Startups

GF011 – What is SEIS / EIS HMRC advance assurance and how do I get it?

Posted on October 8, 2015 by Get Funded! podcast 0
Get Funded! podcast covering SEIS and EIS

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In this episode of the Get Funded! podcast we cover the all important:

HMRC SEIS / EIS advance assurance procedure

This podcast includes the following points with practical advice:

  • Why the advance assurance application is important?
  • How you apply for it?
  • Typical lead times?
  • What could go wrong?
  • Critical info to include?

As discussed in the podcast, the advance assurance procedure is not mandatory although it is highly recommended. This is your opportunity to get HMRC’s approval that your company is a qualifying company for the purposes of raising funding and issuing shares under SEIS / EIS. Most sophisticated investors will insist on evidence of a successful advance assurance application. This is your chance to flush out any uncertainties – don’t miss it! Listen to the podcast via the player below to learn more.

You can find the HMRC SEIS / EIS advance assurance online form mentioned in the podcast here.

Don’t forget that the typical turnaround time is 4-6 weeks for HMRC to respond to your advance assurance application. To avoid unnecessary delays, you would be well advised to get all your shareholder documents (including Articles with any revisions in contemplation of SEIS / EIS investors) finalised prior to filing the application. This is because HMRC will normally want to see the documents in as final form as possible. Otherwise you run the risk that HMRC will issue a ‘partial’ advance assurance in that they will ask for sight of the final version of (say) the Articles if further revisions are envisaged – so you would have to go through the process again. Tune into the podcast via the player below to learn more.

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Claim EIS income tax relief if you want a CGT free disposal

Posted on August 21, 2015 by Accessing Funding 0

Should have claimed EIS income tax reliefThere’s been a recent sorry tale of an EIS investor who invested £50k for shares in a qualifying company under EIS. All seemingly went well and he sold his shares for – what he thought would be – a CGT free disposal.

But there was a problem…

He had failed to make a claim for income tax relief on his investment which is a requirement of the EIS relief – his reasoning was that he had little, if any, taxable income in the relevant period. He was denied the opportunity to file a late claim for income tax relief so his case was dismissed – with a full CGT liability…

So the moral of the story for EIS investors is to make a claim for income tax relief on investments even if the income tax saving might appear pitiful – because the CGT saving might not be ;)

SEIS | Need to know facts for startups

Posted on September 4, 2013 by Seed EIS 0

SEIS Need to know tips for startups from Business N2K on Vimeo.

A short 5 min overview of the Seed EIS tax incentive and need to know facts and tips for startup founders.

Remember, SEIS requires a subscription for shares – loans do not work.

Look forward to your feedback and experience of using the scheme in the comments section below.

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10 Benefits of an EMI Option Scheme for Your Business

Posted on May 24, 2012 by Incentivising your team 0

I have just set up an Enterprise Management Incentive (EMI) Option Scheme for a (very happy) client and I have a number of others to set up over the coming weeks.

At a time when cash is tight, EMI option schemes are a cost effective and tax efficient way of incentivising key employees.

Here are just 10 reasons why I believe EMI incentives are a great way of incentivising key management:

  1. Employees feel valued as they may one day be shareholders in the business
  2. Employees feel like they’ve received a potentially lucrative bonus (but there is no cash outflow for you)
  3. Employees will start to treat the business like its their own – suddenly downtime and frivolous paper-clip fetishes are a thing of the past as such issues are chipping away at “their” capital growth!
  4. Employees are less likely to leave (as you will no doubt have built in provisions such that the share options lapse if they leave)
  5. Employees can have performance milestones built into the EMI scheme such that they can receive further share options if they do the right things in the business
  6. There is no tax suffered by the employee or employer on the grant of a share option
  7. You can agree in advance the market value of the shares at the date of grant with HM Revenue & Customs so that the employees can have certainty about their personal tax position
  8. Growth in shares under EMI are subject to more favourable capital gains tax rates
  9. Your company should receive a tax deduction on the difference between the market value of the shares at the point of sale and the exercise price
  10. You can structure the EMI options as ‘Exit Only’ such that the employees can only ever get their hands on the shares in the fleeting seconds before a sale of the company – so they can share in the upside of a share sale without hanging around the boardroom seeking to exercise their shareholder rights (albeit that they might only hold a handful of shares!) in the meantime.

Remember, the earlier you set up an EMI scheme the better as you can then peg the HMRC agreed exercise price down as low as possible before the company builds up in value over time.

How to get to grips with your business finances

Posted on December 9, 2010 by Cashflow Management 0

It is easy to get caught up in ‘doing’ rather than ‘running’ your business.

So many business owners find themselves running simply to stand still – finding new customers, taking and fulfilling orders and addressing (hopefully not too many) customer complaints.

Sometimes its difficult to see the wood for the trees:

I’m really busy so I must be making money – right…?

Not necessarily.

Understanding your business finances

It is understandable that, at the end of a busy day working in your business, you would prefer not to review your business finances. But if you don’t understand the numbers that your business is producing then how will you know which bits are working (and profitable) and which bits of your daily work are simply a waste of time and effort?

I frequently recommend that owners of new businesses sit down (at least weekly) with a pencil and journal (yes, that technical!) and write out the week’s sales figures and costs by hand. I find that there is something more insightful about using a pencil and paper compared to an excel or similar spreadsheet – perhaps its the exercise of writing by hand that makes you think more deeply about the figures and how they connect (or not…).

At its most basic, to write out your sales income (ideally split across services or products) and associated costs, will give you a much clearer view of what is profitable work and what is unprofitable – the figures rarely lie. You would be astounded how few entrepreneurs do this simple exercise – and by the number of business owners whose jaws hit the desk when they realise why (or even that!) they are losing money you can tell they wish they’d done this far earlier!

Moving on from pencil and paper to the day-t0-day, I’m a big fan of online cloud accounting packages like Xero as they provide a live dashboard view of the health and performance of your business. Now with live feeds across the majority of UK banks, entrepreneurs can get a realtime view of the health (or otherwise!) of their business. The bank balance is clearly there to see plus debts receivable as are costs payable. Cashflow is absolutely king for all businesses so the ability to see how much cash is in the bank, how much is due in and how much is due out at any one time is crucially important if you are to be in the driving seat in running your business.

Don’t get put off by accountancy mumbo-jumbo, simply by taking the steps set out above on a daily or at least weekly basis, you will be streets ahead of many of your competitors who are ‘busy being busy’ with no clear focus or direction on what works for the future of their business. Try it. Let me know how you get on.

If you are a digital, tech or creative business and you would like some assistance in getting a better grip on your business finances then please drop me a line.

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Seeking Seed Funding: 12 tips for early stage startups

Posted on July 15, 2010 by Business plans Startups 0

I was recently put on the spot at a Technology event and asked how much I would charge for assisting a tech startup in preparing a business plan to secure investment funding.

I answered “it depends”.

A cop-out? Not in my opinion. Why?

Because it depends on where you are in the investment cycle.

If you are seeking early stage seed capital then spending hours (and lots of cash on professional fees) on a detailed business plan will probably turn out to be a waste of time because most investment managers or angel investors will be interested solely in:

  1. the scale of the market opportunity and
  2. the commitment/enthusiasm/experience of you and your team.

The rest is all pie-in-the-sky – you know it and they definitely know it!

But as an early stage start up, how do you make the right first impression to be able to enter into meaningful conversations with potential investors and ultimately pave the way to attract venture or angel funding?

You need an introductory prospectus flyer or one-page teaser that hits the key points of interest to an investor. Getting the content and tone right is key.

Here are some of the key questions I think early stage start-ups should be addressing:

  1. What’s the open goal in the world that your product or service will  fill? Killer question demanding a killer answer.
  2. What is it that your competitors are not delivering or are incapable of delivering? (Don’t over flatter yourself. They are already up and running. You are not. Be courageous enough to acknowledge their strengths but pick out the areas where you plan to differentiate and thrive.)
  3. How would your customers describe the pain they are suffering and how does your product or service solve this? What would they do without you? (perish the thought!)
  4. How much more will it cost to get your product or service out to customers? Is it finished and ready to roll or do you need more investment in product development and research?
  5. Where has the technical know how come from? Are you entitled to commercialise the rights? e.g. Is it coding that you as founders developed yourself or have you used third party software or coding (other than open source)?
  6. How will you reach out to your customers? What is your planned mode of attack? Distribution channels? What will it cost? Is there anyone out there who you can partner with? If so, who? Be specific. Don’t say that you’ll rely on word of mouth or viral marketing or solely on some mode of social media. It could happen. That’ll be a bonus. But don’t hang your hat on it.
  7. How will you continue to grow sales or revenue without incurring a corresponding increase in costs? The posh phrase is “is it scalable?”. Investors like scaleable businesses. Why? The clue’s in the question.
  8. How easy will it be for others (especially your competitors) to copy you? Again, posh phrase is “do you have any barriers to entry?”. Barriers to entry might include technical know-how that could take competitors months or even years to crack – even better if you have patent protection. How much might it cost for your competitors to get up to speed? Would it be possible for you to set up quietly and hoover up a discreet market? You could them move onto another market niche or segment and another before the big players have cottoned onto this new challenger in their midst. This buys you time and the chance to build a fighting fund of cash and expertise before you go head-to-head…
  9. What’s the 3 – 5 year vision? Sure, things will change. You don’t have a crystal ball but you need a road plan with target dates and milestones. When will you break-even? When will you hit £X’000 revenue and profits etc?
  10. What are the big unknowns? What could go wrong and what steps are you taking now to mitigate these risks?
  11. Are there any other success stories in your sector? What values did they exit for and how quickly did they do it? Where did they make mistakes and what will you do differently?
  12. What’s your story? Where have you and your fellow founders emerged from? Do you have stories of previous success in similar sectors? Have you built and sold other businesses? Are you from a corporate role which is aligned with your new venture thereby giving you valuable inside track experience? Are any of the founders still in fulltime employment and what are the plans for taking this business to the next level? Investors will want to see enthusiasm, passion and ideally a proven track record of success and relevant experience. (Avoid flossing up your previous experience with overly grandiose claims. Stick to the KISS mantra – Keep It Simple Stupid!).

Concentrate your mind on these sorts of issues and it should save you a lot of time, effort (and cash!) in securing investor funding.

This list will no doubt keep on expanding but please suggest any other key criteria that you think is key for startups seeking funding.