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NatWest Business Builder The Importance of Mindset

Disruptive businesses make a big splash in the media, but how does the thinking behind them come about? We look at the key rules of disruptive business thinking.

The word ‘disruptive’ used to refer to poor behaviour in the classroom, or the impact of strikes on the railway. But the tag is now far more likely to be linked to new types of business, where market value often outweighs investment and costs. Both Uber and Airbnb entered the already crowded markets of minicabs and holiday lets, but their rethinking of the entire model was what saw them race to the top at a pace traditional businesses could only dream of.

The media can’t get enough of them, and their business growth was largely driven by digital-native millennials who had the technology. Both are now large enough to commission television ad campaigns and PR drives to mop up the older generations.

So how can other start-ups in diverse sectors use this model to dominate (or at least radically change) the marketplace?

1. Find the gap in the market

Finding the gap may require mentally dismantling your target market and rethinking it from scratch. How would you start if you were the first one into the market, or what can you do that no one else can? Uber has as many detractors as fans (as is often the case with disruptive models), but there’s no denying it does away with the lottery of knowing which cab company to ring for the fastest and cheapest journey.

“Disruptive ideas come from having an attitude to challenge and push to improve established ways of doing things,” says Jas Bagniewski, CEO of innovative mattress retailer Eve Sleep. “I think if you try to improve every aspect of an industry, becoming disruptive is inevitable.

“When we started, we looked at how we could improve every aspect of the traditional mattress-buying experience. That way of buying – going into a showroom and lying down awkwardly for 10 minutes – is broken. We offer a better experience for customers because you can buy online quickly and easily, we offer next-day free delivery and you have 100 nights to try the product. By selling direct to customers, we can also offer a premium product for a better price.”

2. Be a true original

The first thing any business will need to do is ape the old Apple slogan of ‘think different’. It may be a business-speak cliché to speak of thinking outside the box, but disruptive entrepreneurs need to do little else in the initial stage of their start-up. Without that spark and a USP, their business is just another ‘me-too’ company that could simply get lost among the competition.

True disruptive thinkers and entrepreneurs are few and far between. So great ways to disrupt often come from teams of thinkers coming together to create a business, or outside experts being brought in to rethink a market. You want the kind of idea that makes people wish they’d thought of it.

“I think if you try to improve every aspect of an industry, becoming disruptive is inevitable”

Jas Bagniewski, CEO, Eve Sleep

3. Solve a problem

“Ours was a consumer problem rather than a gap in the market,” says Tom Cavill, co-founder of property investment business Bricklane.com.

“We started with the problem that we and many friends had, then worked hard on an innovative solution. Before Bricklane.com, you either had to scrape together a huge deposit and invest all you had with a mortgage, or you were shut out of the market. We allow you to own a stake in a property [with others], whatever your situation.

“We feel we’re disrupting several markets: we allow first-time buyers to keep up with the market as they save and allow those who can’t or don’t want to buy to receive the financial benefits of ownership. Renters living in our homes also get better service and stability than is average in the market.”

4. Don’t forget the small print

It’s easy to see disruptive thinkers and doers as the anarchists of the business world, but none of them would get anywhere without considering the legal or ethical implications of their new ways of thinking and working.

If you’re testing the boundaries, you can be sure lawyers will want to as well, especially when people start putting large valuations on your business. Make sure the way you wish to operate complies the law and financial regulations because small slip-ups can be costly. If your app is bumped from app stores for minor violations, you could be set back by months.

5. Think about time efficiency

Millennials drive the market for disruptive business and famously want everything done now, whether it’s their food delivered or their finances sorted.

Airbnb took a concept that was only accessible on obscure community pages and brought it to the fore, saving hours of searching and competing with hotels along the way. If you can reduce complex tasks to a couple of clicks, you could be on to something.

“We’re disrupting the automotive retail space by consolidating the customer journey of buying a used car,” says Maximilian Vollenbroich, co-founder of Carspring.co.uk, a business that allows you to search for the car you want, find financing and arrange delivery of your pre-checked motor all in one hit. “Whereas a consumer would have to do transactions with multiple parties – from the dealer, financier, insurance and warranty provider and breakdown cover – at different places and times, we enable them to sort this all in one place.”

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NatWest Business Builder: The Importance of Mindset

Even the savviest of businesses can face stumbling blocks along the way – here’s how to get over them.

From being resistant to change to taking employees for granted, we look at some of the most common business habits you need to break.

1. Not planning for growth

According to Dr Lucy Gill-Simmen, lecturer in marketing at Royal Holloway, University of London: “The old cliché is true that if you’re failing to plan then you’re planning to fail. No small business can afford to do without creating a proper, clear business plan – then when the company is up and running, an equally clear marketing plan.” Have a strategic approach to growth – set targets that are achievable and realistic, have a time frame to reach those targets, and put in place three- and five-year plans (or whatever best suits your business). The details will vary from company to company – but the mistake many SMEs make is to have no clear plan at all.

2. Not focusing on cash flow

A key cause of start-up failure is the cash running out at a critical moment – research suggests it’s the second-biggest reason why a business fails, after lack of demand for the product. To stave off cash worries, develop a head for figures; cash-flow projections and forecasting should become second nature. If they’re not, don’t risk losing the business because of a cash crisis – have someone on the team who’s good with figures, or entrust your finances to a trusted external accountant right from the start.

3. Not making the customer central to the business

As a successful SME, it’s a mistake to think your core business is selling a product or service. What you’re actually doing is meeting a customer expectation. Focusing exclusively on the thing you sell means you can quickly lose customers. “Map the customer journey and ensure you have plans in place to support every step of that,” says Chris Daly, chief executive at the Chartered Institute of Marketing. “That journey starts much earlier than many people realise and extends far beyond pressing the ‘buy’ button or delivering the product.” One bad habit many SMEs routinely fall into is focusing on finding new customers rather than retaining existing ones. “It costs far more to get a new customer than it does to generate repeat business,” Daly says.

4. Not delegating

As a start-up, you may well be a one-person band to begin with, only taking on employees as you grow. But your success as an individual can lead to an unwillingness to let go and delegate effectively. “As an entrepreneur, you’re an independent person by nature,” says Francis Toye, CEO at Unilink Group, a leading UK secure software provider for the criminal justice market. “But this means you can be something of a control freak. For a business to grow, you have to enable others to do things.” And, Toye adds, you have to be genuine about this. “It’s not simply about giving other people tasks, it’s about explaining the issue, then giving people ownership of certain areas. It involves giving them real situations and the responsibility to resolve them – if you hang on to the responsibility, you’re not really delegating.”

5. Doing what you’ve always done

When companies mature, the temptation can be to stick to what you know best. But failing to innovate is another key reason for business failure. The photography pioneer Kodak brought itself to the verge of bankruptcy by refusing to move into digital photography, while more agile competitors saw the near-universal shift in consumer preference for digital over film. A culture of innovation can be hard to foster, but remember that not all innovation has to be the previously unheard-of ‘big idea’. Innovation can be small but beautiful – for instance, tweaks to an existing successful product or small add-ons in customer satisfaction.

“As an entrepreneur, you’re an independent person by nature. But this means you can be something of a control freak. For a business to grow, you have to enable others to do things”

Francis Toye, CEO, Unilink Group

6. Competing on price

You can always cut your prices – but it’s very hard to put them up. Once you’ve put a price in place, you fix a perceived value for your product or service that can be difficult to change in the minds of your customers. Instead, find ways of creating value that aren’t dependent on price. Think of something unique that you offer and emphasise that. Do you have a bespoke element to your product? If so, price accordingly. Or offer good service and after-sales service, or create an experience. Ultimately, believing that you have to be ultra-competitive and as cheap as Tesco or Amazon is a recipe for business failure.

7. Not valuing your employees

Another business cliché is that your employees are your best asset. Again, it’s only a cliché because it’s true. Make the most of your staff – an employee who’s willing to go on training courses, for example, is likely to become a successful, productive and profitable member of the team. If you stifle these ambitions for cost reasons, the good employee will go elsewhere. Bear this in mind when you’re recruiting. “Look for passion,” says Alessandra Sollberger, CEO and founder at health supplements company Evermore. “When recruiting, you’ll spot the people who will be good to take things on and spread magic dust in the business.”

8. Not keeping up with regulations

Red tape is the bane of any SME’s working life, but it’s worth keeping up to date with new regulations that affect you for two reasons. First, they can be an opportunity – for instance, the General Data Protection Regulation (GDPR) is, according to Chris Daly, “an opportunity to clean and clarify your data in such a way you can personalise the strength of the relationship between the customer and the business”. Second, the penalties and the potential damage to your brand from not being legislatively compliant can be severe. Take the recent example of gaming firm William Hill Group, currently facing a package of fines of at least £6.2m as a result of failing to meet its anti-money laundering and social responsibility regulations. It’s a risk you don’t want to take.

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NatWest Business Builder: The Importance of Mindset

Businesses are at their most productive when employee engagement levels are high. We’ve tracked down three experts to share their advice on improving relations.

Engaging employees and ensuring they’re emotionally invested in their job is a careful balancing act between getting the best out of them and creating a working environment where they feel valued and are rewarded.

According to a survey of more than 4,600 workers by Qualtrics Pulse, the UK lags behind the rest of the world when it comes to employee engagement. Only 48% of workers considered themselves engaged and just over a third (39%) said they looked forward to going to work most or some of the time.

The survey also revealed that 17% were looking to leave their jobs in the next two years. The reasons cited include stress due to workload and not feeling supported or being acknowledged by their employer.

Instil confidence

One of the reasons the respondents to the survey gave for looking forward to work is having confidence in the senior leadership team. Instilling this confidence comes from creating a leadership culture that emphasises continuous communication, learning and feedback, says Guv Jassal, a director at Frank Recruitment Group.

“Rather than wait for the yearly appraisal, build feedback and coaching into your daily interactions,” says Jassal. “This can help employees learn skills faster and feel engaged and committed to their goals. It’ll also reduce confusion around expectations and current performance, preventing any possible misunderstandings that could create a negative working environment.”

Frank Recruitment Group’s own philosophy of having an open-door approach to providing feedback has led to 82% of the team feeling that their line manager provides them with the relevant feedback they need to learn from.

Identify the talent

When it comes to younger workers, the Qualtrics Pulse survey found that they would most likely stick around if they had the opportunity to progress at a company.

Jassal says that it’s important not to reserve coaching for senior employees. If people are new to the company or have changed roles, then they might need a bit more guidance, but once they’re settled in you should assess their strong points. “You should be ready to identify emerging leaders and those who have the potential to be future managers. This way, you’ll not only engage your employees but increase the chances of retaining your top talent as well,” he adds.

By nurturing the talent in your business, you can better position your company to scale and grow. Promoting a more motivating and energised working environment, in which the leadership team maximises employees’ potential, will also help to attract and recruit more talent in the future, says Jassal.

Improve performance

While you want the best for your business, it’s important to remember that employees are going to make mistakes, regardless of how much coaching they receive, says Stephen Walker, co-founder of Motivation Matters, a consultancy helping small businesses to improve productivity, employee engagement and profitability.

“While you should definitely praise when appropriate, and loudly, you should also be quietly discussing failure to make things better next time,” says Walker. “Perhaps give them a word of advice, but certainly don’t micro-manage them.”

“Build feedback and coaching into your daily interactions. This can help employees learn skills faster and feel engaged and committed to their goals”

Guv Jassal, director, Frank Recruitment Group

Focusing too much on errors made could crush confidence and lead to lower morale and engagement levels. However, as a business owner, it’s also your responsibility to design processes and systems so that employees can learn from their mistakes and to minimise the risk of the mistakes being made again and again.

“There is always room for improvement. When positively presented, it can help employees to grow both professionally and personally,” says Jassal.

Motivating factors

In order to truly understand not just how engaged employees are but also how they are engaged, it’s vital that you monitor their motivation. “This could be done through a number of initiatives, such as surveys – the results of which could then be discussed by the senior management team and steps then taken to improve engagement,” says Keith Bevan, a director at Suresite, a Preston-based risk management firm that can provide small businesses with a range of training.

Valuing the opinions of your staff is a no-brainer. “They’re the people doing the processes, so why wouldn’t you empower them to improve the processes?” asks Walker.

Open to suggestion

The workers questioned for the Qualtrics Pulse research said that one condition that would greatly influence whether they decided to stay at a firm was whether their employer was good at striking the right work-life balance.

According to Walker, you shouldn’t be over-rigid or stringent when it comes to areas such as managing holidays. “If it’s not going to impact on the business or costs negatively, then you should be flexible and allocate employees the holidays they want,” he says.

Bevan agrees: “You need to care about your employees as individuals and acknowledge that there’s life outside of work.”

Be transparent

Ultimately, you should be showing respect to your staff. If employees feel like they’re not being respected then they’re likely to put less effort into their work and be less engaged.

While employees do have to earn respect to some degree, you can help the cause by being transparent, says Bevan. This means being open about the company’s performance, including turnover, and honest about any potential business challenges, such as future recruitment plans, which might affect employee workload or position within the company.

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NatWest Business Builder: Understanding your finances

For SMEs, there’s a lot of terminology to get to grips with. Here, finance experts reveal the top 10 most important terms businesses need to understand.

Money is the lifeblood of any business – cash is needed not just for day-to-day operations but also to underwrite growth and expansion plans or vital investment.

For many firms, this means using some form of finance – but it can be a daunting and hugely complex task deciding on the type that’s most suitable for your business and its specific needs.

We spoke to the experts to identify the most commonly used and important bits of finance-related terminology to explain what they mean, and why they matter to your firm.

1. Finance: your options explained

Debt finance refers to funding that’s raised by the company or its owner borrowing money from some form of lender, says Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW).

“Debt finance covers the likes of loans and overdrafts as well as more specialised types of finance such as factoring or hire purchase,” Lewis explains. “In return for debt finance, the business will be expected to repay the debt with interest.”

Equity finance is another funding option, Lewis adds, involving issuing shares in the company to investors who then become part owners of the business. “Equity finance can be used to finance R&D, marketing, an acquisition or simply to fund growth. In return for an equity investment, investors will want to be paid dividends out of company profits, as well as to see an increase in the value of the shares they own.”

Asset finance, or asset-based lending (ABL), is a form of borrowing that lets you borrow against existing assets or land in order to fund new investments such as machinery, capital expenditure or building projects, explains Ben Guy, MD of Beacon Asset Finance. “It lets you release cash that’s tied up in assets you already own and you can usually agree lengthy repayment plans, so you can invest without affecting your immediate cash flow and spread the cost so your business growth isn’t stifled.”

2. Factoring and discounting

These are both ways of raising money from unpaid invoices as quickly as possible, says Guy. “Factoring and discounting both come under the umbrella term of ‘invoice finance’, and they’re a solution to the all-too-common problem of late payments.”

He adds: “Invoice financing lets organisations that invoice other businesses for their goods and services release the money tied up in outstanding bills faster so it can be used for investment or cash flow. A third-party financier buys your unpaid invoice off you for a small fee. You then get the value of the overdue invoice minus the fee.”

With factoring, the invoice finance company collects money on your behalf, but with discounting you retain responsibility for chasing debts.

3. Covenants

When a business borrows money, there will often be conditions or restrictions attached to the loan in the form of a loan covenant, Lewis says. “For example, a loan-to-value [LTV] covenant will set out the minimum value for any property that is used as security against the loan.”

If the value of this property falls below the level set out by the covenant for any reason, the borrower may be in breach of their loan terms.

4. P2P borrowing

P2P – short for peer-to-peer – finance is available through a number of online platforms and has grown quickly in popularity over recent years. Both businesses and consumers can use P2P services to take out fixed-term loans directly from members of the public or from institutions that have money to invest.

“Factoring and discounting both come under the umbrella term of ‘invoice finance’, and they are a solution to the all-too-common problem of late payments”

Ben Guy, MD, Beacon Asset Finance

Normally, the lenders on such platforms spread their loans among several borrowers in order to reduce the risk they face. For SME borrowers, this can be a useful and sometimes more cost-effective alternative source of finance.

5. Personal guarantees

Paul Stanley, regional managing partner at consultancy Begbies Traynor, says: “If you’re the director of a limited company, it’s standard practice for lenders to request you sign a personal guarantee to act as security for company borrowing. By doing this, they will have recourse to you, as the director, personally in the event your company fails to repay the debt.

“The terms of a guarantee can vary. For example, banks may request a legal charge over your home at the same time.”

6. Hire purchase

Hire purchase is a type of asset finance where you end up owning the equipment being financed, Guy explains. “It’s similar to what’s commonly known in the car industry as a PCP [personal contract purchase] deal,” he says. “The VAT and deposit is paid at the start, then the balance plus interest gets repaid over months or years. Usually, at the end of the finance deal, you then have the option to purchase the equipment by paying a ‘balloon payment’, but this can be done at some point in the middle if it suits your business better. That’s usually a good option for seasonal businesses with large fluctuations in cash flow.”

7. Insolvency

“When a limited company can’t pay its bills as they fall due, or the total of its liabilities is greater than its assets, it’s said to be insolvent,” Stanley explains. “Insolvency can happen really quickly – for example, if the market changes or you lose a key customer – or it can take place over several years at a slower pace and isn’t detected by directors.

“There may be routes out of insolvency, such as a company voluntary arrangement (CVA) or pre-pack administration, but if no such option is viable, liquidation may be the only outcome.”

8. Working capital

Stanley says that working capital is the value of your current assets minus the value of your current liabilities. “For example, if your balance sheet shows total current assets of £100,000 and total current liabilities of £90,000, the company’s working capital is £10,000.

“Working capital is just one metric that signals the financial health of a company. Negative working capital indicates liquidity problems and, potentially, insolvency.”

9. Refinancing

“This is when you release the equity that’s tied up in an asset that you already own outright without losing ownership of it,” Guy says. “This can work well for funding machinery or bigger one-off projects.”

Essentially, refinancing means borrowing more money against the value of an asset that’s used as security on the new loan.

10. APR

Borrowers should pay attention to the annual percentage rate (APR) on any loan they take out, Stanley says. “This allows you to compare the interest rates that are charged on different products.

“In the UK currently, the APR takes account of multiple factors such as the interest rate, the period the payments will be made over and certain other fees.”

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NatWest Business Builder: Understanding your finances

From market research to measuring costs and approaching potential customers, here’s how to successfully launch your business.

Ask a business owner to describe the early days of launching a business and you’ll generally receive the same response. A mix of superlative statements – “It was the hardest but most rewarding year of my life” – combined with awed incredulity at how they managed to pull it all off. But for new entrepreneurs not blessed with hindsight or a crystal ball, preparing a business for launch can feel overwhelming – and expensive.

So how can you get your business up and running successfully? We ask entrepreneurs to share their experience and tips.

Market research on a budget

“Buying data was very expensive, so our market research was all homemade,” says Gracie Tyrrell, who co-founded healthy snack brand Squirrel Sisters in 2015 with her sister Sophie using personal funds only. Their products are now stocked in nine major retailers, including Waitrose, Morrisons and BP garages. “We used SurveyMonkey to create surveys that we sent out to our friends and family on Facebook, and we held blind tastings in our homes.”

The surveys included questions around taste and packaging. “We wanted to know what people looked for, was it sugar-free or gluten-free?” The surveys were then forwarded to their friends, family and colleagues’ networks – creating a decent-sized data sample.

Friends and family were used for the blind-tasting tests, too, until the entrepreneurs were satisfied they had the data needed to pitch to buyers. “The results from the surveys and tastings backed up our claims, so we used this data, combined with stats we sourced from The Grocer and went to retailers,” says Tyrrell. “We didn’t tell them the surveys were from our friends and family.”

The pricing strategy and forecast

For many entrepreneurs, one of the hardest parts of preparing to launch is getting the pricing strategy right – which is an area that Antoine Baschiera, co-founder of rating agency for start-ups Early Metrics, knows only too well.

“We tested and we learnt, so our pricing changed tremendously as a result. Today we charge eight to 10 times more than we charged for a similar service when we launched four years ago.”

Baschiera advises all start-ups to be flexible and fluid in their pricing structures. He has adapted his pricing model, moving from a subscription-only model to one with various options. “Your pricing models should be driven by experience. As entrepreneurs, we start with an idea directed towards one market segment but then we discover new ones. You might start by selling software to bakeries and then realise the grocery shop could want it too.”

For, Yasser Khattak, founder of Den Automation, a smart switches and plug sockets company that allows users to monitor and control electricity usage from its app, pricing products has been a long journey that’s been moulded over the last few years. After initially benchmarking Den’s products against those similar on the market, Khattak took advice from the electrical wholesalers he would be trading with, while also talking to end users.

“We’ve never sat down and decided on pricing. We’ve been speaking to customers like Berkeley Group since 2015 and retailers like Currys and Argos since 2016,” he says.

“Introductions can help fast track things considerably compared with cold-calling”

Yasser Khattak, founder, Den Automation

Armed with this intelligence, Khattak and the team have opted for reasonable margin products they plan to sell at high volume. “For us it’s a switch and socket – we want to get it to a price point where it’s as close as possible to standard switches that aren’t even smart. We plan to bring the price down as fast as possible.”

Winning those first customers

When approaching customers pre-launch, coming across as credible is essential. While new consumer brands often struggle to be heard amid crowded marketplaces, for start-up B2Bs it’s usually a case of winning that very first big customer.

Business adviser Erica Wolfe-Murray suggests all start-up entrepreneurs take time to really understand their business story. “Many entrepreneurs find themselves starting companies without asking: ‘Why am I the best person to be doing this now?’” says Wolfe-Murray. “You need to really understand this – and the best way of doing so is to look very clearly at your whole life to here. It’s this story that your customers and clients want to hear and understand.”

Antoine Baschiera agrees. “Don’t just talk about how great your product is, show them the external validation,” he says. “No, you don’t have clients yet, but look at the combined skills of your founding team and the advisers and mentors that have trusted you at this early stage of the business.” The support from such people will help win over those first few clients.

Using your network

Your personal network can also play a crucial role when contacting prospects. Is there an opportunity of personal introductions via LinkedIn or Facebook?

“Introductions can help fast track things considerably compared with cold-calling,” says Khattak, who managed to secure pre-orders from five major UK electrical wholesalers, including YESSS Electrical, CEF (City Electrical Factors) and BEW Electrical Distributors, before launching in January this year.

“If I didn’t have the relationship with a retailer already, I would go into the store and look for a similar product, then look up the founder or key employees of that business and add them on LinkedIn. Once added, I would build a relationship with the person to see if they’d be willing to introduce me to a buyer from the retailer.”

Tim Prizeman, who’s worked with start-ups and scale-ups for the past 20 years, advises his clients to use their networks as much as possible.

“For any type of business, your network of contacts is a huge resource of help, advice, advocates, supporters, introductions and customers,” Prizeman says. “The key thing is not to appear needy. Ask for specific help, with a mixture of flattery and confidence – and start small. Who would turn this down? It opens the door to bigger help requests at a later date.”

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NatWest Business Builder: Understanding your finances

A readily available and regularly updated snapshot of the money coming into and out of your business can be the difference between success and failure.

Research suggests that cash-flow issues are behind up to 90% of small business failures. “Cash is what makes and breaks a business,” says business adviser Chris Chapman, founder of SME finance consultancy Numitas. “You can be making profit on paper, but having cash in the bank is a very different thing. If you don’t understand what your cash position is, it can be easy to run out of it – and to be out of business.”

A cash-flow forecast is a projection of the cash coming in and the cash going out of your business over a specified period of time. It allows you to estimate all the money you will receive – “whether that’s from customers, grant income, or R&D tax credits”, says Chapman – and also what you’ll spend, including overheads, staff salaries and material costs.

Every business will have periods of positive and negative cash flows. This is quite normal, says Graham Dotchin, corporate finance associate at Tait Walker, a large independent accountancy practice in the North East. “How you manage these peaks and troughs will determine how successful your business is and how staff, customers, suppliers and investors will view your business,” he says.

Why is cash-flow forecasting helpful?

Good forecasting lets you anticipate difficult periods and prepare for them, thus averting many businesses’ worst nightmare: running out of money. If you can see that there will be a hole – for whatever reason – in two months’ time, you can plan for it.

For Jo Fleming, founder of Yorkshire Staffing Services, cash-flow forecasting became a priority quite soon after founding. She had to pay the people that her recruitment business placed every week, while she in turn was only being reimbursed by the companies they work for every 30 days.

“We were OK until we won a couple of big accounts and they wanted longer payment terms,” says Fleming. “We really quickly had to go to the bank and ask for an invoice factoring facility, which allowed us to borrow up to 80% of our sales ledger. If we hadn’t been able to do that, we’d have been looking at a cash-flow shortfall of around £200,000.”

“There’s a massive difference between what sales you’re going to close and when you’re going to get the cash from those sales. That’s the biggest downfall of most small businesses”

Chris Chapman, business adviser, Numitas

The downside of factoring is that it comes with a fee, meaning it costs the business owner money. Fleming says that the episode forced her to be far more diligent about cash-flow forecasting, and also made her negotiate harder for speedier payment terms when starting business with new clients.

“Finding the time to set up a good forecasting system is really important,” says Nelson Phillips, a professor at Imperial College London Business School, “because once you’re facing cash-flow problems you’re always going to be giving something up to get that money in the bank right away.” Overdraft fees, loan interest and discounts are just three examples.

How to prepare a cash-flow forecast

It’s a straightforward process, says Chapman, and can quickly be set up on a spreadsheet. Dotchin says: “A simple way to start is to pick a period in time, for example the end of the month. Add your current cash balance to how much cash you will receive, then subtract how much you need to spend.” The latter figure should include everything from payments to suppliers to non-creditor payments such as staff and HMRC and any investments you need to make – new equipment, for example.

The closing cash balance will indicate how you will end the month if your assumptions are correct. “Understanding the components of cash flow gives you the ability to make strategies to help improve the overall picture and/or seek additional finance if you don’t have enough to cover your short-term negative cash flow,” Dotchin says.

What can go wrong?

“The only thing you know for certain about your cash-flow forecast is that it will be wrong – you just hope it’s not wrong by too much,” says Colin Garvie, assistant professor of accounting and finance at Edinburgh Business School. “People always underestimate the amount of money they need and when they need it. They do their cash-flow forecast, and then three months in they find they’re not being paid fast enough and they’re having to pay their supplier much faster than they thought.”

A commitment to being realistic, then, is vital for a cash-flow forecast to have any value. “There’s a massive difference between what sales you’re going to close and when you’re going to get the cash from those sales,” says Chapman, “and that’s the thing that’s the biggest downfall of most small businesses when they do cash-flow forecasting.”

Why you can’t live without one

New businesses that are bursting with pride at the speed at which orders are coming in need cash-flow forecasting more than anyone, as they may find that customers change their mind; they can run up against unexpected costs; and inevitably there’s a lag between making a sale and actually getting paid for it. In fact, says Chapman, the smaller the business, the tighter you have to keep a handle on your cash. Forecasting can – and probably should – be done on a weekly basis.

“Remember that a plan is just a plan,” he says. “Your aim is to understand any changes and remodel your assumptions going forwards, so that your forecast becomes a rolling forecast that’s constantly updated by the knowledge you have gained.”

For Yorkshire-based online office supplier Office Monster, diligent cash-flow forecasting has helped steer them to rapid growth within just three years of launching. “By mapping it all out,” says director Steve Hanley, “we’ve been able to make informed decisions that support the sustainability of the business as we move forward. Cash-flow forecasting today can definitely take the headache out of tomorrow.”

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Mattioli Woods

For some, pensions may seem ‘too complicated’, which can inevitably put them off saving for their retirement and, in turn, they seek to invest in other assets or even build up a cash pot for the future.

However, the process does not need to be difficult or archaic as the concept is relatively simple – you put money into a savings pot for the future to be invested appropriately over the longer term, albeit this pot is governed by certain rules and regulations. In preparation for retirement the key is to put away a certain proportion of your salary each year over a long period of time to build up a substantial pot.

So how much can you put into a pension?

In short, there are no limits on the amount you can contribute to a pension each year. You can contribute as much as you like to top up your pension, be this by monthly contributions or as a one-off lump sum payment prior to 5 April each tax year. As always, though, there is a ‘however’!

While there is no upper limit to the amount of pension contributions you can make, there is a maximum amount on which tax relief can be obtained and before tax charges may be levied. In addition, there may be provider restrictions and for contributions deducted from salary, certain employment law restrictions may apply. From a tax relievable perspective, when it comes to personal pension contributions, you can receive relief on the greater of £3,600 (gross) or 100% of your relevant UK earnings in each tax year.

However, total pension contributions are also restricted to the annual allowance. The current standard annual allowance for pension contribution purposes is £40,000 and is essentially a restriction on the total amount of pension contributions that can be paid into a UK registered scheme within a tax year.

It is important to mention that any amounts paid into a pension scheme over and above the available annual allowance will effectively be added to your overall taxable income for the year and taxed at your marginal rate, making it not as advantageous to make personal contributions over the available annual allowance from a tax perspective.

There is however a way to contribute more than £40,000 in any one tax year without being penalised, and this is known as ‘carry forward’. The carry forward allowance effectively ensures that an individual can make more than £40,000 of pension contributions in any one tax year providing they were a member of a UK registered pension scheme in the relevant years preceding the tax year in which they make the pension contributions. This therefore enables the individual to utilise unused allowances from the three previous tax years to carry forward into the current year to make a pension contribution above £40,000.

So what is threshold income?

If an individual has a ‘threshold income’ of £200,000 or less they will not be subject to the tapered annual allowance. Threshold income is essentially taxable income and includes elements such as:

• earned salary

• employment bonuses

• benefits in kind

• any salary sacrifice arrangements made on or after 9 July 2015

• income from rental properties

• trading profits

• dividend income

• onshore and offshore bond gains

• interest on savings held in saving accounts with banks and building societies

When calculating threshold income certain deductions will need to be taken into account such as pension contributions made via relief at source (RAS), any lump sum death benefits received in the tax year that were subject to tax at marginal rate and certain allowances and reliefs, i.e. excess tax relief under net pay pension schemes.

However, if the threshold income exceeds £200,000, there will then be a requirement to calculate the adjusted income to work out the amount of tapered annual allowance available.

What is adjusted income?

As with threshold income the same rules apply in determining an individual’s taxable income, but employee contributions whether by RAS or net pay are included as well as employer contributions. As mentioned above, once an individual’s adjusted income exceeds £240,000 per annum then their contribution capacity will start to reduce, unless the threshold income is below £200,000.

Below is an example to demonstrate how it all works.

Tara earns an annual salary, bonus and dividends of £205,000 per annum meaning she has exceeded the threshold limit. However, her employer makes a £100,000 pension contribution (using the available carry forward allowances of £60,000 from the three previous tax years plus £40,000 for the current tax year). As mentioned above, Tara’s employer contribution will need to be included in the calculation for adjusted income purposes. Therefore, Tara now has an adjusted income of £305,000 and her annual allowance for this tax year is reduced to £7,500, which means that an annual allowance charge will apply on £32,500.

However, if Tara makes a personal contribution of £5,000 this will then bring her under the threshold limit and tapering would not apply. It is important to note that Tara would have still paid £5,000 over the available annual allowance that we identified above as a total of £100,000 (including carry forward allowances); however, the annual allowances charges would have reduced. Tara will need to calculate whether this method works for her when comparing the cost of the annual allowance tax under the first option versus the cost of reduced tax but including the extra contribution into the pension.

Building for the future

ent over a longer period of time will inevitably put you under less financial strain later on in life when building up a ‘nest egg’. The advantage of making pension contributions is that tax relief is awarded at your highest marginal rate up to the allowances as described above. Alternatively, pension contributions made from a business will be eligible for corporation tax relief, subject to the wholly and exclusive rules, and specific tax advice will need to be obtained. While the concept of making pension contributions into a UK registered scheme is relatively straightforward, it does however require good financial planning for individuals once their earnings (from all sources) exceed £240,000.

*Please note the above pension contribution allowances are based on the 2020/21 tax year rules and can change in future years.

This article has been produced for information purposes only. It is not intended to be an invitation to buy or act upon the comments made. All investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances and one must satisfy certain investor criteria before being considered eligible to invest. Any forward-looking statements and forecasted returns represent the current views of Mattioli Woods plc and may be subject to change. Your capital may be at risk and past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.

Open Banking is a safe way to share financial data, but have you

We are always trying to make life easier for our customers, and Open Banking is a secure way to give providers access to your financial information.

We often need to see bank statements or accounts to help assess a finance application, and Open Banking is a smooth, easy process that not only saves time but is highly secure, enabling the customer to get their approval of finance quickly.

Open Banking is a relatively new product that has come to the fore as a result of the Covid-19 pandemic. It really started to take off during the second lockdown.

Sales Executive Jack Cleaver said: “It is another new way to help our customers.

“They don’t have the worry of sending confidential financial information on email. Everything is encrypted and you have a password.”

Open Banking means you can share your financial data with apps and websites but only with companies that have passed industry security checks so it safe and secure.

“It is something we have now adopted since the second lockdown. We have been doing it for a little while now and it is working really well. People are realising it is easy and seeing the benefits of it.

“There is so much written about it now that people are realising Open Banking is an easy way to go. It helps customers and us because we can see the documents in a perfect format, no more poorly scanned documents!”

Open Banking is another reason to contact us today for a quick and easy way to secure finance. So for more information on this or any other service we provide please do not hesitate to call us.

You can find this article and more at Credo Asset Finance

Credo Asset Finance

In both your personal and business lives you’re used to paying for things monthly. Whether it’s your commercial or home mortgage, heating and lighting, business or home insurance, car finance, business equipment, wages – you naturally do this to protect your cash-flow.

It also means that you can manage your outgoings effectively, with (hopefully) no real nasty surprises or large bills to settle.

It’s that sort of management that means you’re always one step ahead when it comes to managing cashflow and budgets.

So why do you wait for a large bill, either once a quarter or annually, for your VAT or Corporation Tax?

More and more businesses are spreading the cost with specialist loans designed to reduce the impact on your cash-flow when these bills hit. By doing this monthly and on a rolling programme, you won’t have a large bill at all during the year – it will be split out, and you’ll know exactly what you’re paying.

Talk to us here at Credo today to find out how easy it is to spread the impact of your VAT or Corporation Tax bill.

• Swift decision-making*
• Spread the cost over 3-12 months
• Competitive Interest rates**

For more information simply give us a call on 01603 381955 or email sales@credoassetfinance.com

We think you may also find this interesting: How great do you want it? Turn your Business from great to good

Britain has topped the Forbes list of ‘Best Countries for Business’ for two years running… even as we grappled with the uncertainties surrounding Brexit. The main reason? It’s really easy to start a business here as the financial and the legal requirements for starting a business in the UK are not onerous.

Britain, the ‘Nation of Shopkeepers’

That famous phrase about Britain being “a nation of shopkeepers” (attributed to Napoleon, although there’s no evidence that he ever said it) was originally meant to be an insult.

So, you may be surprised to hear that I’ve always seen it as a compliment! I think “a nation of shopkeepers” is a wonderful way to describe our plucky, hard-working entrepreneurial spirit.

But if we wanted to update that phrase for the modern age, we could easily start referring to the UK as “a nation of start-ups”.

One Formed (Almost) Every Minute

Entrepreneurs are taking note. In the 2018/2019 tax year alone, 672,890 start-ups were founded in the UK… which translates as almost one new business formed every minute!

We’re not letting the strange events of 2020 dampen our spirits, either. Recent research shows that three out of four business owners are feeling confident about their chances of generating success in 2021.

From this, you can rest assured that if you’ve been thinking about taking the plunge with that brilliant business idea, you’ll be in good company.

All you’ve got to do now is make it official!

So, what are the legal requirements for starting a business in the UK?

Here Comes the Legal Bit

The reason why Britain keeps topping the ‘Best Countries for Business’ lists is because we tend to make it as easy as possible for talented entrepreneurs to thrive.

However, that doesn’t mean you can just set up a Facebook page and start trading!

Thankfully, the legal basics aren’t too onerous. There are some that will need immediate attention, while others can be introduced as you move forward in your business.

Ensuring you work on the legal requirements for starting a business from day one will help you set up a business that’s properly primed for success, right from the start.

What’s in a Name?

Finding a unique name for your business can be difficult. However, you will need something that is unique for a couple of reasons.

The first (highly practical) reason is that you don’t want to run into problems with duplication – or have to use the bane of my life, hyphens(!) – on your website URL.

The second (just as practical) is that the name of your business should not (must not, in the case of limited companies) be the same as that being used by any other business.

If you want to check whether the business name you want to use is already in use in the UK, you can use the Companies House Name Availability Checker.

Choose Your Legal Status

What do I mean by this?

There are three recognised legal entities for businesses in the UK. These are:

Sole Trader

Sole Trader is the simplest way of getting a business started.

You don’t have to register with Companies House; your accounting processes are much easier and less costly; and you have greater access to the money that comes into the business.

This is the main reason why many start-up businesses go for this option.

A downside of this option is that the individual is the company. That means, if anything goes wrong, the business owner is personally liable. Everything they own (house, car, possessions etc.) could be at risk.

Partnership

This is an option if there is more than one business owner. In this way, two or more people share the costs, risks, and responsibilities.

The negative is, as with the sole trader option, partners are not protected financially. If the business goes under each person becomes liable for the debt.

Limited Company

Setting up a Limited Company does require you to register at Companies House and your accounting processes will be a bit more involved – and will cost more.

However, when you set up a Limited Company you and the business are two separate entities. There are also a number of tax advantages.

This means that you have greater, personal, financial protection, as the company finances are separate from your own personal finances.

One thing to note, if there is more than one person involved in the business and you are looking at setting up a Partnership, you can become a Limited Liability Partnership (LLP). This removes the problem of personal responsibility in a general Partnership.

Register Your New Business with HMRC

The first thing you’ll have to do is tell HMRC that you’re trading, which means registering your new business for tax.

Your company status – Sole Trader, Partnership, Limited Company – will determine how you account for your business income and expenditure. It will also determine the level and complexity of your accounts.

The amount of tax you pay, and your liability for VAT, will depend on the turnover and profit in the business.

To find out more about the requirements for business types, how to register with HMRC and all the tax implications, you can visit the government’s business advice page.

Make Sure You’re Covered

If you are planning to work from home the first thing you will need to check is that the business you’re setting up can be legally operated from there – and that you have the right permissions to do so. This could involve speaking to your mortgage provider or landlord.

However, whatever your business is, you will have to have insurance. The size of the business and the products being sold will have a massive impact on the types on insurance required.

Insurances could include:

• Public Liability
• Professional Indemnity
• Motor Insurance
• Employer’s Liability
• Building and Contents
• Employment Protection
• Money in Transit
• Product Liability
• Theft
• Business Interruption
• Cyber Cover ….

The list can go on and on.

For more information, check out this blog on the Companies House website: What Insurance Does a Small Business Need?

Your Internal Legal Documents

Oh my goodness, there are so many options, depending on the type of business. Everything from a Memorandum Of Understanding, Shareholders’ Agreement, Non-Disclosure Agreement to Terms & Conditions For The Supply Of Goods Or Services.

However, the three areas that are often overlooked – and should not be – are your Website Terms and Conditions, your Cookie Policy and your Privacy Policy.

Website Terms and Conditions

Your Website Terms and Conditions formulate the online agreement between you and your clients and website visitors. They outline everybody’s rights and obligations and should provide basic guidance on how to use the website.

Without these terms and conditions, you could be at of liability for your website’s content and any fault that may arise as a results of its use.

And, above all, they also help safeguard your intellectual property and your user’s data.

Cookie Policy

You will use Cookies on your website to provide a customised and user-friendly experience for your website visitors.

A Cookie is a small amount of computer code that is stored on your website user’s computer that gathers information. This information allows you to develop marketing strategies to encourage your website visitors to become customers.

Your Cookie Policy will tell people who visit your website about your use of cookies. It will explain which types of cookies are used, the kind of information they gather, their purpose, and finally the procedure for deleting the cookies.

Privacy Policy

It is required, by law, that all businesses have a comprehensive Privacy Policy.

Your Privacy Policy should explain how your business collects, uses, discloses your customer’s personal data.

The policy should focus on personal information that directly relates to the customers (i.e. name and address) to prevent them from exposing their identity.

Avoid Overwhelm …

… but, do keep compliant with the legal requirements for starting a business in the UK.

Don’t feel you have to tackle everything at once. Make a list and work your way through it, taking things step-by-step.

In the meantime, if you’ve got a brilliant business idea, and you’d like someone to talk to about it, grab a cuppa and let’s have a chat.

All you’ve got to do is book a complimentary Breakthrough Session… simply choose your favourite date and time, and I’ll do the rest.

‘A free, virtual tool to support early-stage and established businesses’

Business Builder is a completely free online tool which is entirely self-serve and can be accessed 24/7 through the dedicated online portal. Designed to support entrepreneurs and business owners to upskill and develop themselves and their business at a time and pace that suits them. Users can access a blended programme of support consisting of three key pillars;

·      Digital Learning – A growing library of action-focused digital learning, catering for a wide range of business needs and learning styles, so individuals can consume the most relevant learning to them.

·      Wrap-Around Events – Supporting users to expand their local and national network through our dedicated Facebook community and access peer to peer support, update and thought leadership relevant to them. 

·      Online Community – Enhancing the digital learning, our expert team run a calendar of immersive, online events and workshops to upskill users, bring the community together and facilitate key areas of development.

Who’s It For?

Business Builder has been developed to support businesses and entrepreneurs at all stages (whether just starting out or an established business looking to make a change). It’s completely free and you don’t even have to be a NatWest customer to join.

 What can I use Business Builder for?

·       Idea validation – helping you to explore and validate new business ideas or pivot existing ones

·       Business essentials – giving you the knowledge, tools & techniques to put your business processes in place

·       Entrepreneur development – helping you to develop yourself at the same time as your business

·       Growth strategies – supporting you to put sustainable growth plans in place, identifying risks and opportunities

What to expect from our Digital Learning…?

We know time is precious and so straight after registering, you’ll be able to access to a growing library of learning modules, covering a range of topics from Revenue Streams, Customer Segments through to Self-Awareness and Mindset.

Each module is made up of several video chapters, giving users some theory, practical tools and real-life experience from business owners who have been there, done it and bought the t-shirt.

If you want to try before you buy, three Business Builder modules are available to trial within your Canvas page!

Learn alongside like-minded Business Owners…

Business Builder events are designed to support and challenge you to develop the right foundations for your business; whether that’s how to write a great pitch, how to define your Business Model or navigate through a changing environment.

Each 60-minute event is tailored to meet a specific business need, offering you an opportunity to upskill in the company of other like-minded business owners, share experiences, and work through individual and group exercises to implement the learning into your own business.

Being an Entrepreneur can be a lonely place…

We have a thriving and diverse community of thousands of entrepreneurs from multiple sectors, backgrounds and skill sets helping you to connect with the right people at the right time. No matter whether you’re looking to upskill, get feedback, engage with new people or simply observe, there’s something for everyone.

How do I engage?

Business Builder is completely self-serve, so there is no right or wrong way to engage. What matters most is that you upskill in a way that makes you feel comfortable and in control.

As we’ve said, registration is completely free and takes just a few seconds. We’d always recommend signing up here, checking out what’s on offer on our Digital Learning portal, and checking out our Events Calendar and Online Community from there!

Where can I get more information?

Remember you can trial the Business Builder digital learning modules via your canvas page but to find out more, you can visit the NatWest Business Banking Website here.

 If you have a specific question, please message the Business Builder Team at businessbuilder@natwest.com

 Click here to sign up

‘Want to learn more? Register for NatWest Business Builder to view all of their business development tools. Click HERE’