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Slides for presentation at BigSmall Business Event hosted by Glasgow Chamber of Commerce in May 2011
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Glasgow Chamber of Commerce BigSmall Business Event
How to approach your bank for funding / get the tax structure
correct
11th May 2011
Simon Murrison / Bruce Wilson
The Firm - Our Philosophy
Our client base consists predominantly of owner managed businesses with challenging demands and changing requirements. We are committed to providing all our clients with the best professional and commercial services.
About me!
Qualified as CA in 1997
Joined a 3 partner firm in 1999 & became partner in 2005
Joined a multi-national firm in 2009 as partner
Returned to smaller sized firm in Jan 2011
Entire career spent dealing with start up to medium sized entities
How to Approach the bank for funding
How to Approach the bank for funding
Be prepared before you approach the bank
How to Approach the bank for funding
Be prepared before you approach the bank
Get your management accounts uptodate – need to demonstrate your trading history / understand trends.
Prepare profit and loss, balance sheet & cashflow projections for a minumum of 3 years ahead
Profit & loss / cashflow is not the same thing – key differences are timing & VAT
Have sound assumptions that your projection pack is based upon
How to Approach the bank for funding
Be prepared before you approach the bank
Include commentary on your business your expertise in the product / market industry sector your current market place target market place SWOT analysis
Ensure you approach the correct bank for your sector
All key points that your Accountant should be helping with.
ABC Limited
Profit & Loss Account
For the month of January 2011
January 2009 - 2010 Prior January 2008 - 2009 Prior
Monthly Monthly Year Year to dateY ear to date 2010 Year to date Y ear 2009 Year to date Y ear
September October November December January Budget Variance to date Budget Variance Total Total Variance Total Total Variance
Income
Subscription 27,316 27,218 26,665 26,824 25,525 28,179 -2,654 133,548 141,232 -7,684 49,272 151,865 -18,317 53,679 160,193 -26,645
Visitors fees 290 484 77 0 0 40 -40 851 960 -109 26 634 217 0 306 545
Visiting parties 0 60 -60 0 1,440 -1,440 0 1,480 -1,480 70 422 -422
Members visitors 1,380 1,023 406 0 82 100 -18 2,891 2,400 491 28 1,492 1,399 132 1,943 948
Other income 1,335 510 182 105 125 40 85 2,257 960 1,297 159 1,536 721 32 300 1,957
Bank interest 125 0 1,188 -396 229 83 146 1,146 417 729 0 0 1,146 0 0 1,146
30,446 29,235 28,518 26,533 25,961 28,502 -2,541 140,693 147,409 -6,716 49,485 157,007 -16,314 53,913 163,164 -22,471
Bar Account
Bar sales 3,321 3,215 1,903 293 665 430 235 9,397 10,320 -923 421 9,164 233 1,233 7,089 2,308
Bar purchases 2,681 1,069 1,845 -742 236 230 6 5,089 5,520 -431 49,906 166,171 55,146 170,253
Bar wages 3,137 2,052 1,595 1,610 1,550 2,083 -533 9,944 10,417 -473
-2,497 94 -1,537 -575 -1,121 - 1,883 762 -5,636 - 5,617 -19
Total Income 27,949 29,329 26,981 25,958 24,840 26,619 -1,779 135,057 141,792 -6,735
Overheads
Course
Wages 10,745 9,093 8,721 9,000 11,057 10,000 1,057 48,616 50,000 -1,384
Course Upkeep 623 650 864 430 482 500 -18 3,049 3,000 49
Plant Upkeep 965 242 763 2,594 2,258 1,500 758 6,822 7,500 -678
Petrol & Oil 24 1,108 357 819 310 558 -248 2,618 2,791 -173
Sundries 97 166 89 89 90 0 90 531 0 531
Clubhouse
Wages 754 1,725 1,725 1,895 1,778 1,792 -14 7,877 8,959 -1,082
Heat & light 1,086 2,096 2,415 1,961 1,581 2,500 -919 9,139 10,334 -1,195
Upkeep 1,650 930 1,394 735 835 1,000 -165 5,544 7,000 -1,456
Laundry & cleaning 911 686 947 571 636 1,083 -447 3,751 5,416 -1,665
Rates & Insurance 672 736 737 736 996 667 329 3,877 3,334 543
Sundries 225 170 63 20 23 0 23 501 0 501
Match
Team Expenses 437 1,148 1,336 0 443 791 -348 3,364 3,958 -594
SGU & LGU Levies 570 570 570 570 595 516 79 2,875 2,583 292
Prizes 1,439 868 0 0 209 -209 2,307 1,042 1,265
Merchandising 381 0 237 0 0 0 0 618 0 618
Administration
Secretary 1,953 1,952 1,952 2,234 2,013 2,083 -70 10,104 10,417 -313
Audit & professional fees 1,456 0 0 0 0 125 -125 1,456 625 831
Printing & stationery 119 191 850 3,245 31 164 -133 4,436 3,854 582
Postage 366 105 0 143 125 18 614 625 -11
Telephone 66 137 366 -6 -107 208 -315 456 1,042 -586
Marketing & advertising 456 0 517 0 62 208 -146 1,035 1,042 -7
Travel & subsistence 158 0 0 0 0 158 0 158
Sundries -125 1,131 72 275 416 -141 1,353 2,083 -730
Bank charges 79 110 121 537 93 208 -115 940 1,042 -102
Bad debts 2 0 0 0 0 2 0 2
Reserve Transfers
Depreciation 1,173 1,173 1,173 1,173 1,173 2,083 -910 5,865 10,417 -4,552
Buildings reserve 250 250 748 416 416 416 0 2,080 2,083 -3
Road transfer reserve 250 250 250 250 250 250 0 1,250 1,250 0
Practice area reserve 133 133 133 133 133 133 0 665 667 -2
Irrecoverable VAT 831 1,667 -389 1,666 1,667 1,666 1 5,442 8,333 -2,891
25,781 28,119 27,144 29,068 27,233 29,201 -1,968 137,345 149,397 -12,052
Net Profit / loss 2,168 1,210 -163 -3,110 -2,393 - 2,583 190 -2,288 - 7,605 5,317
-2,288
ABC Limited
Projections for the year ending 31st August 2012
Subs split 8.3% 8.3% 8.4% 8.3% 8.3% 8.4% 8.3% 8.3% 8.4% 8.3% 8.3% 8.4% 100%Visitor Income split 10% 10% 2% 1% 1% 1% 5% 10% 15% 15% 15% 15% 100%Bar income 10% 10% 2% 1% 1% 1% 5% 10% 15% 15% 15% 15% 100%Other income 10% 10% 2% 1% 1% 1% 5% 10% 15% 15% 15% 15% 100%
Monthly Year to date
September October November December J anuary February March April May J une J uly August Total Check Budget Budget
Income
Subscription 28,179 28,179 28,518 28,179 28,179 28,518 28,179 28,179 28,518 28,179 28,179 28,518 339,500 28,179 141,232 339500Visitors fees 400 400 80 40 40 40 200 400 600 600 600 600 4,000 40 960 4000Visting parties 600 600 120 60 60 60 300 600 900 900 900 900 6,000 60 1,440 6000Members visitors 1,000 1,000 200 100 100 100 500 1,000 1,500 1,500 1,500 1,500 10,000 100 2,400 10000Other income 400 400 80 40 40 40 200 400 600 600 600 600 4,000 40 960 4000Bank interest 83 83 83 83 83 83 83 83 83 83 83 83 1,000 83 417 1000
30,662 30,662 29,081 28,502 28,502 28,841 29,462 30,662 32,201 31,862 31,862 32,201 364,500 28,502 147,409
Bar Account
Bar sales 4,300 4,300 860 430 430 430 2,150 4,300 6,450 6,450 6,450 6,450 43,000 430 10,320 43000Bar purchases 2,300 2,300 460 230 230 230 1,150 2,300 3,450 3,450 3,450 3,450 23,000 230 5,520 23000Bar wages 2,083 2,083 2,083 2,083 2,083 2,083 2,083 2,083 2,083 2,083 2,083 2,083 25,000 2,083 10,417 25000
Bar Profit / Loss - 83 - 83 - 1,683 - 1,883 - 1,883 - 1,883 - 1,083 - 83 917 917 917 917 - 5,000 - 1,883 - 5,617
Total Income 30,579 30,579 27,398 26,619 26,619 26,958 28,379 30,579 33,118 32,779 32,779 33,118 359,500 359,500 26,619 141,792
Overheads
CourseWages 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 120,000 10,000 50,000Course Upkeep 1,000 500 500 500 500 1,000 3,000 3,000 2,750 1,416 1,417 1,417 17,000 500 3,000Plant Upkeep 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 18,000 1,500 7,500
Petrol & Oil 558 558 558 559 558 558 559 558 558 559 558 559 6,700 558 2,791Sundries 0 0 0 0 0 0 0 0 0 0 0 0 0 161,700 0 0
ClubhouseWages 1,792 1,791 1,792 1,792 1,792 1,791 1,792 1,792 1,791 1,792 1,791 1,792 21,500 1,792 8,959Heat & light 1,417 1,417 2,500 2,500 2,500 2,000 1,416 1,417 500 500 500 333 17,000 2,500 10,334Upkeep 1,666 1,667 1,667 1,000 1,000 2,500 2,500 2,500 1,667 1,000 1,200 1,633 20,000 1,000 7,000Laundry & cleaning 1,083 1,083 1,084 1,083 1,083 1,084 1,083 1,083 1,084 1,083 1,084 1,083 13,000 1,083 5,416Rates & Insurance 667 667 666 667 667 666 667 667 666 667 667 666 8,000 667 3,334
Sundries 0 0 0 0 0 0 0 0 0 0 0 0 0 79,500 0 0
MatchTeam Expenses 792 791 792 792 791 792 792 791 792 792 791 792 9,500 791 3,958SGU & LGU Levies 517 516 517 517 516 517 517 516 517 517 516 517 6,200 516 2,583Prizes 208 209 208 208 209 208 208 209 208 208 209 208 2,500 209 1,042Merchandising 0 0 0
AdministrationSecretary 2,083 2,084 2,083 2,084 2,083 2,084 2,083 2,084 2,083 2,083 2,083 2,083 25,000 2,083 10,417
Audit & professional fees 125 125 125 125 125 125 125 125 125 125 125 125 1,500 125 625
Printing & stationery 164 163 163 3,200 164 164 163 164 164 164 164 163 5,000 164 3,854
Postage 125 125 125 125 125 125 125 125 125 125 125 125 1,500 125 625
Telephone 208 209 208 209 208 209 208 209 208 208 208 208 2,500 208 1,042
Marketing & advertising 208 209 208 209 208 209 208 209 208 208 208 208 2,500 208 1,042
Travel & subsistence 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Sundries 417 416 417 417 416 417 416 417 416 417 417 417 5,000 416 2,083
Bank charges 208 209 208 209 208 209 208 209 208 208 208 208 2,500 208 1,042
Bad debts 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Reserve TransfersDepreciation 2,083 2,084 2,083 2,084 2,083 2,084 2,083 2,084 2,083 2,083 2,083 2,083 25,000 2,083 10,417
Buildings reserve 417 416 417 417 416 417 416 417 416 417 417 417 5,000 416 2,083
Road transfer reserve 250 250 250 250 250 250 250 250 250 250 250 250 3,000 250 1,250
Practice area reserve 134 133 134 133 133 134 133 134 133 133 133 133 1,600 133 667
Irrecoverable VAT 1,666 1,667 1,667 1,667 1,666 1,667 1,667 1,666 1,667 1,667 1,666 1,667 20,000 118,300 1,666 8,333
29,288 28,789 29,872 32,247 29,201 30,710 32,119 32,126 30,119 28,122 28,320 28,587 359,500 359,500 29,201 149,397
Net Profit / loss 1,291 1,790 - 2,474 - 5,629 - 2,583 - 3,752 - 3,741 - 1,548 2,999 4,657 4,459 4,531 0 0 - 2,583 - 7,605
- 7,605
ABC Limited
Actual - Budget for the year ending 31st August 2012
September October November December January February March April May J une J uly August Total Check
Income
Subscription 27,316 27,218 26,665 26,824 25,525 28,518 28,179 28,179 28,518 28,179 28,179 28,518 331,816Visitors fees 290 484 77 0 0 40 200 400 600 600 600 600 3,891Visiting parties 0 0 0 0 0 60 300 600 900 900 900 900 4,560Members visitors 1,380 1,023 406 0 82 100 500 1,000 1,500 1,500 1,500 1,500 10,491Other income 1,335 510 182 105 125 40 200 400 600 600 600 600 5,297Bank interest 125 0 1,188 -396 229 83 83 83 83 83 83 83 1,729
30,446 29,235 28,518 26,533 25,961 28,841 29,462 30,662 32,201 31,862 31,862 32,201 357,784
Bar Account
Bar sales 3,321 3,215 1,903 293 665 430 2,150 4,300 6,450 6,450 6,450 6,450 42,077Bar purchases 2,681 1,069 1,845 -742 236 230 1,150 2,300 3,450 3,450 3,450 3,450 22,569Bar wages 3,137 2,052 1,595 1,610 1,550 2,083 2,083 2,083 2,083 2,083 2,083 2,083 24,527
Bar Profit / Loss -2,497 94 -1,537 -575 -1,121 - 1,883 - 1,083 - 83 917 917 917 917 - 5,019
Total Income 27,949 29,329 26,981 25,958 24,840 26,958 28,379 30,579 33,118 32,779 32,779 33,118 352,765 352,765
Overheads
CourseWages 10,745 9,093 8,721 9,000 11,057 10,000 10,000 10,000 10,000 10,000 10,000 10,000 118,616Course Upkeep 623 650 864 430 482 1,000 3,000 3,000 2,750 1,416 1,417 1,417 17,049Plant Upkeep 965 242 763 2,594 2,258 1,500 1,500 1,500 1,500 1,500 1,500 1,500 17,322
Petrol & Oil 24 1,108 357 819 310 558 559 558 558 559 558 559 6,527Sundries 97 166 89 89 90 0 0 0 0 0 0 0 531 160,045
ClubhouseWages 754 1,725 1,725 1,895 1,778 1,791 1,792 1,792 1,791 1,792 1,791 1,792 20,418Heat & light 1,086 2,096 2,415 1,961 1,581 2,000 1,416 1,417 500 500 500 333 15,805Upkeep 1,650 930 1,394 735 835 2,500 2,500 2,500 1,667 1,000 1,200 1,633 18,544Laundry & cleaning 911 686 947 571 636 1,084 1,083 1,083 1,084 1,083 1,084 1,083 11,335Rates & Insurance 672 736 737 736 996 666 667 667 666 667 667 666 8,543
Sundries 225 170 63 20 23 0 0 0 0 0 0 0 501 75,146
MatchTeam Expenses 437 1,148 1,336 0 443 792 792 791 792 792 791 792 8,906SGU & LGU Levies 570 570 570 570 595 517 517 516 517 517 516 517 6,492Prizes 0 1,439 868 0 0 208 208 209 208 208 209 208 3,765Merchandising 381 0 237 0 0 0 0 0 0 0 0 0 618
AdministrationSecretary 1,953 1,952 1,952 2,234 2,013 2,084 2,083 2,084 2,083 2,083 2,083 2,083 24,687
Audit & professional fees 1,456 0 0 0 0 125 125 125 125 125 125 125 2,331
Printing & stationery 119 191 850 3,245 31 164 163 164 164 164 164 163 5,582
Postage 0 366 105 0 143 125 125 125 125 125 125 125 1,489
Telephone 66 137 366 -6 -107 209 208 209 208 208 208 208 1,914
Marketing & advertising 456 0 517 0 62 209 208 209 208 208 208 208 2,493
Travel & subsistence 0 0 158 0 0 0 0 0 0 0 0 0 158
Sundries -125 1,131 72 0 275 417 416 417 416 417 417 417 4,270
Bank charges 79 110 121 537 93 209 208 209 208 208 208 208 2,398
Bad debts 0 0 2 0 0 0 0 0 0 0 0 0 2
Reserve TransfersDepreciation 1,173 1,173 1,173 1,173 1,173 2,084 2,083 2,084 2,083 2,083 2,083 2,083 20,448
Buildings reserve 250 250 748 416 416 417 416 417 416 417 417 417 4,997
Road transfer reserve 250 250 250 250 250 250 250 250 250 250 250 250 3,000
Practice area reserve 133 133 133 133 133 134 133 134 133 133 133 133 1,598
Irrecoverable VAT 831 1,667 -389 1,666 1,667 1,667 1,667 1,666 1,667 1,667 1,666 1,667 17,109 112,257
25,781 28,119 27,144 29,068 27,233 30,710 32,119 32,126 30,119 28,122 28,320 28,587 347,448 347,448
Net Profit / loss 2,168 1,210 -163 -3,110 -2,393 - 3,752 - 3,741 - 1,548 2,999 4,657 4,459 4,531 5,317 5,317
-2,288
-2288
Actual Budget
How to Approach the bank for funding
Test the numbers – the bank will
Include sensitivity analysis Consider seasonal fluctuations Think about effect of changing the assumptions Do the numbers stack up
How to Approach the bank for funding
Understand ‘bank talk’
Bank covenants – devil is in the detail (who reads them)? EBITDA – Earnings Before Interest Tax Depreciation & Amortisation Underlying cash generation of business before servicing of debt, tax & fixed
asset write off Measured against the cost of servicing the debt – interest cover Allows bank to calculate head room for movement in interest rates Not just financial measures Reporting deadlines
Year end Management accounts – 30 days after quarter end (EFG)
Debt serviceability – how is it going to be repaid?
How to Approach the bank for funding
Understand ‘bank talk’
Security Property - max (65%) Cash cover – residential 190%, commercial 160% Rental yield needs to be good to build headroom if base rate goes up Value of debtor book Personal guarantee Floating charge – very hard to get as difficult for the bank to recover their losses
(past bad experiences)
Identify the funding gap & think through the type of funding most appropriate Standard Overdrafts – thing of the past Invoice finance Asset finance
How to Approach the bank for funding
Understand why the bank might say no
Why do you want to borrow the money? Banks generally will not fund HMRC! Your business plan & accounts Your business cashflow, profitability and existing commitments Any personal financial commitments that affect the business How you have handled your finances in the past Information held by credit agencies Any security provided
How to Approach the bank for funding
Future reporting requirements
Comparison of actual to forecasts Progress on existing / new contracts Revised cashflow forecasts Major capital spending proposals Yearly accounts & management accounts Debtors & creditors information
Ensure you address it before you proceed
How to Approach the bank for funding
Show confidence
If you don’t believe in your request then why should the bank fund it Be prepared to show your commitment – if you are not prepare to then the
bank will not do so either Think about getting your accountant to present the numbers When the client meets the bank the numbers should already have been in
principle agreed Client will in general then only talk about their product rather than finances Client in comfort zone
How to Approach the bank for funding
Over to Bruce .....
Correct Vehicle for tax
Don’t let the tax tail wag the commercial dog Traditional structures:
Sole Trader Partnership Limited Liability partnership Limited company
Analysis of Tax effects
Sole trader, partnership and LLP all treated the same
Individual pays tax at 20% on the first £35K (PY £37.4K) 40% up to £150K 50% thereafter Remember NIC!
Analysis of Tax effects
Limited company pays tax at 20% up to £300K
Extraction leads to possible double taxation Use Dividends – No NIC, watch reserves! Husband & Wife situations Settlements IR35 – disguised employment
Benefits and Pitfalls
Incorporation can benefit individual from Goodwill at 10%, live free of personal taxation?
Stop advance tax payments and reduce tax with overlap relief
Full Incorporation is a change, bank, PAYE customers, creditors etc
National Minimum Wage Increased compliance costs
Email – [email protected] - [email protected] – (email for copy of slides!!)
Tel - 0141 226 8484 / 0141 226 8484
Linkedin – Simon Murrison / Bruce Wilson
Twitter - @simonmurrison
Check out our affinity scheme at – www.glasgowchamberofcommerce.com