Until quite recently the options for financing a business were limited to banks and high wealth individuals. The introduction of Crowdfunding through websites such as Zopa, Ratesetter and Funding Circle, has changed everything, allowing business owners to contact thousands of potential funders to each make a small contribution.

With historically low interest rates many individuals are finding that this is giving them better rates of return. The finance can take the form of business loans or equity funding, but because of the risks potential lenders need to know what they are investing in, so may want more information about the business, the reason for the loan and any explanations about anything unusual in your accounts.

Crowdfunding is a relatively new concept and it has yet to be seen what lenders attitudes will be if there is a downtown in the economy and a rise in bad debts.

Whilst not necessarily for everyone, as you may not meet the lenders criteria, it is rapidly becoming a serious alternative to the traditional sources of finance and should be considered.

The change to the taxation of dividends announced last year was bad news for individuals who operate as limited companies. Until 6th April, the most tax efficient strategy was to take a small salary and the remainder as dividends as there were no NI contributions and no tax on those dividends unless you were a higher rate taxpayer.

The new 7.5% tax on dividends in excess of £5,000 has reduced the tax advantage substantially but a business with profits of £30,000 would still be about £700 better off than an equivalent unincorporated business. At £60,000 the tax advantage is about £3,500, however above that the advantage tails off and is effectively lost by businesses earning more than £130,000 per year.

This assumes that all post-tax profits are extracted from the business. If the profit is left in the company then it will not be subject to the dividend tax and can be taken when the financial position makes it more tax efficient.

If profits exceed £130,000 business owners may be tempted to disincorporate, but just because profits are that high in one year it does not necessarily mean they will be in future years so the timing of dividends can be arranged to minimise tax paid. They also need to consider whether the loss of limited liability is an issue.

For most businesses a limited company is still the best structure but for those with high profits, it is advisable that detailed profit projections are prepared before making any decisions. For further advice, please contact us.

There was concern about the state of the economy before the out vote and now the future is much more uncertain. Although there will be little change immediately, it is difficult to predict what the long term implications will be and the longer that the political uncertainty continues the bigger the impact it will have on both consumer and business confidence.

Until the government decides our new trading relationship with the EU, it is difficult to know how it will affect bank lending, taxation, employment of EU nationals and inflation.

For their own political reasons the other EU members are likely to insist on the free movement of workers in return for access to the single market. This leaves an unpalatable choice of losing access to our biggest market or agreeing to the free movement of workers which would disappoint those who voted to leave.

The impact of the leave vote will be different for every organisation. Whilst the affects are likely to be greater for businesses that trade with Europe, all business owners will need to consider the likely implications. Our key considerations are:

Employment

• If you employ EU citizens, what reassurance can you give them about their employment status?
• Review employment contracts and take steps to secure any important non-UK staff as employment restrictions are likely to only apply to new recruits.
• Review recruitment procedures to check you have evidence that new recruits are eligible to work in the UK.
• If the employment of overseas workers is restricted consider how will you replace that workforce?

Sales

• Review your export exposure. What will the effect be on your business if import tariffs are imposed?
• If your business is dependent upon exports consider whether there are opportunities for acquisitions or joint ventures with EU partners.
• Review which customers or suppliers might be affected by short term volatility? You may not be dependent on exports but your customer might.
• Identify commercial opportunities in non-EU markets.

 

Finance

• Review sources of capital and risks around refinancing.
• Assess future funding requirements and opportunities.
• Consider what to communicate about risks to banks and other lenders.
• Review the cash flow implications of possible changes to VAT and corporate taxation.
• Assess exposure to likely interest rate and exchange rate fluctuation. Consider currency hedging if necessary.
• Review capital expenditure plans