1. Cash Flow, Finance & Grants

2. Aims To understand what issues impact on cashflow forecasts
To provide a basic understanding of finances when setting up a new business
To understand available sources of finance

3. Contents Finances overview Cash flow projections Tax issues
Start-up funding
Grants

4. Finances overview Profit & Loss Balance Sheet Cash flow projection
Summary of performance over a period of time, typically a year
Balance Sheet
Summary of assets and liabilities at a point in time, eg 31 December 2009
Cash flow projection
Looking to the future combining both of the above

5. Profit & Loss
Turnover 1,000 Cost of Sales (direct costs) (600) Gross profit (ie gross margin of 40%) 400 Overheads Property costs (rent, telephone, etc) (80) Staff costs (salary, recruitment) (152) Finance costs (interest, charges) (30) Depreciation (eqpt, computers, cars, etc) (12) Profit before tax 126 Tax (at 21%) (26) Net Profit 100

6. Balance Sheet Assets Liabilities
Buildings & equipment (owned)
Cash/bank
Stock
Debtors
Liabilities
Overdraft
Suppliers
Tax – PAYE, VAT, Corporation Tax (CT)
Loans – bank, personal, financing
Aim is (obviously!) to keep assets greater than liabilities

7. Cashflow Forecasts
One to one assistance available through the Ideas Factory to complete the forecast for theBizIdea competition submission
Aim:- to accurately reflect timings of cashflows and predict pressure points
Profit not the same as generating cash
Used by banks, investors, company accountants

9. Advice on completing forecasts
Be realistic!
Exclude VAT, where any applicable
Sales
Often disappointing in the beginning
Will a sale lead to instant cash?
Customers rarely pay on 30-day terms
How will that impact on how you bill people?
Invoice basis - payment terms?
Credit card, Paypal
Set up Standing Order
In advance
Stage payments
Will you licence the product or produce it yourself?

10. Advice on completing forecasts
Costs
Don’t underestimate
Are there any incremental costs? eg software licences/users
What are the terms of payment, eg GoogleAds daily
Asset purchases – when and how funded? Deposit required?
Tipping points
When do you take on new staff?
Will they need a new computer?
When will you upgrade software/equipment/website?
Do you need a second marketing push?
Will you need a new van to service increased sales? Buy or lease?

11. Tax issues
VAT
This is not your money, you just collect it on behalf of HMRC!
You can reclaim VAT that you incur on spending
Net of VAT on sales less VAT on purchases paid quarterly (other options available)
Register voluntarily or when turnover >£68,000
PAYE/NI (Income tax and National Insurance)
As well as PAYE and NI that you see on your payslip, the company pays additional employers’ NI (approx 12.8% of gross)
Payable monthly

12. Tax issues Research & Development tax credits
Corporation Tax (CT)
When make trading profits, CT payable 9 months after the period end
Research & Development tax credits
Government scheme to help fund early R&D
Dependent on strict spending criteria
Corporation tax relief of up to 175% re certain qualifying expenditure

13. Funding Savings Bank – loans, overdraft Remortgage Investors Family
Grants

14. Equity Money given in exchange for shares in the company Personal
Family
Other investors, eg Angel investors/venture capitalists
Expectation is for a return on this investment via:-
Future dividends (company must make profits)
Future sale of shares at a profit

15. Loans
Money given to company to be repaid over agreed period, usually with interest charged, eg:-
Personal
Bank (including overdraft)
Hire purchase, finance leases (usually for assets)
Invoice financing (borrowing against your sales)

16. Issues obtaining funding
Difficulties
Overcome by
Banks’ current lack of appetite for lending
Obtaining external investors
Personal guarantees (PG’s) required
Poor financial history
Lack of track record
Insufficient business plan
Try non-High Street banks
Angel investors/VCs recommended by advisors
Provide company assets as security wherever possible
Where PG’s given, get bank to remove when no longer required
Use experts to help produce plans and liaise with bank. No substitute for experience
Demonstrate enthusiasm and knowledge of your plan

17. Trading entity & background
Businesses can start as sole trades, but have assumed using a Limited company. Non-profit making organisations have similar issues.
Therefore have a legal requirement to keep proper books and records
Need to prepare accounts and VAT & tax returns
Summary:- need a good system to manage your accounts:
software
processes
filing, etc

18. Summary
Key to success is getting the project under way - get as much free as possible, scrounge second hand equipment, people’s time, office space, etc
Need a thorough understanding of how cash will be received and spent in your business
Establish the appropriate type of funding
Cash is king – don’t underestimate importance, most businesses fail due to lack of funds
Must come up with a compelling business reason for people to purchase your product or service
Good luck with your business plans and presentations!

19. Any questions? Julian Halton 0117 915 4152 Pete Edwards 0117 915 4153
Pete Edwards