Today’s ramblings are about a new rival to Amazon – Jet.com.
Jet is already being courted by Walmart as it looks to beef up its online distribution model. With 12m lines already, Jet is looking to attack Amazon’s seeming dominance of the online market by offering household goods at cost price. Customers are rewarded with further reductions for buying in bulk.
So how does Jet make its money?
Via a yearly subscription of course – $50 per year. Not a lot in of itself but potentially huge if it gains mass take up. Whatsapp showed us the power of subscription models with its $1 dollar annual fee (pre Facebook days) – not wholly exciting until it reached 200m+ users and therefore a tidy $200m per year. Also, more recently, Dollar Shave Club?
I am a huge fan of subscription models. Think monthly Saas subscription business models; membership plans, continuity programs etc. A recurring income flow. Predictable revenues with no receivables to chase. Highly attractive to prospective purchasers if you are looking to build a company to exit.
Have a think how you can add the subscription model into your business, if you haven’t already….?
Kicking off a series of short daily podcasts. Something a bit different. Short. Off the cuff.
A bit like this blog post :)
PS The Ultimate Sales machine book comes highly recommended!
The 10 squared principle seeks to identify specific traits that appear to apply to successful businesses.
You should never be part of the operational team – ever! (Even if a train driver is off ill, you never see Richard B step in to take over!). The same principle applies here – you are the business owner.
Work on it, not in it.
Have one or more recurring revenue streams built into the business model. One-off sales should not form a core of your business. Aim for 50%+ of the income to be of a contractual recurring nature.
Trying to educate the marketplace on a new product or service can be very expensive. Stick to what is already known and well established.
Just execute better.
If the business model could be outsourced to offshore centres, it should be avoided.
Vanity projects are normally expensive and destined for failure.
These can change in an instant. You want a business for the long-term.
High value B2B sales can drain your cashflow as deals can take an age to complete. Smaller, cash intensive services / products via regular transactions are better.
Trainable to staff (locally) so no need to suffer from limited resource pool and specialist (spiraling) wages.
It could be the acquisition of an existing business that just needs to execute better (just so long as they adhere to these principles and the price is right!)
The small things count if applied and compounded day after day.
Please let me know if you think I’ve missed any hidden success factors…
I know it’s not cool to aim for being ‘ordinary’ and its not a label that you’ll want attached to your business but when it comes to your SEIS / EIS shares this is exactly the label you want – ordinary shares.
SEIS / EIS shares must be ordinary non-redeemable shares and carry no preferential rights to dividends or assets on a winding-up.
If you have institutional or other non SEIS / EIS investors then things can become more complex, if they say want preferential rights in relation to certain aspects of the business.
In this scenario, differing share classes would typically come into play with say ‘A’ shares for the founders, ‘B’ shares for VCs (both classes may have some preferential rights to varying degrees) and ‘C’ shares for SEIS / EIS investors – these being the ‘highest risk’ ordinary shares.
No one-size fits all but this gives you an idea. If you are going to go down the road of different share classes then bear in mind that this will require formal legal procedures to give effect plus amendments to the Articles of Association of the company (this goes beyond the scope of this course – get yourself a decent lawyer!).
This is a just one of a series of emails from our SEIS / EIS course – you can subscribe to the course below:
Judging by the rapid uptake in the number of calls and enquiries we are receiving on a weekly basis from entrepreneurs and founders looking to ensure that their company is SEIS / EIS tax ready – I think it is fair to say that SEIS / EIS tax benefits are now getting the attention they deserve!
So if you are a star company looking for rapid growth and you’re in search of investment, then you really need to get up to speed with the tax benefits that SEIS / EIS government tax incentives can potentially bring you.
I’m afraid to say that it can be quite complex in parts – good news is that we’ve set up an email course to help you swot up!
You can access it here:
The requirement for a company to have a ‘new qualifying trade’ (i.e. trading for less than two years) in order to qualify under SEIS is now fairly well trodden ground.
Less well trodden is the new requirement for EIS qualifying companies to have commenced trading (had first commercial sale) within the past seven years (there is an extension to 10 years for knowledge intensive companies). This applies to EIS shares issued from 18 November 2015.
There are various potential exclusions to this rule, but particularly pernicious are the rules related to groups – what about this for an example:
Company E was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company F on 1 March 2016.
Company F was incorporated on 1 February 2014 to trade as a brewery. Its first commercial sale was made on 1 June 2014. On 1 March 2015 company F acquired a pub which had started to trade on 1 April 2005.
Company E’s first commercial sale was therefore on 1 April 2005 and it does not meet the basic age condition
Seems fairly tenuous and serves to show just how careful companies will need to be in carrying out their due diligence regarding their qualifying status under EIS prior to issuing shares.
It might be useful to revisit one crucial factor in planning for SEIS / EIS:
The issue of new ordinary shares in exchange for a cash investment.
Then day-to-day reality steps in….
The shares are issued before the cash has cleared – oops!
The shares are issued way after the cash has cleared – oops!
HMRC could contend that in the first case the cash could never have been for the shares as they were issued before the cash cleared (two unrelated transactions, in their eyes) and in the latter case that it was a loan conversion – neither qualify.
What’s the solution?
Arrange so that the shares are issued on the same day as the cash clears in the company bank account. There can then be little argument over what the cash was for.
Simple; rarely easy!
This post is a sample from our SEIS / EIS training course that you can access by subscribing below:
Here’s a round up of some recent financial & tax news that might be of interest – you can find an audio download version of this post below:
Calls for quarterly R&D tax relief for SMEs
In an effort to boost SME cashflow, there are calls for the Government to make the UK R&D tax incentive a quarterly rather than end of year tax relief. Currently SME companies claim R&D tax relief retrospectively. Large companies can, however, reduce (in year) quarterly instalment tax payments that they are required to make thereby securing the benefit of the relief earlier. This measure would help level the playing field. This makes sense – we’ll have to wait and see…
March Budget 2016 – Pension countdown
George ‘O’ will step up on 16 March 2016 to deliver his Budget Statement and the big news is expected to be regarding restrictions on income tax relief on pensions for higher rate tax-payers.
Action point: Consider making pension contributions in advance of the Budget date.
Patent Box changes afoot – act now
New, more stringent rules will apply to companies that elect into the Patent Box tax incentive after 30 June 2016. This follows the ‘beating’ this UK Gov tax incentive received from other EU states following its introduction in 2013 (but for how much longer in the light of a possible Brexit….?).
Action point: If you have a patent or patent pending, consider electing in before 30 June 2016.
Get ready for new dividend tax rates
From 6 April 2016, new dividend tax rates will apply that results in an almost complete shake-up of the fairly established remuneration structures for most owner-managed companies.
Action points: Run some calculations to see how you might be affected and consider paying further dividends in advance of the 5 April 2016 deadline. Note that companies that qualify for R&D tax relief might have some of the down-side offset by receiving a greater proportion of the remuneration in the form of PAYE salary / bonus and claiming enhanced R&D tax relief (dividends are not eligible).
Buy-to-let changes – traps for the unwary
I probably don’t need to tell you more about the widely publicised restrictions being placed on buy-to-let interest relief etc but watch out for the Stamp Duty Land Tax (SDLT) 3% surcharge that can bite in what might otherwise be fairly innocuous circumstances…
For example, buy a new residential house before selling old residential house = 3% ouch! You might be able to receive a refund in these circumstances but the initial additional SDLT outlay can be significant and is yet another case of a tax sledge-hammer to crack a nut!
SEIS / EIS Course Launch
By popular demand, we have set up a new course setting out in the ins-and-outs of the hugely popular (yet often misunderstood!) Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).
These UK Government tax incentives are growing in popularity – especially with the growth of crowd-funding platforms such as Crowdcube. We have helped and continue to help 100’s of companies navigate and make the most of these tax reliefs which can be quite tricky to navigate for the uninitiated.
If you are a company founder or considering diversifying into business angel investing yourself, you should benefit from this course.
You can sign up to receive the course via email here:
The R&D tax relief is aimed at entities that are registered for UK corporation tax, so primarily UK companies.
The relief itself is administered through the company corporation tax filing regime.
Despite these benefits, it is surprising how many companies continue to overlook this government tax incentive and potentially miss out.
With this in mind, we have recently set up a new course on the UK R&D tax relief that might prove to be a useful primer for founders or entrepreneurs who would like to learn more about this attractive UK tax incentive and how you might benefit.
You can subscribe below: