Investors

Small Business: How to attract investors

Making your small business attractive to investors requires thorough preparation, a great plan, a winning pitch and a habit to think win-win.

Investors

Whether it’s a loan from a high street bank, an angel investor or through an online crowdfunding platform, securing some investment in your small business allows you to take that leap forward, develop new products and/or services, expand your market and increase sales.

In this article, our small business accountants look specifically at how you can make your small business attractive to investors, allowing them to invest in your company and help you grow your business.

Preparation is key

In the wise words of Alexander Graham Bell, “Before anything else, preparation is the key to success”. In this instance, before even looking for investment, take a moment to examine every aspect of your business and understand the accounts. The reason is simple – if you have a realistic understanding of your business and the marketplace, you will have a healthy dose of confidence and enthusiasm, which in turn will allow potential investors to see that there is potential in your business.

Write a great business plan

At the heart of many successful businesses is a clear, detailed, well-written and well-researched business plan. The main objective of the business plan is to help you prioritise – the plan gives you direction, maps out strategies and helps you to manage challenges along the way. Coincidentally, your business plan can also help you get additional funding that will fuel business growth.

To attract investors, your business plan should clearly set out the unique selling points of your brand/product, provide a thorough analysis of your business SWOTs (strengths, weaknesses, opportunities and threats) and of your competitors. It should clearly outline your operating costs, provide realistic sales and profit projections, and the marketing strategies you will use to achieve them.

Know your numbers

Sound financial management is a critical aspect of running a business. Financial data aren’t just a bunch of random numbers – they can tell you when is the best time to purchase inventory, how to set an optimal price structure, and where savings can be made, among others.

Become fluent in discussing your turnover, gross profit margin, operating costs and projected sales figures. If you aren’t a numbers person, call upon a professional small business accountant like our team at Tax Agility. We can help to review and analyse the numbers, giving you an accurate picture of the financial performance of your company. By reviewing data, we can also give you a clear understanding of how much capital you may need from the investors and how the investment arrangement might work.

Call your trusted small business accountants today on 020 8108 0090.

Have a winning pitch

When it comes to a winning pitch, it is wise to have a few versions tailored for different audiences. Have a short 60-second pitch that sums up what your company does and its ambitions. Craft a version that highlights why you are different and what problems your business is helping to solve. You can also include some financial numbers and positive feedback from your customers in another version. Take your time to develop the different versions and craft them over time.

Pitching is a real skill and it takes time to master. Practise whenever you can, and use feedback to hone your pitch to perfection. When you can deliver your pitch confidently, fluently and naturally to the right audience, you are already halfway to success.

Think win-win

Be clear on what you need from an investor. Money is essential but ideally, you also want to gain from the experience and connections of your investor. You want to learn from them, get the right advice and be introduced to the right people for the next stage of business growth. If your exit strategy is planned many years from now, you need an investor who is committed to working with you for the long haul too.

On the other hand, be clear on the benefits to your investors too. It stands to reason that any investor looking for a sound financial return will want some assurances on the benefits they can expect and when. But investors have other reasons to say “yes”. They may invest in a project because it is interesting, challenging, something exciting for them to be a part of. They may also be looking to broaden or deepen their investment portfolio in particular industries or markets. So step into their shoes and understand what makes them tick.

Funding options

Most companies acquire additional funding through debt financing or equity financing.

A debt-style financing option means you borrow money and pay it back with interest. The advantages of this type of financing include:

  • There are quite a few reputable lenders out there and some may consider your loan without collateral if your company’s financial track records are sound.
  • The interest rates can be low, especially if you seek out government-backed schemes.
  • Interest paid on business loans is a deductible expense.
  • Unlike equity financing, debt financing means you retain ownership of your company.

Debt financing does have its limitations and they include:

  • Lenders do not lend you money on the basis of a great idea. They want to see good track records.
  • They may ask for collateral or want you to guarantee the loan personally. This means you are putting your personal asset at risk.
  • Paying off loans is easy when your business is profitable, but challenging when the business hits a rough patch.

Equity financing means the investors will gain a share of your business – if this is on the table, talk to one of our small business accountants about the legal and financial implications of equity financing first.

The advantages of equity financing include:

  • There is no need to make any ongoing repayment. Instead, you can now channel the money to spur growth.
  • Your investors tend to have valuable experience and connections, which in turn will help your business further.

The disadvantages of equity financing include:

  • You don’t have full control of your company now. You will be sharing all profits and potential advantages with your investors.
  • Disagreements may break out. Sometimes bad personal relationships can overshadow a company’s performance.

If you’d like to know more about different types of funding, follow the link to The complete guide to business funding.

Finding investors

If you’re serious about business funding, you should actively seek out angel investors, put your pitch on a crowdfunding site, or talk to your bank manager. You may also want to convince your friends and relatives to loan you money and help your business expand – but be careful as mixing business with your personal life can lead to conflicts. It may be worth seeking legal advice and drafting a contract to help minimise any ill-feeling should things not go to plan.

You could also try a warm approach like talking to friends at networking sessions or a cold approach such as talking to strangers at industry conventions. The idea that someone may know someone who can help is sound, but don’t assume that it is guaranteed.

Choose your investors carefully

It is tempting to strike a deal with the first person you meet with an open wallet. But when securing investment in your business, it pays to be discerning. Striking a deal with the right people and on the right terms can create a mutually-beneficial relationship supporting the sustainable growth of your business. Working with the wrong investors however, could create unnecessary stress and stifle potential opportunities.

Welcome diversity

Consider attracting a broader range of investors to your business to open up exciting and valuable opportunities. Your team of investors will bring a more diverse breadth of knowledge and experience to the table, helping you better navigate new markets and grow your business.

It’s more than the money

Raising the capital you need to develop your business is, of course, the key reason to seek investors. But your investors can be so much more than a source of cash. They may have considerable experience, business skills, industry knowledge, and valuable wisdom and contacts. Keen to see your business thrive, investors can act as an effective business consultancy service. They may come with expertise in specific fields such as marketing, finance, strategy, logistics or law. They can help you make inroads into new markets.

Your investors can also act as valuable mentors: providing advice, encouraging you and keeping you going when you want to give up. An ideal investor genuinely cares about your business, they will be happy to invest themselves in your success, not just their money.

It isn’t just about the business, it’s about you too

While you need to convince your investors that your business plan is sound and your numbers add up, beware that most investors are investing in you and they are interested in who you are and how you work. So here three tips which can help to foster a promising relationship with your investors.

Be accessible

Reassure investors that you run a tight ship and that their valuable investment is in a safe pair of hands. Answer the phone when they call and respond to their email enquiries promptly. Never appear evasive. Communicate with clarity, honesty and professionalism at all times to help build their trust in you.

Be honest

Any investor worth their salt is primed to detect the tiniest whiff of hogwash. If you are tempted to tell a few fibs to make your company look more promising than it is, you will get found out, damaging the trust that you may never get back.

So present an honest picture of your business and what you can deliver. Be open about any potential obstacles or threats you perceive and have a strategy to deal with them.

Be a leader

Investors are shrewd business leaders who know how to stay focus by delegating tasks they aren’t good at to people who can do them better. If you are the person who insists on doing everything yourself, sooner or later you will push yourself to breaking point. Learn to lead by delegating tasks and engage at the right level.

Tax Agility can help your small business

At Tax Agility, our team of chartered accountants based in Putney, Richmond and Central London have been helping small business owners. We are here to make sure your accounts are accurate, profitability is maximised, and growth opportunities are identified.

When it comes to attracting investors for your small business, there are many ways which we can help. For instance, we can help you to prepare realistic forecasts and answer any questions they may have pertaining to the numbers. We can also recommend best practices that help your company run efficiently and in compliance with the authority.

If an equity financing is on the table, we will work with you to value your business (so you know what you’re swapping in exchange for funding), along with legal and financial implications you may face.

Call us today on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

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Business records checks: how to keep good business records

Invoice

HMRC requires business owners and sole traders to keep good business records so the correct amount of tax can be calculated and paid.

On this gov.uk page, HMRC makes it clear that businesses must keep records to fill in tax returns and pay the right amount of tax at the right time. HMRC also states that it can choose to check your records.

While the checks are usually conducted over the phone, HMRC can choose to pay you a visit and ask you to explain about your business and how your records are kept. They will also seek to verify a few transactions before deciding if your business records are adequately kept or not.

The thing is, even if HMRC doesn’t tell you to keep good business records, it is wise to make the process as part of your financial discipline. Business records are useful – for example, historical data can help you plan and set realistic goals for the future, making sure that your business remains profitable and on the right growth path.

In this article, our small business accountants aim to discuss:

  • Business records for a limited company
  • Business records if you are self-employed
  • PAYE records if your business employs staff
  • VAT records if your business is VAT-registered
  • Pay and tax records for your Self Assessment

Keeping business records for a limited company

HMRC is very clear that every limited company must keep two types of basic records: records about the company, as well as financial and accounting records.

Records about the company

As a company director, you must keep the followings:

  • Details of directors, shareholders and company secretaries
  • The results of any shareholder votes and resolutions
  • Promises made to repay medium to long-term loans at a specific date in the future and who the creditors are
  • Promises made if something goes wrong and it is the company’s fault (‘indemnities’)
  • Transactions when someone buys shares in the company
  • Loans or mortgages secured against the company’s assets
  • Register of people with significant control, referring to anyone who has more than 25% shares or voting rights, can appoint or remove a majority of directors, and can influence or control your company.

Financial and accounting records

You must keep:

  • All money received and spent by the company
  • Details of assets owned by the company
  • Debts the company owes or is owed
  • Stock the company owns at the end of the financial year
  • The stocktakings you use to work out the stock figure
  • All goods bought and sold
  • The suppliers you bought the goods from and the clients you sold to (unless you run a retail business where you can’t identify each customer)
  • Records that are used to prepare and file the annual accounts and Company Tax Return

The last point can include:

  • All money spent by the company, for example receipts, petty cash books, orders and delivery notes
  • All money received by the company, for example invoices, contracts, sales books and till rolls
  • Any other relevant documents, for example bank statements and correspondence

How long to keep these records

All company and accounting records must be kept for 6 years from the end of the financial year they relate to. Sometimes you are required to keep them longer if:

  • They show a transaction that covers more than one of the company’s accounting periods
  • The company has bought something that it expects to last more than 6 years, like equipment or machinery
  • You sent your Company Tax Return late
  • HMRC has started a compliance check into your Company Tax Return

If the records are lost, stolen or destroyed

In the event that your records are lost, stolen or destroyed, you must do your best to recreate them. You must also inform your Corporate Tax office accordingly and mention this in your Company Tax Return.

Business records if you are self-employed

If you are a sole trader or a partner in a business partnership, you must keep records of business income and expenses, which are:

  • All receipts for goods and stock
  • Bank statements, chequebook stubs
  • Sales invoices, till rolls and bank slips

If you are using traditional accounting, you must also keep:

  • What you’re owed but have not received yet
  • What you’ve committed to spend but haven’t yet paid out, for example you’ve received an invoice but haven’t paid it yet
  • The value of stock and work in progress at the end of your accounting period
  • Your year end bank balances
  • How much you’ve invested in the business in the year
  • How much money you’ve taken out for your own use

You do not need to send your records when you submit your tax return but you need to keep them so you can work out your profit or loss for your tax return. Also, when HMRC asks, you have records to show them.

In addition, you must keep records of your personal income.

How long to keep these records

You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. If you send your tax return more than 4 years after the deadline, you’ll need to keep your records for 15 months after you send your tax return.

If the records are lost, stolen or destroyed

In the event that your records are lost, stolen or destroyed, you must do your best to provide the figures. When you file your tax return, tell HMRC if you are using estimated figures or provisional figures. Provisional figures mean temporary estimates while you wait for the actual figures and once the actual figures arrive, you will need to submit them.

PAYE records

A large portion of small business owners today choose to outsource their payroll service to an accounting firm like us for cost-saving purposes. Providing complete payroll services, we take care of your payroll function (including records keeping) and make sure that it is complying with regulations.

Payroll records to keep are:

  • What you pay your employees and the deductions you make
  • Reports and payments you make to HMRC
  • Employee leave and sickness absences
  • Tax code notices
  • Taxable expenses or benefits
  • Payroll Giving Scheme documents, including the agency contract and employee authorisation forms

How long to keep these records

You need to keep them for 3 years from the end of the tax year they relate to.

If the records are lost, stolen or destroyed

With Payroll, you report the figures to HMRC every month so when you cannot find the records, HMRC may be able to help by providing you with the historical figures you have paid your employees.

If you are using estimated or provisional figures in your final payroll report to HMRC, you must tell them accordingly.

VAT records if your business is VAT-registered

If your business is VAT-registered, the records to keep are:

  • Sales and purchases
  • VAT invoices
  • A separate VAT account

If your business has a turnover of more than £85,000, you must follow the rules for Making Tax Digital (for VAT) which require you keep some records digitally.

The VAT account is a summary of your total VAT sales, total VAT purchases, and the VAT you either owe HMRC or can reclaim from HMRC. It can also include the VAT on any EU purchases or sales if you trade with EU countries.

When it comes to writing off bad debts (of more than 6 months old), things get a little complicated. In this case, you should keep a separate VAT bad debt account showing the total amount of VAT involved, amount written off and any payments you’ve received, the VAT you’re claiming on the debt, when you paid the VAT, the relief you are claiming, as well as the corresponding invoices. Talk to our friendly VAT team if you have questions concerning your VAT account or the VAT bad debt account.

How long to keep these records

You must keep VAT records for 6 years (or 10 years if you use the VAT MOSS service). For the VAT bad debt account, the information must be kept for 4 years.

If the records are lost, stolen or destroyed

You can easily reconstruct the data lost by reviewing your invoices or asking your suppliers for duplicated copies.

Pay and tax records for your Self Assessment

For company directors and PAYE individuals who submit Self Assessment every year, you must keep your records for at least 22 months after the end of the tax year the tax return is for. For example, if you send your 2018 to 2019 tax return online by 31 January 2020, you should keep the records until the end of January 2021.

For self-employed individuals, you know that there is no separation between and your sole proprietorship. In this case, you must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.

Get your accounts sorted with Tax Agility

Business owners know the importance of keeping good records but not everyone has the time to go through and organise them – after all, your focus should be on running the business and not dealing with administrative burdens. Contact our teams at Tax Agility on 020 8108 0090 and let us help instead.

Our teams consist of:

  • Small business accountants: championing small business across London, our small business accountants aim to save you time and money by getting your financial statements in good order. We also help you to interpret the financial data so you can use them to make business decisions with greater confidence.
  • Tax accountants: be it personal tax, business tax, corporation tax, our tax accountants are here to help you minimise your tax obligations and maximise your income legitimately. We do not believe in shortcuts that can get you into troubles. Also, we can provide expert tax advice and assist companies when they are being questioned by HMRC.
  • Payroll specialists: providing a complete range of PAYE and payroll administration, processing and reporting functions. We can also provide specific payroll advice pertaining to your industry.
  • VAT specialists: taking care VAT registration, quarterly returns, VAT control and reconciliation, as well as providing the best VAT strategy for your business.

Give us a call today on 020 8108 0090 or use our contact form to get in touch.

 

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This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Filing a tax return image

All you need to know about Self Assessment tax return

Filing a tax return sheet - image

Self Assessment is one of the two ways which HMRC uses to collect Income Tax. Find out if Self Assessment applies to you, the important dates, penalties and common questions in this article.

In the UK, HMRC collects Income Tax through PAYE and Self Assessment. PAYE is where your income is taxed at source, meaning the money you receive has already been deducted off tax and National Insurance. Most employees in the UK are taxed under PAYE.

Self Assessment is for people whose income has not been taxed at source. Examples of such income include the money you receive as a sole trader, your rental income, income from a trust, casual freelance earnings, occasional income like selling products on online, to name but a few.

Also, if you were taxed at an incorrect rate or if you want to claim allowances or reliefs, then you may need to file a Self Assessment tax return.

Who needs to file a Self Assessment tax return

Individuals who need to file a Self Assessment tax return include:

  • Self-employed individuals, aka sole traders
  • A partner in a business partnership
  • A company director whose income is not taxed under PAYE
  • A trustee who is responsible for reporting and paying tax on behalf of the trust
  • An executor or administrator of a deceased’s estate

In addition, you may also need to complete a Self Assessment tax return if:

  • You have untaxed income from property rental, investments, other freelance assignments, etc.
  • You receive regular income from a trust or settlement
  • You receive a gift from a loved one at some point in the seven years before they passed away
  • You have an annual income of £100,000 or more before tax
  • You have foreign income
  • If you get child benefit and your income (or your partner’s income) is over £50,000
  • You have capital gains

The list above is not exclusive. There are also other scenarios where you need to file a Self Assessment tax return.

Call our Personal Tax Accountants on 020 8108 0090 for expert Self Assessment advice.

Important deadlines

We will highlight a few important dates below but beware that the dates may be applicable to you during this particular tax year or they may be applicable following the end of the tax year.

31 January

Before midnight on 31 January, one of the followings may be applicable to you:

  • File your tax returns online for the previous tax year.
  • Pay any tax you owe for the previous tax year.
  • If you’re self-employed, pay your first payment on account. The phrase ‘payments on account’ refers to advance payments towards your tax bill.
  • If you’re self-employed, pay your balancing payment if you still have tax to pay after you’ve made your payments on account.
  • Amend your past tax return when you realise that you have made a mistake.

6 April

6 April marks the beginning of a new tax year in the UK. This is an important date as changes agreed in the Budget and new tax regulations may come into effect.

31 July

If you’re self-employed and you pay your taxes through payments on account, then you know that you need to make two payments a year. The first payment is before midnight on 31 January and the second payment is before midnight on 31 July.

Note: Due to the Coronavirus COVID-19 pandemic, the due date for the second payment on account for 2019/20 is now 31 January 2021 (instead of 31 July 2020).

5 October

If this is your first time submitting a Self Assessment, you must register by 5 October. Upon completing the registration, you will get a Unique Taxpayer Reference number and a code (in the post) which you need to activate your account.

31 October

31 October is the deadline for filing a paper tax return. Increasingly, HMRC wants you to file online but if you choose to continue with a paper tax return, then you will need to download one or request for a paper Self Assessment return.

30 December

If you have incomes taxed under PAYE and you also file your Self Assessment, you can pay your Self Assessment bill through your PAYE tax code if:

  • You owe less than £3,000 on your tax bill
  • You submitted your paper tax return by 31 October or your online tax return by 30 December

Please note that you can’t pay through your tax code if you don’t have enough PAYE income for HMRC to collect it.

Late filing and the penalties

Unless you have an excuse deemed reasonable by HMRC, filing late will cost you money. Here is an overview of the penalties:

  • One day late: £100
  • Up to three months late: £100, plus £10 a day (capped at 90 days), so up to a total of £1,000
  • Up to six months late: £300 or 5% of the tax due (whichever is higher), plus the penalties above
  • Up to 12 months late: Additional £300 or 5% of the tax due (whichever is higher), plus the penalties above

Every year, hundreds of thousands file the Self Assessment late and risk a fine. You can avoid this by getting in touch with our Personal Tax Accountants on 020 8108 0090 now. We can help you plan, prepare and file on behalf of you.

Late tax payment and the penalties

31 January is the deadline for paying any tax you owe for the previous tax year (assuming you have not requested to pay your Self Assessment tax bill through your PAYE tax code). If you miss this deadline, you may be charged interest plus a penalty of 5% of the tax outstanding. Visit this gov.uk page to calculate your estimated penalties if you file your Self Assessment late or pay your Self Assessment tax bill late.

Reasonable excuses

If you’ve missed the deadline for your return or payment, you can appeal against some penalties if you have a reasonable excuse.

According to this gov.uk page, examples of reasonable excuses are:

  • Your partner or another close relative died shortly before the tax return or payment deadline
  • You had an unexpected stay in hospital that prevented you from managing your tax affairs
  • You had a serious or life-threatening illness
  • Your computer or software failed just before or while you were preparing your online return
  • Service issues with HMRC online services
  • A fire, flood or theft prevented you from completing your tax return
  • Postal delays that you could not have predicted
  • Delays related to a disability you have

You must send your return or payment as soon as possible after your reasonable excuse is resolved.

Mistakes on your Self Assessment tax return

Mistakes can happen and after you’ve filed your Self Assessment tax return, you can make still make a change by signing in to your Government Gateway portal (if you’ve filed it online) or download a new tax return and send HMRC and the corrected pages (if you’ve filed a paper return).

Beware that if HMRC doesn’t think that the mistakes are genuine, you could face a fine. How much fine you will need to pay depends on how HMRC sees the mistake; whether you have made the mistake due to carelessness, you have made it deliberately, or you have made it deliberately and have tried to conceal it.

Also, if HMRC finds the mistake (instead of you) and believes that you have been careless or you have deliberately done so, the penalty is usually more severe than you finding it.

Frequently asked questions about Self Assessment

As Personal Tax accountants with offices in Richmond, Putney, Wimbledon and London, we get many questions pertaining to Self Assessment. Here are a few common questions and their answers.

I’m self-employed and my business has made a loss, do I need to file a Self Assessment?

The answer is yes. In fact, you can carry the loss forward to deduct from any future profits you will make.

I’ve got a full-time job now, do I still need to file a Self Assessment tax return?

If you have a full-time job now and you don’t receive any income from any freelance work, then contact HMRC to let them know that your circumstances have changed. This gov.uk page lists how you can get help.

If you have a full-time job but you still receive untaxed income (like you are still selling products online or renting out a room in your home), then you must continue to file a Self Assessment tax return.

What records do I need to keep?

If you are self-employed, you must keep good records of business income and expenses for at least five years after the 31 January submission deadline of the relevant tax year. For more information, check out this post “Business records checks: how to keep good business records” and scroll to the self-employed section.

If you file Self Assessment but you are not self-employed, you should keep the relevant records for at least 22 months after the end of the tax year.

More questions are likely to arise during preparation and filing, which is why many individuals (particularly self-employed contractors) rely on an experienced Personal Tax Accountant like us to prepare and file Self Assessment.

Tax saving tips

If you are self-employed, you will have a higher tax liability if your business is prosperous and naturally, you may look to lower the liability and this is where professional advice can make a difference.

At Tax Agility, we work with you to look at how you can save some money when filing your Self Assessment tax return. For instance, we may look at:

  • If you have claimed for allowable expenses and capital expenditures
  • If you have invested in a personal pension scheme
  • Other tax saving ideas applicable to you

Tax Agility can help with your Self Assessment Tax Return

At Tax Agility, our team of Personal Tax Accountants has been serving residents in London, Richmond, Putney and Wimbledon with personal tax issues, including Self Assessment.

We can act as your agent and we will deal directly with HMRC on your behalf.

As everyone’s financial situation is unique, we can customise our service to you depending on your needs. For example, we can:

  • Calculate the amount of tax owed
  • Share tax saving options
  • File on your behalf
  • Represent you if HMRC asks questions

Our Personal Tax accountants are experienced, competent and we offer professional and friendly advice. Above all, our fees are transparent with no hidden charges. We also provide a no-obligation meeting to understand your case first.

Give us a call on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.