Entrepreneurial

£1m benefit of being a tax aware entrepreneur

Posted on April 12, 2013 by Steve Livingston Entrepreneurial 1

Mark knew that his new business would be at the cutting-edge of technology and potentially even a world-player – exactly the sort of business that the UK Government is keen to promote and support in the form of tax incentives.

Fully aware of the opportunities that the UK tax code provided for releasing cash into his new venture, Mark kicked off by raising an initial £150,000 under the Seed Enterprise Investment Scheme (SEIS). A 50% income tax break for the investors made it easier to nudge up the cash they were willing to part with; plus the opportunity to sell their shares after three years – capital gains tax ‘free’ – made the investment even sweeter. Mark had pondered utilising this tax break on his own £10,000 investment into the company but decided that, on this occasion he wanted to retain more than 30% of the share capital (which precluded him from SEIS) – maybe next time…

This SEIS cash would be used to fund the R&D phase in employing a small team of developers. Given that the company was pre-revenue, Mark was able to claim a welcome tax refund from HM Revenue & Customs under the SME R&D tax credit scheme. This released in excess of £30,000 into the business which was promptly used to fund a further developer outside the SEIS funds to accelerate the project.

Having made significant inroads on the R&D work (whilst burning through in excess of 70% of the SEIS cash!), Mark approached investors for a further round of funding – this time under the Enterprise Investment Scheme (SEIS’s ‘big brother’!). A 30% income tax break this time for investors (plus potential for a capital gains free exit) provided sufficient enticement for investors to inject a further £2m into the company.

Meanwhile, whilst the R&D work was ongoing, Mark had made investigations regarding the potential for filing one or more patents on aspects of the underlying invention generated by the R&D work. With the arrival of the new Patent Box tax incentive from 1 April 2013, Mark knew that a 10% corporation tax rate by 2017 on worldwide income derived from qualifying patents could add additional value to his company as it approached an exit as well as releasing further much needed cash into the business from now until then.

Eyeing an exit in 3-5 years time, Mark ensured he retained at least 5% of the share capital post dilution at each funding round in order to secure a capital gains tax rate of just 10% on his first £10m of gains. His SEIS and EIS investors should be extra happy with a 0% capital gains tax rate after three years!

All in all, Mark had pulled the relevant statutory tax incentive levers to maximise the release of cash into his business at each stage of its life-cycle. What was this worth? It depends – the SEIS, R&D and EIS savings total approximately £700,000 but assuming a profitable few years under the the Patent Box and taking into account the above savings it is not difficult to reach overall pre-exit cash tax savings of £1m+.

Getting advice from the start can get you on the road to being a tax aware entrepreneur…

image credit: Hartwig HKD via Compfight

EIS or SEIS – You decide!

How much money should I take out of my business?

Posted on September 12, 2012 by Steve Livingston Entrepreneurial 0

A common question asked by business founders and entrepreneurs is how much of the profit generated (after paying all expenses) they should leave in the company – or put another way:

“How much should I pay myself?”

Here are two scenarios:

William pays himself enough to live off, pay the bills and take the family away for a well earned holiday abroad each year. The remainder he leaves in the company to strengthen its balance sheet and reinvest in new products, services and people as the opportunities arise (as well as protecting against a sudden unexpected ‘black swan‘ downturn in the market). William is mindful of the risk that carrying too much cash could interfere with the trading status of his company in the eyes of the tax authorities and this is kept under review by his trusted Wing-Man (his accountant).

Meanwhile, Harry strips the majority of the cash out of his business each year leaving some to protect against downturns. He works with his ~~accountant~~ Wing-Man to manage the tax efficient extraction of the profits to avoid any unnecessary tax leakage.

Which strategy is right?

It depends on the goals and aspirations of the founders plus the opportunity cost of either extracting or leaving the cash in the company.

As an entrepreneur you are both a wealth creator and an expert capital allocator. So you must have a plan as to the optimum way you can deploy and allocate the wealth you create for maximum future returns.

If you adopted William’s strategy and stripped most of the profits out you had better have a good plan as to how you are going to deploy that cash to get the best return on your capital. For example, are you going to invest in new ventures, back some promising entrepreneurs as a business angel (SEIS might be of interest?) or perhaps invest in property?

Leaving the cash on deposit in your current account is not a good strategy.

On the other hand, if right now you see plenty of opportunities to get a good return on your capital in the business then leave it in there and take some small bets on new products, services or other initiatives and build from there.

Back to the question and answer: it depends.

There is no definitive answer as it depends on a number of factors including:

your goals
where your business is up to in its lifecycle
what opportunities exist inside your business
what opportunities exist outside your business

Always good to discuss your personal strategy with a trusty Wing-Man….

7 Traits of Successful Fast Growth companies

Posted on July 19, 2012 by Steve Livingston Entrepreneurial 0

What is it that makes some businesses far more successful than others?

In the years I have worked with successful fast growth companies I have seen the following traits displayed by each of them

1. Think BIG

These highly successful fast growth companies may start out small but they think big from day one. This may be evident from their aggressive growth targets; their fearlessness in competing against companies 100 x bigger than them; or how they organise themselves internally with CEO, CFO, CMO etc titles.

2. Cover bands don’t change the world

Their mission is crystal clear. They know what they want to achieve even if they’re not exactly sure how they will make it happen – yet. To be another “me-too” business is not an option. The mission is sometimes disruptive in existing markets; sometimes a new slant on existing markets or other times striking out into completely new blue ocean markets. Having a clear mission that cascades throughout the organisation allows for decisions to be made quickly: “Does this move us closer to our mission / goal / objective – Yes or No?”

3. Give me a lever long enough and I’ll move the world

The business must be scalable if it is to continue on its growth trajectory without sacrificing the majority of its profit margin on more people, materials etc. Achieving scalability is different from business to business but every successful business has a plan for profitable scalable growth.

4. Clients’ interests are always put 1st

No matter what internal protocol says, if a client is unhappy they will go the extra mile to put it right. There is no navel gazing. They treat every client like it is their only client. I use the word ‘client’ rather than ‘customer’ deliberately – a customer may be viewed as transactional – a ‘one-off’ – whereas a client is a long-term relationship. These successful companies want clients.

5. No need for corporate values charts

Every member of the team is an embodiment of the culture of the organisation in the way in which they act every day. I am not sure if this stems from the fact that the founder(s) of the business are directly involved in the recruitment of new staff in the early stages and therefore recruit only those who understand and resonate with the mission of the business? Whichever, it works as you will often hear clients or suppliers reflect “Where did they find staff like that? They were so keen, so helpful, so eager to please – it was a pleasure working with them”.

6. Invest in many small bets

They know that if they are to grow and respond to changing market needs they will need to take risks and try new stuff. Trying new stuff costs time and money. Staking the future of the business on 1 new idea, product or service is folly – the walls can crumble in an instant if the project fails. So rather than sit tight and do nothing, these highly successful businesses try lots of little projects and test them with the market. If the feedback is positive (and cash is being received) then they can invest little by little into these little bets until they have a fully fledged new offering.

7. Dynamism is built into their DNA

It seems like there is a constant feedback loop going on in the business. Client-facing team members share successes and failures internally with lightening speed. Advances in technology allow these businesses to observe and listen to client needs. Tweaks to products and/or services are made on a daily basis. There is no standing still. Ever.

Preventing potentially expensive business balls-ups!

Posted on January 20, 2011 by Steve Livingston Entrepreneurial 0

It’s been a busy start to the year so far. It’s nice to see businesses that I’ve been talking to and getting to know for a number of weeks, months (or in some cases years) reach critical points in their business lifecycle in either starting new ventures, seeking and raising funding or selling their businesses.

I’ve been privileged to work alongside and advise these businesses across all of the above scenarios in just the past week alone and have sought to put them in the best possible position (and side-step any potentially expensive business balls-ups!).

Having the benefit of working alongside and advising growing entrepreneurial businesses every single day allows me the benefit of spotting latest trends and recurring issues which in turn allows for practical hands-on advice to be passed on – in nearly all cases aimed where possible at ‘prevention’ rather than cure – as digging businesses out of holes that they have inadvertently created is normally a whole lot tougher (and more expensive) than getting things right from the outset.

This is where a good relationship with an accountant who is familiar with your sector can help. Even if it’s just to meet up for a coffee and chat. There’s no need for this to be overly formal or regimented. We’re here to help.

If you’re in the digital, tech or media space (or simply an ambitious business with BIG plans) then please get in touch. It costs nothing to have a chat. I would love the opportunity to show how we can help.

Become a Nose Collector

Posted on November 9, 2010 by Steve Livingston Entrepreneurial 0

I like the idea of turning our natural inhibitions about selling products or services on its head – so rather than tentatively seeking a ‘Yes’ from prospective clients or customers, instead how about focusing on becoming a collector of ‘No’s’ (or should that be ‘nose’ :))?

Approaching new business generation from this perspective suddenly becomes a whole lot more fun. Your aim now is to meet as many people as possible to talk about their problems and issues and to see if you can interest them in saying ‘No’ to your offer of assistance. You become more natural and less pressurised in your approach and more focused on understanding the needs and interests of the people whom you meet. A win-win.

So how many ‘No’s’ can you collect this week?

How to tap into your business MOJO

Posted on November 6, 2010 by Steve Livingston Entrepreneurial 0

Lunch at Mojos in Rhosneigr, Anglesey is always a treat.

I think all businesses could learn something from from this superb little cafe.

Mojos captures the following key principles of all successful businesses:

1. Focus on your strengths
Mojos serves crepes. Sweet ones and savory ones but not a whole lot else besides. So they are good at making super tasty crepes. In fact, you’d be hard pushed to find better crepes this side of France. The evening menu has a choice of two main courses – a beef or a sea bass dish. That’s it. But they are equally excellent. Keep it simple.

2. Have a story
Alex, who co-owns Mojos, is a former kite-surfing champion. When he’s not teaching kite surfing or scuba diving to catch fresh bass for that evening’s dinner guests, he helps serve whilst his partner prepares the delicious food in the centre of the cafe. Not your average eating establishment set up.

3. Be unique
This is no copy-cat, run of the mill mundane high street cafe. The food is simple yet special and to top it all the cafe is named after Mojo, the cafe dog. Cartoons of Mojo adorn the menus and he occasionally graces the cafe, when he’s not wandering around on Rhosneigr beach – normally waiting for Alex to come back into shore from a stint out kite surfing!

Follow these simple principles and you too should be able to tap into your business MOJO.

Complimentary Bytes

Posted on November 5, 2010 by Steve Livingston Entrepreneurial 0

With the rise of technology infiltrating all aspects of business, it could be easy to dismiss the future prospects of traditional businesses. To swap ‘bits’ for ‘bytes’.

If you sell music or books from high street retail shops, then this pessimism may be justified given the ease of delivering such products in digital form – itunes, Amazon Kindle (bytes) versus HMV and Waterstones (bits)….

But what if it was possible to build a business in bits that could compliment a bytes businesses?

Think what ebay has done for shipping and postage companies – from a few selling to many, we now have many shipping to many via ebay and Amazon Marketplace. New postage, mailing and courier companies are surfacing to meet this increasing demand.

The challenge now is for traditional ‘bits’ businesses to project forward to how their business might look as digital ‘bytes’ businesses, and to seize the first mover advantage or to look for complimentary services to keep on delivering the bits service in a bytes marketplace.

In a nutshell, to provide complimentary bytes.

Missing link to business success

Posted on June 16, 2010 by Steve Livingston Entrepreneurial 0

Luke Johnson, serial entrepreneur who runs Risk Capital Partners, gives a good summary of what it takes to be successful in business. Recommended reading. (His columns in the FT usually are).

I would add one further trait that I see in all entrepreneurs who make it:

It’s that glint in the eye. A steely determination. Listening yet displaying an overarching knowingness. Some might call it passion. It is. But its more than that. Its a level of commitment that transcends all. Like the bridges back to perceived safety and comfort have been burnt and there’s no turning back. “This has got to work – or if not this one, my next venture will.”

Nothing beats the energy and excitement of working with and being in the company of entrepreneurs.

What key traits or attributes would you add as contributing to success in business?

Photo credit: Paul (Dex)

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