Business Financing

Are you active or passive?

Jonathan Wilson of Barnett & Turner explains two fundamentally different approaches to fund management The world of investment funds can often seem confusing, but a few simple pointers can give you a head start. Perhaps the most important issue you need to take into account is whether any fund is ‘active’ or ‘passive’.

An actively managed fund is run by a fund manager or investment team. These professionals are responsible for all of the fund’s investment decisions, including when to buy or sell assets.

Passive funds are often run by computer software, which tracks or replicates a market or index and includes tracker funds or Exchange Traded Funds (EFTs). The fund management fees tend to be far lower than those of an actively managed fund, reflecting the fact that there is no market analysis involved. These passive funds select all of the assets in a specific market, providing a return that reflects the performance of that market as a whole.

Active fund managers aim to deliver a superior return over the longer term, through extensive research and analysis of markets, sectors and companies. Charges are inevitably higher for active management, because of the amount of work and expertise involved before investment decisions are made.

The higher returns that are expected from an actively managed fund rely on the skills of the investment team. It is important that fund managers can demonstrate a successful track record and that means you should do some careful vetting before making an investment in an actively managed fund.

Find out more by speaking to your professional advisers.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

Too much capital? Your company may have more options than you thought.

For some years now, it’s been possible to reduce the capital in your company without going to court. More owners could probably take advantage of the freedom on offer, argues chartered accountant, Jonathan Wilson of Barnett & Turner. For many years, one of the fundamental concepts in company law was the notion that issued share capital had to be maintained and couldn’t be returned. In fact, this was generally accepted for more than a century until the Companies Act of 2006 made it to the statute book.

Over the best part of a decade now, private companies have no longer had to go to court to reduce their capital, but it’s taken a fair amount of time for owners – and even their accountants – to catch up with the implications.

Your company might simply have too much capital, which it just doesn’t need. Imagine a scenario, for instance, in which you intended to invest in land or property, but the right opportunity didn’t arise. Returning capital might be a legitimate and sensible step.

If you have cash in the company but are unable to pay a dividend because there are no distributable profits, you can reduce capital to create a reserve, out of which future dividends can be paid. Although there is no tax charge on the creation of the reserve, the dividends will be liable to income tax.

An alternative to the creation of a reserve is the return of cash directly to a shareholder. As we are talking about a capital payment rather than a dividend, the only liability will be for capital gains tax. And if you are operating a trading company, Entrepreneurs’ Relief should apply, reducing CGT to 10% under the current rules. My advice, however, is that you seek clearance in advance from HMRC to ensure compliance with Transactions in Securities regulations.

Although the liberalisation which came with the 2006 legislation was a reaction to the very restrictive regime that had existed before, the government ensured that a number of key safeguards were left in place.  Before proceeding with a return of capital, directors have to make a Declaration of Solvency, for instance, which states the company will be able to meet its debts for the foreseeable future. Your accountant should be able to advise you on the other steps you need to take to take full advantage of the changes.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

Could growth vouchers eventually grow on business?

Jonathan Wilson from accountancy firm Barnett & Turner reviews the recent growth voucher programme and wonders what lessons we can learn from its apparent lack of success. Back in January 2014, the government launched a ‘growth voucher’ scheme aimed at supporting small businesses. It was designed to help SMEs gain access to technical and financial advice and offered £2,000 if companies were to match the funding with their own cash.

The idea was that small firms and start-ups would benefit from financial advice, assistance with business planning and marketing consultancy. Just the kind of boost that would allow them to take the next steps towards expansion.

In order to qualify, you needed to be an independent company with fewer than 250 employees and turnover or assets of under £50m.

Although the principle seemed sound, the scheme wasn’t as much of a success as the government had hoped. Out of a pot set aside of some £30m, only £3.6m was actually used. Even more strikingly, only 1,800 of the 7,000 successful recipients spent their vouchers.

So what lessons can be learnt? Well, first of all, the vouchers weren’t very well advertised. And even if you had heard of them, it wasn’t entirely clear what you were able to use them for.

When firms are growing fast, they’re often very focused on the day-to-day challenges of the business and may not be ready to reflect with external consultants. Although marketing support is always valuable, the chances are that most companies would already have created a business plan some time previously.

There’s then, of course, the issue of finding your own £2,000 up front in order to make use of the £2,000 voucher.

The government is putting a positive spin on the programme, arguing that it was effectively a piece of research that we can learn from. It may be that if a new version of the voucher programme is planned, consideration should be given to widening the range of potential consultancy and support that companies can access from approved suppliers.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

A holding company? There may be no reason to hold back.

If you thought the formation of a corporate group structure was just for big multinationals, it’s time to think again, suggests David Wilson of accountancy firm Barnett & Turner. It’s a serious option for much smaller businesses too. When a limited company has built up a significant amount of wealth on its balance sheet – perhaps three quarters of a million pounds or more – and it has a large value of fixed assets, the option of creating a holding company becomes something worth exploring.

Although the formation of a ‘group’ is something you’d more normally associate with large, blue-chip corporations, there’s certainly no reason in principle why smaller companies can’t take advantage of the structure too.

When you create a holding company, you can move ‘spare’ cash and fixed assets into it from your trading company. The holding business can then rent the fixed assets back to the original company, buying any new assets itself.

Each year, dividends can be paid to the holding company, which is allowed to set up its own directors’ payroll scheme and pay your executives, while charging the trading company for its services.

There are a number of potential benefits to this approach.

First of all, the business owner’s wealth, which has been built up over the years, is protected from a potential disaster, such as losses from under-insurance. Creditors can generally only come after the trading company. You may also be able to maintain greater privacy over directors’ remuneration and possibly qualify for a less arduous audit regime.

It’s worth noting too that the creation of the new holding company gives you an opportunity to bring in new shareholders and buy existing ones out.

But do watch out. The new company structure will involve an increased admin burden in relation to year-end accounts, VAT, insurance and so on. And if you end up reducing your trading company’s balance sheet, there may be a short to medium-term hit on your credit rating. But, if you do have spare cash and are paying your creditors on time, this might not be such a big deal.

As with most planning, there are likely to be pros and cons of a new structure, so the best thing is to talk the options through with your professional advisers. They will be able to look at your specific circumstances and give you appropriate guidance.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

Banking on the right decision

Jono Wilson of Barnett & Turner argues that you need heavy-hitters on your side when you approach a bank with a view to getting finance for investment. When a client needs to persuade a bank to make a substantial investment in their business, I always recommend that they get their professional advisers involved at the earliest possible stage. Unless you have your accountant on board and get some support in presenting your case, there’s a danger you may end up shooting yourself in the foot.

Banks can be notoriously difficult to impress and can fall back on a tick-box mentality when it comes to deciding on finance. They’ll look at the recent figures and overheads, but can fail to take into account the bigger picture and the great opportunities that can come with investment.

In my own practice, we had a client with a good track record, but they’d been through three or four tough years for perfectly explicable reasons. This family business was looking to make a substantial investment in state-of-the-art technology. The loan was going to be large, but we could demonstrate the payback in terms of efficiency and the halving of labour costs over time.

Even with our involvement, the process of convincing the bank isn’t always easy. Different potential funders often ask for information in varying formats. Sometimes banks – despite the preparation of a detailed business case – seem as if they don’t quite ‘get’ it.

As well as a paper analysis of where the business is heading, you may need to support your pitch in other ways – a video that demonstrates the advantages of technology, for instance, and tours of the current facilities.

It’s also important to set out your stall right at the beginning. Ask the bank’s local representatives whether they are actually able to make a decision. If you know the green light will have to come from someone further up the hierarchy, politely request that they come down to your client’s site and have a face-to-face meeting.

At the end of the day, a successful request for funding is going to come from a partnership. On the one hand, there’s your expertise and knowledge about your business and market place. On the other, there’s the guidance and advice of your accountants and other advisers, who know from experience the best strategies to employ during the negotiations.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

Don't let customer debt get you down

You've identified a potential bad debt. You've sent the friendly reminder, the follow up letter seven days later. You've then phoned two or three times and sent a final notice. Still no joy. Where does it go from here? It’s a familiar scenario for lots of business people. What seems like a slightly overdue payment is starting to turn into a troublesome debt. You don't particularly want to start formal legal proceedings, as they've been a customer for some years but you're getting increasingly frustrated.

The phone rings. It’s the customer telling you about their cash flow problems. Things will apparently be resolved next week, so you agree to give them more time. But next week rolls around… nothing. The following week... still nothing.

You are now getting increasingly worried. You might be a key supplier and of course you could place their account on hold, but that could make the situation worse and actually reduce the prospect of payment. What you need is for the customer to engage with you.

A good first step in this scenario is to speak to your accountant. If they are not themselves an insolvency practitioner, the chances are they will have a good working relationship with one. When they are instructed by a creditor, they will write to the debtor to advise that they have been consulted. The message is usually that failure to either make payment, or provide an acceptable and deliverable payment plan, may result in the creditor taking matters to the next stage, which could ultimately be an insolvency event.

By issuing an unambiguous statement of intent, you make your position clear to the debtor and in doing so you'll invariably find they'll try to prioritise payments to you.

The involvement of a third party in these circumstances will often produce the desired result. If not, then an assessment would have to be made to ascertain whether it's financially viable to pursue matters further.

If you find yourself in this situation and would like to discuss your options, the best thing is to contact your accountant initially. Appropriate action can then be advised on a case-by-case basis.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

There’s great value to a proper valuation

Although valuation isn’t always an exact science, writes Barnett & Turner’s Jono Wilson, it can be an essential part of your long-term business planning. In my experience, clients can have any number of reasons to look for a valuation of their business. Sometimes it can be a personal matter – they’re going through a divorce, for instance, and need help with litigation. On the other hand, they may be thinking about changing the ownership or structure. We may, of course, need to value a business after death. And then there’s perhaps the most obvious reason of all: a valuation with a view to a sale and exit from the business.

It’s possible for a valuation to be conducted on an open-market basis, but you also get valuations for fair value and fiscal valuations too. It’s also important to consider the very particular issues presented by quite different types of business.

It’s actually quite usual for businesses to be valued in a number of different ways and it may well depend on the type of business we’re talking about. If I were valuing, say, the business of an Independent Financial Adviser or looking at an accountancy practice, I’d be calculating a multiple of recurring fees. With something like a pub or nightclub, on the other hand, it’s different. There, you’d be looking at the annual turnover and applying a multiple, while also taking into account whether the client had a freehold or leasehold.

As well as trade-specific bases, there are various other options. The most common is multiples of profit, but there is also dividend yield or a calculation based on net assets. No single valuation approach will fit all businesses and the rationale for valuing a business is not always the same. Each valuation presents different factors that need to be taken into account.

Ultimately, of course, a business is only worth what someone is prepared to pay for it. Sometimes, a business might be wholly dependent on the expertise or hard work of one person and actually there’s little intrinsic value once that person is taken out of the equation. With larger businesses, there might be brand value in a name – although that can be difficult to quantify – or perhaps a stream of revenue from intellectual property.

One thing I always stress to my clients is that it’s really worth investing in the due diligence that goes with a proper valuation. If you’re planning on using the figures to pave the way for an exit strategy in, say, five years time, they need to be as accurate as you can make them.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

There’s a downside to every upturn, which is why it pays to think ahead.

After a turbulent few years, there are now plenty of signs of recovery in the British economy. Inflation and unemployment are falling and business confidence has picked up markedly. In theory, this paints a rosy picture for small and medium-sized enterprises, but the reality may be rather more complex. In fact, there can be a number of hidden dangers at the start of any upturn. And it’s only by working closely with your professional advisers that you can be sure of avoiding the pitfalls. The first and perhaps most obvious thing to say is that many businesses have stretched themselves to the limit during the downturn. Weathering a recession often means living on reserves and relying on the goodwill of creditors and HMRC.

Banks – although much criticised in recent years for their reluctance to lend – have often been reticent about pulling the plug on long-standing clients who have been struggling to survive. Now that the climate is changing for the better, there’s a tendency for decisions to become more hard-headed.

Debt can start to spiral during the economic hard times too. How many small business owners have over-extended themselves, perhaps taking on personal liabilities by extending their mortgages or even maxing out their credit cards? With interest rates likely to rise from their historic low in the medium-term, pressure will soon be mounting.

So the irony of an upturn is that it can actually signal a potential rise in insolvencies. That’s why forward-thinking businesses need to plan ahead – working closely with their accountants to draw up a strategy for survival and ultimate growth. Honesty is definitely the best policy. There’s always a danger that you can stick your head in the sand and pretend that everything will work out.

With the help of your professional adviser, you can look objectively at critical issues such as your product range, margins and terms of business. You can also examine capital expenditure and staff resources. This can result in the kind of robust cash-flow predictions that are able to withstand scrutiny and stress-testing.

A good approach might be to go to your bank with a revised business plan, providing a ‘state-of-the-nation’ report. Even if it’s just an honest recognition of problems and a statement of how you intend to survive the next couple of years, it will be a welcome sign that you’re addressing the issues that need to be tackled. And the fact that you’ve involved your accountant to provide a holistic overview will undoubtedly give the exercise much more credibility.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at

When assets need replacing, there’s no need to sweat.

In many businesses, the key asset might be the knowledge and experience of the staff or possibly a valuable piece of intellectual property. Other companies, however, depend heavily on very specific capital assets. The presses used by a printer, for instance. The limousines of a wedding-hire firm. Or perhaps the fixtures and fittings of a gym. But what happens when these vital pieces of equipment or property start to deteriorate? The investment required to replace them can often seem daunting to a small or medium-sized business, particularly if they are already trying to manage existing financial repayments.

One option is to replace assets piecemeal, but very often that’s not the best solution. If you’re a hotel, for instance, your reputation might depend on a rating from the AA or RAC. Doing up your rooms on an ad-hoc basis over the next five years isn’t going to impress any inspector. And it’s a recipe for ongoing disruption and inconvenience for your guests.

Another solution is to work closely with your professional advisers to renegotiate and consolidate the terms of any finance. Draw up a wish list of everything you hope to do but are currently putting off. Then arrange a meeting with your bank at which you put forward a clear proposition.

While individual circumstances clearly vary hugely, it may well be possible to refinance over a sensible timeframe, meaning that there’s no obvious hit to the business on a month-by-month basis. There may also be a chance of negotiating a flexible loan which you can draw down over a period of, say, six or nine months as you require it – allowing you to keep careful control over costs and spend only what you need.

Of course, if you already have a qualified professional on your board, they may be able to provide valuable input. But don’t exclude the idea of involving your accountancy firm. By working in tandem, you’ll be able to make a more credible case to your bank. In many instances, it may be that your advisers will be happy to attend a meeting and answer some of the trickier questions that are likely to crop up during the discussion. It’s an added reassurance for the bankers. And it may be the start of a bright new period of business investment.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at