Do you want to take your business onto its next stage of growth? Do you need to find some senior talent to help you do this?

We are partnering with AngelNews for its latest Pitching for Management event in Manchester on 12th October. This will be the perfect event for exciting businesses to find senior people to help them build their teams at no cash cost and for executives to identify interesting early stage businesses that would value their expertise.

Pitching for Management is a live event series which runs in 18 cities across the UK. It will be held at Brown Shipley’s offices in Spinningfields from 4.00pm to 7.30pm. As well as the pitches there are plenty of networking opportunities at the event and canapés and drinks will be served during the evening.

The Pitching for Management concept is simple. Make a short pitch to an audience of senior executives who have come to see if they can offer their services to help you.

These executives are willing to work for sweat equity, bonuses, commissions and/or share options. So pitching companies do not need to pay high salaries until they are delivering the results you require.

You can read all about Pitching for Management at www.pitching4management.com.

We are expecting between 30 – 50 relevant senior executives will attend the event. Past events in the series have shown that pitching companies have a good chance of finding someone that suits.

AngelNews is holding a competition for the best pitch of this series of Pitching for Management. The winning pitch at the Manchester event will go through to the final in Bristol on 13th December. The winner of the final will receive a £2,000 cheque.

To find out more about this opportunity, please call Caroline Sage at AngelNews on 01761 452 248 or email her on caroline[at]angelnews.co[dot]uk or contact me.

You can find booking details here.

Hopefully see you there!

Bill Morrow, founder of the Angel Network, outlines 5 top tips for entrepreneurs seeking funding from VCs:

1. Make sure you can explain your business quickly and succinctly. If it takes you more than 5 minutes, then you’ve yet to get it nailed. Back to the drawing-board for you!
2. Outline the pain that your product or service will solve.
3. Explain how your business will solve this pain.
4. Enthuse investors with the opportunity for growth and how you will achieve this – how will your business scale to achieve the 5x + return on investment for your investors?
5. Set out clearly how you will spend the money that you are requesting.

Morrow also explains how it helps for entrepreneurs to “humanise” interactions with potential investors, where possible. If you can build rapport by indulging in a bit of chit-chat about the cricket or football etc then this helps build relationships beyond business.  After all, you may have to work with each other over a number of years, so its important that you can get on outside of business-talk.

Good advice. Listen to this podcast in full over at Smallbiz pod.

Crowdcube presents an interesting angle on an idea I’ve been pondering for a while:

“How can we open the door for armchair investors to (partially) fill the funding gap suffered by UK startup businesses whilst providing a more interesting and varied investment opportunity compared to say traditional pension or ISA investment offerings?”

Business angel investor networks are well established, however, these are normally aimed at high net worth individuals (broadly those with income of £100,000+ and/or significant assets) who are willing to write cheques for more sizeable sums than those accepted by crowdcube – in fact crowdcube is willing to accept investment cheques from just £10.

Zopa already provides an innovative peer-to-peer banking exchange for individuals e.g. to pay off credit card debts, buy a new car etc from individual lenders who can lend in small parcels of cash (typically no more than £20 per borrower) to minimise the credit risk. By cutting out the middleman (aka banks), Zopa can pass on cheaper interest rates for borrowers and higher income for lenders – a win-win.

Can Crowdcube pass this on for small business?

The answer right now is I’m not sure. But I’ll be keeping a close eye on it and may well try the service to see how it works.

Here are some initial observations:

• The site clearly needs more investment opportunities but this should come over time.
• I like the idea of implementing video presentations etc in the future to give added depth to the pitches (more like the Dragons Den experience).
• I am unsure about the forthcoming trading exchange for exiting investments as its not really in keeping with the nature of private company investing – its a medium term play at best and short-term thinking is the sort of mentality that’s got us into the recent financial mess. Still, if it gets more individuals interested in supporting small, private companies then this can only be a good thing.
• I would like to see more on the tax benefits of EIS brought into the investment process – especially given the recent announcement in the Budget 2011 – although the mechanics of applying this in practice could give its own challenges given the low levels of some investments, tracking / admin plus education and support required.

Overall, I think that Crowdcube is a great and welcome addition to the funding network for start ups and fast growth UK companies. I look forward to seeing how this service unfolds over the coming months.

I put this poster on my office wall today.

Few things beat working with an exciting new start up business.

This helps remind me.

Get more inspiring mind grenades and artwork from gaping void.

Cash is often tight for early stage start-ups.

So often, as well as the founders taking little or no cash out of the business as salary in its early days, the first (brave!) employees also end up having to share this pain.

To help ease this, it is common for employees to be offered shares in the company in lieu of salary (in full or in part). This seems like a sensible option, as the first employees they are treated like sort of quasi-founders, and by taking a small slice of the equity they have the potential to share in the upside of equity ownership if all goes well in exiting further down the line.

This can therefore work well commercially, however, it can cause a headache from a tax perspective….

The UK tax rules related to shares issued or transferred to employees are unfortunately tightly drawn. This results in shares passed to employees being treated for tax as if they were received at full market value – even if no cash changed hands – and therefore as ‘earnings’.

So, say I reward you with 500 ordinary shares in my early stage start up company for the hard work and dedication you’ve put in so far and for accepting a reduced salary, HM Revenue & Customs (HMRC) would treat these shares as employee related income subject to income tax (and possibly even National Insurance). Any employment related tax would be due on the market value of the shares at the date of issue or transfer less any amount paid (if any). The logic behind this is that had the company had cash and paid a salary instead then this would have been subject to tax via PAYE in the normal way so there should be no difference…

But so many start up and early stage companies do not think of this – why should they?

In very early stage companies this may be less of an issue but in situations where there has been external investment or where there is valuable proprietary intellectual property (IP) or even where the founders have a track record of success and there is significant ‘hope value’ or likelihood of success (and therefore value) then extreme care is required.

Complex rules like these, quite frankly, should not be inflicted on new and emerging companies, however, they can and do bite so it’s better to be forewarned (and armed) than to risk stumbling into this headache later down the line which could ultimately disrupt investment or exit opportunities – or at least result in a distracting tax investigation!

It is easy to get caught up in ‘doing’ rather than ‘running’ your business.

So many business owners find themselves running simply to stand still – finding new customers, taking and fulfilling orders and addressing (hopefully not too many) customer complaints.

Sometimes its difficult to see the wood for the trees:

I’m really busy so I must be making money – right…?

Not necessarily.

Understanding your business finances

It is understandable that, at the end of a busy day working in your business, you would prefer not to review your business finances. But if you don’t understand the numbers that your business is producing then how will you know which bits are working (and profitable) and which bits of your daily work are simply a waste of time and effort?

I frequently recommend that owners of new businesses sit down (at least weekly) with a pencil and journal (yes, that technical!) and write out the week’s sales figures and costs by hand. I find that there is something more insightful about using a pencil and paper compared to an excel or similar spreadsheet - perhaps its the exercise of writing by hand that makes you think more deeply about the figures and how they connect (or not…).

At its most basic, to write out your sales income (ideally split across services or products) and associated costs, will give you a much clearer view of what is profitable work and what is unprofitable – the figures rarely lie. You would be astounded how few entrepreneurs do this simple exercise – and by the number of business owners whose jaws hit the desk when they realise why (or even that!) they are losing money you can tell they wish they’d done this far earlier!

Moving on from pencil and paper to the day-t0-day, I’m a big fan of online cloud accounting packages like Xero as they provide a live dashboard view of the health and performance of your business. Now with live feeds across the majority of UK banks, entrepreneurs can get a realtime view of the health (or otherwise!) of their business. The bank balance is clearly there to see plus debts receivable as are costs payable. Cashflow is absolutely king for all businesses so the ability to see how much cash is in the bank, how much is due in and how much is due out at any one time is crucially important if you are to be in the driving seat in running your business.

Don’t get put off by accountancy mumbo-jumbo, simply by taking the steps set out above on a daily or at least weekly basis, you will be streets ahead of many of your competitors who are ‘busy being busy’ with no clear focus or direction on what works for the future of their business. Try it. Let me know how you get on.

If you are a digital, tech or creative business and you would like some assistance in getting a better grip on your business finances then please drop me a line.

Most companies have 31 December financial year ends.

Yet you have a choice as to when your company accounting period runs to in the UK – unlike in some other countries – so there is no obligation to follow the crowd. Actually, there are some quite compelling reasons why you should opt NOT to have a 31 December year end:

• the company tax year runs to 31 March so tax changes are often enforced with effect from 1 April. Companies with 31 December year ends therefore have to tackle complicated in-year hybrid tax rates and calculations compared to say 31 March year end companies;
• the personal tax year runs to 5 April. Easier to plan your tax affairs for your owner managed business if your company tax year is more closely aligned with the personal tax year end;
• the end of the calendar year falls into the Christmas and New Year holidays – do you really need the stress of closing your company books for the year end on top of the end of year festivities?
• your compliance costs. Basic laws of supply and demand apply. If most businesses have year ends around the same time, most accountancy firms will be rushed off their feet between November to March so how much scope do you think they might have to share some cost savings with you…?

So how about having a 31 March company financial year end? Or if you want to be really adventurous you could have a 31 July year end? Wild, huh?

Note that there are Companies House documents to file and certain restrictions can apply in changing accounting periods – check with your accountant first or drop me a line in the contact section (tab at top)

Interesting comments from Ryan Carson of Carsonified in response to questions regarding hidden challenges lurking in global business via the excellent Duct Tape Marketing. He singled out dealing with VAT as one of the single biggest challenges in growing his UK training business to become a global player commenting:

The laws surrounding tax here aren’t written for the Internet age and don’t really make any sense. It was tough getting a straight answer from the tax man about who we needed to charge tax to and how much. Nightmare!

So true. Yet there have been further changes to VAT introduced this year to add to the confusion and administration. ‘Place of supply’ rules for VAT and determining which services are standard-rated, zero-rated, exempt etc are all routine causes for concern for UK businesses – such issues cause much head-scratching for many accountants let alone business-owners.

We need to simplify VAT administration for UK businesses especially when much of it comprises unpaid form-filling for the government e.g. EC Sales List, Intrastat etc let alone unpaid tax collection! And don’t get me started on the ‘reverse charge mechanism’!

Ryan Carson wisely sums up his advice for UK businesses looking to expand beyond UK shores by saying:

Call your accountant and check tax laws. It’s tough, but once you figure it out, it’s a huge new opportunity to grow your business. Just do it.

Expanding overseas is a minefield for the unwary with rules and regulations above and beyond VAT to contend with, however, by following Ryan’s advice in the above order a supportive professional accountant should be able to walk you through the process. Better to invest a little upfront and get it right, rather than have to unpick a series of potentially expensive cock-ups further down the line.

P.S. Get ready for the change in standard rate VAT from 17.5% to 20% from 4 January 2011.

Related articles

• Hidden Challenges Lurking in Global Business (ducttapemarketing.com)

Yet another insightful Techcelerate event this evening in Manchester chewed over whether ‘initial public offerings’ (IPOs) or ‘stock market listings’ are the right capital raising vehicle for growing technology businesses and the process required should they choose to go down this route.

Marcus Stuttard (AIM CEO) delivered a concise analysis of the advantages of listing on the markets including scenarios where this might not be so appropriate and then Anish Kapoor (Telecity LSE listing) and Simon Elms (Warthog AIM listing) delivered warts and all accounts of the IPO process as entrepreneurs who had been through it and managed to live to tell the tale.

Here are my notes:

1. Choose the right broker or nominated advisor (NOMAD). They hold the key to your long term success in the market.
2. Your management team will also be key to the success or otherwise of the IPO and beyond. Start making connections with potential non-exec directors etc who can help (sooner rather than later) with strategy and helping build your team in areas like finance and perhaps getting the wheels in motion to appoint a highly regarded chairman.
3. Have your business model nailed down before you start the IPO process. Markets don’t like unexpected strategic changes.
4. Be prepared for a long and arduous due diligence process in the run up to listing as lawyers and accountants crawl over your results and forecasts. Your business will be in better shape afterwards!
5. Costs of listing are significant – both in professional fees and management time. You then have the ongoing regulatory and reporting requirements to comply with. Think through why you are seeking a listing as there could be better alternatives if you are seeking a one-off injection of cash.
6. The flip-side of point 5 is that once you have been admitted to the markets, raising future cash is easier than seeking private / VC funding.
7. Institutional investors like to see a track record of management having successful executed IPOs and exits. They are prepared to invest in the management team – even for pre-revenue businesses.
8. Listings in the US are even trickier than the UK – tighter regulations etc. Proceed with caution.
9. VCs are increasingly looking to AIM markets to invest capital. Espec VCTs. Another advantage for listing.
10. Think about the impact on your staff and how the fluctuation of the share price might unnecessarily unsettle them. On the flip side, think of the opportunities to incentivise them with a ready market for the shares.
11. An IPO can be great for your PR in your sector – speaking of which, consider getting a decent PR agent as part of the IPO process.
12. For AIM you’re probably looking at a minimum capital investment of £2m+ with the majority currently in the £30m-ish bracket.
13. As a founder, think about when you can get your cash out post IPO – you will probably find you are severely restricted in cashing out shares due to potential negative sentiment and insider info plus lock-ins. Work this out upfront.
14. Don’t try to time the markets. You need to take the best deal you can get when presented if you are to continue to build your business and stay one step ahead of the competition.

Any further comments to add?

Here my short (impromptu) video on why I believe many business start-ups fail.

The old adage that “cash is king” remains as true as ever today, however, there is something else that I am increasingly seeing that can put the future survival of new businesses in jeopardy.

This issue is that: many startups fail to define upfront the market need or problem that their product or service will solve.

Seems obvious right?

You would think so but with so many new businesses looking to innovate into new areas and with technology providing an increasingly affordable platform on which to build new businesses, this consideration sometimes seems to get sidelined – typically until businesses seek funding and / or its too late.

So focus now on that particular market failure or wider need that your future business will plug in the world? What need are we anxiously waiting for you solve by creating your business? What frustrates you (and many others?) that your business will crack?

Be clear on the problem and your business solution and you will be one step ahead in defining future revenues and a potentially profitable business.