If you want to apply for this funding to support your business then the easiest method would be to approach one of the regional partners (pdf) direct. Among these will be organisations who have been awarded money from the government on the condition that they help out small businesses. In some cases this can be tied to a specific industry but by shopping around it should be possible to find some support.

Only 35% of Business Feel Understood by their Bank

Much has been written in recent months about the breakdown in relationships between the big high street banks and small businesses. As we discussed the other day the government’s schemes to improve lending to small businesses do not appear to be working. Meanwhile bank bosses have claimed that the problem is not their unwillingness to lend money but the unwillingness of small businesses to apply for loans.

A new breed of challenger banks are increasingly active in the SME market, trying to to differentiate themselves from the big banks by being more approachable and customer friendly. One of these challenger banks is Aldermore. They have conducted some new research with YouGov on the relationship between SMEs and the big banks which suggests that small businesses do not trust their bank to look after them and that the big banks do not cater to their needs. While Aldermore clearly have a bit of a vested interest in this research, the results are certainly indicative of the wider issues in the small business banking market.

Aldermore small business banking infographic

HMRC Find 36% of Small Businesses not Keeping Proper Records

HMRC Bookkeeping checksHM Revenue and Customs have been testing out a new scheme known as BRC or Business Records Checks. Modelled around initiatives already in place in Canada and Australia HMRC have been trialling BRC since April 2011. The basic idea is to do spot checks on the way that SMEs do their bookkeeping. They have now ended their pilot and review programmes and will start with their new look BRC checks on 1st November 2012.

When HMRC began their trial of BRC they estimated that 40% of small businesses were not keeping proper records. The actual rate of 36% they found is only slightly better than this. HMRC state that their aim with BRC is to improve the way small businesses keep their financial records in order to get more accurate tax returns at the end of the year. They have estimated that by 2014/15 they can raise an extra £62 million per year by improving the way small businesses do their bookkeeping, and by extension making their tax returns more accurate.

When their pilot study ended earlier this year, HMRC considered various ways to proceed with BRC.  They already have the powers to fine businesses who do not do their bookkeeping properly but they have decided not to take this approach. Rather they have opted to “educate customers in the statutory requirements around record keeping” and “sign-post those who want help to the self-help or targeted-help options”. It is only if businesses fail to get their books in order after they have been ‘educated’ and ‘sign-posted’ that they will start levying fines on people. They have stated that their projected extra £62 million in revenue will come “wholly from the preventive and deterrent effects of the intervention”.

So how does BRC work?
As with a lot of HMRCs other tax compliance initiatives BRC will be targeted at ‘high risk’ industries. (People they have targeted recently have included eBay traders and electricians). Once an industry or market sector has been identified HMRC will begin to phone small businesses (defined as businesses with an annual turnover below £30 million who employ less than 250 people).

When they receive a phone call the business will have to complete a short questionnaire about how they do their bookkeeping. If HMRC do not like the answers then they will either send an inspector to see what you are doing or refer you for ‘education’.

HMRC are currently organising how they are going to do the BRC checks but plan to carry out 20,000 visits to small businesses per year in the next couple of years. As the visits are only going to happen after an initial phone assessment, the number of businesses being contacted by HMRC to investigate their bookkeeping procedures is likely to be many times higher than this. For most businesses a visit or a call shouldn’t be the end of the world. It will just be spending a bit of time with HMRC and identifying areas for improvement, but if you know your books are in a mess, now may be a good time to get them sorted.

You can download free bookkeeping software from our website. If you would like some help and advice on getting your books in order then we offer free accountancy advice with most of our formation packages or fixed fee accountancy starting from £14.99 per month.

Where do Small Businesses get their Sales Leads?

We took a look at the Success in Challenging Times: Key Lessons for UK SMEs report from the University of Surrey a couple of days ago. We have already written a blog post on its findings about how start-ups and small businesses finance themselves. But the research covers some other interesting areas including the networks that small businesses in the UK use to generate leads and grow their profile.

It is easy to spend a lot of money very quickly on advertising and marketing without getting much of a return. For many businesses the key to success is getting their products and services in front of the right people at the right time. While there are lots of excellent marketing books out there it is also useful to know what real small businesses think are the best ways to promote their businesses. The University of Surrey research asked people to grade different types of networking activity on a scale from ‘Not Important at All’ to ‘Extremely Important’. Taking the figures from the important side of this scale we can see that small businesses consider a wide range of networking activities to have some importance. By far the most important networking activity was found to be earning direct referrals to their business through personal contacts. This supports what most marketing research says in that face to face referrals are the best form of advertising any business could have. The fact that SEO shows up as the second most important factor shows the continuing importance websites as a marketing tool for small businesses.

Networking for small businesses

The rest of the networking activities that small businesses found to be important were a mix of online and offline activities. Chambers of Commerce meetings and Business Mentors were both seen as important (although the researchers point out that a large proportion of their survey sample were Chambers of Commerce members, perhaps distorting the figures). It is interesting that different online social networks varied in importance with Linkedin being seen as important by 44% of small businesses but Facebook seen as important by only 24% of small businesses.

However when we look at the networking activities that small businesses felt were ‘Extremely Important’ we can see that the ratings for all of the social networks drop below 10%. In fact the only networking activities that are really seen as being Extremely Important are direct personal referrals and website marketing through Search Engine Optimization. The University of Surrey research also found that creating websites is one of the most common things for small businesses to outsource.

Networking Activities for small Business

So if you are starting or trying to build a small business then getting a website built is going to be important. However the most important thing that you can do to promote your business is encourage your network to make direct referrals to your business.

Start-up Businesses Using a Smorgasbord of Funding

Back in August we had a look at the Global Entrepreneurship Monitor (GEM) research which tracks entrepreneurship across Europe. One of the findings from the GEM research was that there was a mismatch between where people planning a new business thought they would get their funding from and where they actually sourced funding.

The University of Surrey have done a new study on SMEs in conjunction with the accountancy firm Kingston Smith. As part of this research they looked at where start-ups got their funding from and how sources of funding changed as businesses grew.

In the GEM research 47% of people in the pre-start-up phase expected to fund their venture themselves. The University of Surrey research has found an even higher figure with 72% of people funding start-ups out of their own pockets. The University of Surrey report suggests that this is partly down to a scarcity of funding and partly down to mistrust of the banks. The report found attitudes towards the banks from small businesses “ranges from disappointment to contempt”. Small businesses are therefore actively trying to avoid engaging with the banks.

However, the University of Surrey report did find that the banks still have a role in start-up funding with 28.2% of businesses receiving funding through bank loans. It is important not to see start-up funding as an either/or choice. While 57% of start-ups reported having raised their finance through a single source, 24% had two sources of funding and 11% had three sources of funding. So what we begin to see is a picture of start-ups using their own money to found their business but supplementing this with a bank loan, angel investors, credit cards or other kinds of financing.

The University of Surrey research didn’t just ask businesses where they got their funding from during their start-up phase but also where it was coming from once they were established. They found that nearly 70% of SMEs were bootstrapping their businesses. That is that they were growing their businesses through re-investing profits. However as with the start-up funding many were supplementing this through loans, invoice factoring and income from other activities. As these businesses grew the report found they became more likely to start accessing traditional bank funding. In part this could be down to them having exhausted other sources of capital but also because the banks tend to be more willing to lend to established businesses. As with start-ups growing businesses do not tend to rely on single sources of funding, indeed they tend to diversify more as they grow with 32.9% of growing businesses having 3 or more sources of funding compared to 17.8% of start-ups.

So whether you are in the planning phases of a start-up business or are trying to grow one into an established SME it is important not to focus too heavily on the success or failure of a particular funding type. Successful businesses tend to be getting funding from a range of sources and to diversify these sources as they grow.

Startup and SME Funding

Start-up and SME Funding Sources: University of Surrey - Success in Challenging Times

Local Banking for the Small Business Market

This week the government hinted that they are moving towards a government backed ‘business bank’. This is something which has been called forSME bank funding by a number of organisations including the Labour Party, British Chambers of Commerce and Federation of Small Businesses. Some of these groups have suggested that the German KFW would be a good model for the government to use. In their Alt+ Finance report the Federation of Small Businesses (FSB) took a detailed look at the KFW model and how it could be applied to the UK market.

One of the issues the FSB report highlighted was the types of banks in Germany and in the UK. The German KFW mainly distributes money through small locally focussed banks. It is these types of institutions which most small businesses bank with. In the UK the banking market is dominated by ‘the big four’. It is these banks which are said to be refusing a third of small business loan applications and which have been guilty of misspelling complex insurance products to small businesses.

Business groups and politicians are now looking to bypass the big four in finding funding for start-ups and small businesses. A wide variety of options have been discussed from crowdfunding and invoice factoring to the rise of ‘challenger banks’.

Challenger banks exist in order to provide an alternative to the big four. For some banks like the Co-operative this is about being ethical in their business practices and investments. For other banks like Aldermore it is about targeting areas of traditional banking which the big four have largely abandoned, such as lending to SMEs. For the Swedish Handelsbanken it is about building personal relationships where loan decisions are made in the local branch by staff who have an existing relationship the business involved.

The last couple of years has also seen an increasing number of the kind locally focussed banks which the German’s rely on. Perhaps the most famous of these is the ‘Bank of Dave’ in Burnley which was the subject of a recent TV series. Close to our Essex base we have the Shawbrook Bank and the Cambridge and Counties Bank. Like Aldermore both of these institutions are focussed on lending to SMEs and providing traditional ‘no nonsense’ relationship banking.

The British Chambers of Commerce has described the relationship between the UK banking and business sectors as ‘damaged’ and characterised by a ‘lack of trust’. The relationship having deteriorated to the point where small businesses are not willing to approach the big banks for loans. It is hoped that the new local banks and challenger banks can start to repair this relationship and help small businesses to grow. So if you are looking for funding for your business it is worth remembering that your options do not begin and end with the big four.

UK Government Tries to Kickstart Bank Lending (again)

The current unwillingness of the major banks to lend to start-ups and small business has been well documented. Securing funding is the biggest problem for start-ups at the moment. This has contributed to the rising popularity of crowdfunding and alternative peer to peer funding schemes. While the UK government has given financial backing to some of these schemes they have also been trying to fix the problem at source and get the banks to start lending again.

Way back in March the government launched the National Loan Guarantee Scheme to try and stimulate bank lending to small businesses. The basic deal here was that the high street banks would go and borrow money from the international markets. The UK Treasury would guarantee that these loans would be repaid if the money was lent out to SMEs (using the EU definition of an SME having a turnover under £50 million). At the end of July this was extended to include businesses with a turnover up to £250 million. However only weeks after the scheme was extended it has been announced that it is going to be ‘wound down’.

At first glance it looks as though the National Loan Guarantee Scheme was a success. In its first four months £2.5 billion worth of bank loans for SMEs were guaranteed by the Treasury. Set against a total guarantee pot of £20 billion for the whole scheme this looks fairly impressive. However, overall lending to UK businesses actually fell by around £3 billion over the same period. In short although the banks took advantage of the scheme to protect the loans they were making they continued to reduce the number of loans to businesses. Effectively all the scheme achieved was to make the little lending the banks were doing cheaper and less risky for the banks.

The point of the scheme, of course, had been to solve the problem of start-ups and small businesses being unable to borrow money. As the National Loan Guarantee Scheme has clearly failed to do this it is being replaced with Funding for Lending. Funding for Lending sees the UK government taking a much more active role in the process. The National Loan Guarantee Scheme depended on banks borrowing money from the open market and passing this money onto SMEs. Funding for Lending is going to let them borrow from the Bank of England direct and at below market rates.

Essentially this is the taxpayer giving the banks cheap loans so that the banks can lend that money to homeowners and businesses. In exchange the Bank of England will receive assets from the banks in the form of mortgage contracts and other debts. As with the National Loan Guarantee Scheme there is a danger that the banks will just use these loans to subsidise their existing operations and not increase lending. Therefore Funding for Lending has a number of incentives built in. The amount that the banks borrow, and how much it costs them, will depend on how much they lend out. The more they lend, the more they can borrow and the cheaper it gets.

Unlike the National Loan Guarantee Scheme, Funding for Lending is not limited to small businesses or businesses at all. One of the stated goals of the Funding for Lending scheme is to reduce the costs of mortgages in order to stimulate the housing market. The other stated goal is to lend to ‘business’ generally. Ultimately, like the National Loan Guarantee scheme, how much money makes it into the hands of small business will depend on the banks willingness to lend. Offering the banks low risk cheap money did not work, so hopefully offering them direct access to even cheaper money will. Only time will tell.

What is an SME?

Over the last year there have been a lot of accusations flying around about SMEs (Small and Medium Enterprises). Articles have been written denouncing the SME term and claiming that large corporations don’t understand how to talk to small businesses. Meanwhile the UK’s small business sector has been compared unfavourably with Germany’s Mittelstand sector which is at the centre of their thriving manufacturing and export driven economy.

While the UK government has been very focussed on start-ups they have also recently begun to focus more on SMEs. The Business Secretary has announced plans to accelerate the growth of SMEs and has launched a showcase of British manufacturing to coincide with the Olympics.

While there is growing focus on the importance of the SME sector there is one very large fundamental problem with it. That problem is that even with the UK government there is not a single definition of what a small or medium enterprise is. For the purpose of Research and Development Tax Relief HMRC define an SME as a business with not more than 500 employees and an annual turnover not exceeding £100 million. However the rest of the UK government does not use this definition. For the purposes of collecting statistics the Department for Business defines SMEs as companies with less than 250 employees. For accounting purposes Companies House defines a small business as employing less than 50 people and a turnover under £6.5 million and a medium business as less than 250 employees and a turnover under £25.9 million.

To further complicate things other parts of the UK government use the EU definition of an SME which goes:

  • Micro Business = less than 10 employees & turnover under £2 million
  • Small Business = less than 50 employees & turnover under £10 million
  • Medium Business = Less than 250 employees & turnover under £50 million

So depending on which definition you use an SME could have anywhere between 50 and 500 employees and have a turnover between £6.5 million and £50 million. One thing that virtually everyone agrees with is that SMEs account for more than 99% of all UK business and that they employ over 12 million people. This is a vital part of the UK economy and a vital part of growing the economy. One way to get a handle on how to encourage SMEs may be coming up with an accurate definition of what they are.

You can get your business off the right start with our Free Company Formations and Start-up Accountancy Services.

£1 Billion Regional Growth Fund Announced

Regional-Growth-FundThe Government recently announced the upcoming launch of their Regional Growth Fund initiative. Providing investment designed to encourage growth, especially in the economically poor regions of the country. The £1billion fund will come into effect next year and applications for funding will be vetted by Vince Cable among others.

Speaking recently, Nick Clegg the Deputy Prime Minister said:

“The Regional Growth Fund will create the conditions for growth and enterprise in the regions by stimulating investment and create sustainable private sector jobs.”

It is understood that the Regional Growth Fund is intended to work hand-in-hand with the Emergency Budget plans to cut/reduce national insurance contributions by small businesses setup outside of London and the south east. The combination of these two plans will in theory reduce the burdens on new businesses and assist them in their early stages of growth.

However, the arguments for the fund are countered by the loss of jobs due to cuts in the local authority sector. It is also said that the plans to abolish the Regional Development Agencies will also mean a reduction in the investment in local business and the economy in general, rather than a rise.

It is likely that with the looming redundancies and pay freezes in the public sector more people will be seeking to carry out a company formation to start their own business. Those individuals would certainly be wise to keep an eye on the changes in the available investment. Especially these local schemes which will hold more relevance to business outside of London.

The 2010 Budget – Entrepreneurs' Relief

money in the bankWith recent changes in the budget announced by Alistair Darling, the government have made it clear that their intention is to support small and medium enterprise (SME) as well as start up companies in general. According to the research, SME’s account for 99.9% of the businesses within the UK and employ a large section of the workforce. So supporting them and encouraging growth goes hand in hand with helping the economy out of the recession.

This is good news for entrepreneurs looking to start their own business (see our article on the The 2010 Budget – Point of interest for SME’s and Start-ups) but it is also good news for those SME’s already thriving within the UK. One such piece of good news comes in with changes to the “Entrepreneurs’ Relief” scheme.

What is Entrepreneurs’ Relief?

The Entrepreneurs’ Relief scheme was originally started back in 2008 with the intention of giving some tax relief to SME’s with regards to capital gains tax. An individual is given a lifetime limit (previously £1million – now raised to £2million under the new budget (£5million under the Emergency Budget announced on 22nd June)) under which they are given relief from capital gains tax.

What is Capital Gains tax?

Tax is charged at a rate of 18% on any capital gain made by an individual in the course of running or disposing of a business. “Capital gain” is defined by HMRC as “…the amount by which the disposal value of a chargeable asset exceeds its acquisition value.” In layman’s terms this means if when selling an asset you make more money than you actually paid for it, then you will be liable to pay tax on that profit at the current rate (18%).

How does Entrepreneurs’ Relief help?

The Entrepreneurs’ Relief scheme means that any individual making a capital gain, will not have to pay the full tax rate (18%) but instead will only be required to pay a lesser rate up to their lifetime limit. As long as they satisfy the necessary criteria (see below). So therefore, if you dispose of an asset and in doing so make a capital gain of £100,000 you will only be required to pay the lesser rate. Things get a bit more complicated where multiple assets have been disposed of. Here, the capital gains and capital losses must be balanced to come up with a net figure. If that number is a capital gain and that amount is below the limit (now £5 million) then the gain is subject to a lesser tax level. The calculations on this are a little perplexing. The HMRC defines it as thusly:

This ‘net gain’ is then reduced by 4⁄9 and the reduced figure is chargeable at the rate of Capital Gains Tax – 18% for 2009–10 but at an effective rate of 10%.

To clarify 4/9 is roughly 44%. So if you had a capital gain of £100,000, then you would find 44% of this figure (100,000 x 0.44 = 44,000) and that figure is then taxable at the standard capital gains tax rate, rather than the entire amount. You can see that this is quite beneficial for entrepreneurs as it provides substantial tax relief. With relief, you pay £7,920 tax on a £100,000 gain, without it you would pay £18,000! When you consider that Entrepreneurs Relief is now set to a lifetime limit of £5 million you can see the Government are making a substantial subsidy for business people.

Multiple claims can be submitted, but only up to the lifetime limit.

What are the qualifying criteria?

There are certain specific qualifying criteria which need to be satisfied in order to benefit from Entrepreneurs’ Relief. Firstly the gain must have been made on assets used in/by the business or assets owned by the relevant person but used by the business. The claim must be submitted within a year of the disposal and apply to:

– Disposal of whole business – which the individual owned.

– Ceased business – assets sold 3 years after business ceased trading (?)

– Sale of shares of your personal company*

– Associated disposal – basically disposal from a partnership

*personal company is defined as a company in which a person holds at least 5% of the ordinary share capital (and the voting rights that go with it).

Why is this good for me?

If you are thinking of running a business, starting a limited company or multiple limited companies, it means that in the long term, if the business does well and you eventually sell it, you will be required to pay far less tax. This is just one of the ways to make your business tax efficient. Choosing to carry out a company formation with TheCompanyWarehouse.co.uk we can help give you guidance on the best ways to make your company tax efficient and thus make more money for yourself.

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