Monthly Archives: May 2017

Asset based lending and your MBO

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One of the key objectives of any management buy-out (MBO) team is usually to minimise the level of equity funding required to complete the deal. A greater proportion of funding derived from debt means a greater proportion of equity in the hands of the MBO team, and what is not to like about that?

So, what is asset based lending (“ABL”)? An ABL facility is provided against a wider pool of assets than mere factoring or invoice discounting and so, in theory, a greater amount of funding should be possible. The debtors will, of course, be included via invoice finance, but a lender will also include stock, plant and equipment and possibly property, although property lending is not necessarily everybody’s cup of tea. You could also securitise forward income streams assuming they are sufficiently robust.

Historically, smaller SMEs have found it difficult to secure ABL facilities but in recent years the number of providers lending to this sector has increased markedly. Invoices will normally attract an advance rate of somewhere between 70% and 90% with stock and plant possibly up to 75% of net orderly liquidation value. What does that mean I can hear you say? Basically, because assets such as stock and plant usually carry a higher realisation risk than debtors, the lender will independently assess what they might be able to sell those assets for in the open market on a reasonably quick but controlled basis, knock off some costs and then lend up to 75% of the net figure. Hence their back is covered but you get more borrowing.

For companies with very strong cash flow, an ABL may also consider a top up cash flow term loan to increase liquidity and headroom.

There are some key benefits to ABL. As your business grows, so can the borrowing when you need additional working capital. Security is very specific and because additional assets can be included and assessed separately, more funding can be unlocked than through a traditional bank loan or overdraft. ABL is often much quicker to deliver, with additional funding as the business grows being speedily provided. For larger companies, pricing ought to be competitive with more traditional lines of funding.

There can be some things to watch out for though. For smaller companies, the pricing may well be more expensive as small often equates to greater risk in the eyes of a lender. But hey, you got your money, didn’t you? If your business is cyclical, your funding line can reduce quickly as your debtors fall in the off season. In this case, it is critical that you have quality forecasts available so that you understand the working capital requirements at all stages of your business cycle. You really don’t want to over-borrow against debtors at a high point to get the deal done but then find you run out of cash subsequently.

If you are contemplating an MBO or perhaps an acquisition, get in touch. We know the market and have the experience to help you.

Jim Akrill
Jim Akrill
Corporate Finance Partner
Email: jim.akrill@pmm.co.uk
Tel: 01254 679131

 

 

 

Quarterly Economic Review

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The East Lancashire Chamber of Commerce are giving you the opportunity, once again, to tell the Government what it’s like doing business in East Lancashire in 2017.

The survey is carried out quarterly and is taken very seriously by central Government as it provides an economic snapshot of the area. It’s important that as many businesses as possible complete the survey so that the results provide a true reflection across all sectors and that the Government has the best information on which to make important decisions that may impact our area over the next few months.

To complete the survey, please click the button below.

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A spotlight on our new partners

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I am delighted to announce that Antony Keen and Helen Binns have been promoted to partner in PM+M.

Antony has been with PM+M for 29 years, man and boy.  He is a director of PM+M Wealth Management and continues with that role, giving financial planning, investment and pension advice to a wide range of clients.  Alongside that, his partnership role will see him playing a wider role across the firm and its future development.

Helen Binns heads up our Burnley office, having been with PM+M for 11 years.   She works with various charities and companies with turnovers from £50,000 all the way up to £50m in various sectors with all aspects of accounting, auditing and financial management.  She will continue to head up our Burnley team and will also take on a wider role in the leadership team of the firm.

I firmly believe that Antony and Helen’s promotions are hugely deserved as they are both incredibly talented in their respective fields. They embody what PM+M stands for with their unwavering commitment to both their clients and the success and culture of the firm. To keep PM+M thriving in the future, it’s key that we have a strong succession plan in place. As part of that, it is fantastic to reward and promote talent from within our own ranks.

This is just a small taste of why PM+M placed 3rd in the UK for best accountancy employer at the Accountancy Age awards back in December 2016.

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Jane Parry
Managing Partner
jane.parry@pmm.co.uk
If you are interested in joining the PM+M team, click below.

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Tax confusion due to Finance Bill changes

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The original Finance Bill 2017 published in March amounted to 762 pages and contained draft legislation on a whole range of tax changes which were due to take effect from 1 April this year for companies and 6 April this year for individuals.  However, the imminent general election has caused all that to change.

Vast swathes of legislation have been dropped from the Bill –  72 out of 135 clauses and 18 out of 29 schedules have been dropped.  The volume of the bill has effectively decreased by over 80%. This is to allow time for the Bill to be debated and passed before parliament shuts down in the run-up to the General Election.

This has caused confusion and uncertainty for many taxpayers who were expecting to be affected by tax changes taking effect from 1 or 6 April or who were hoping to use the new legislation to carry out tax planning transactions.

Some of the key pieces of legislation removed from the Bill were:

  • Making tax digital – the Government has reaffirmed its commitment to making tax digital but it is not known whether the intended start date of 1 April 2018 will be delayed.  This is an enormous project and uncertainty for taxpayers is increasing as we get nearer to 1 April 2018 with no clear idea of what the requirements of the new system will be.
  • Changes to corporate loss relief – new rules were due to take effect bringing increased flexibility for brought forward tax losses and restrictions on the use of losses for large companies.  It is not now clear when those rules will take effect and this is causing uncertainty for many companies as to their tax position.
  • Restrictions to corporate interest deductibility – due to commence on 1 April 2017 but now uncertain.
  • The relaxation of the Substantial Shareholdings Exemption which allows the tax-free sale of qualifying shareholdings by companies – a major widening of these rules was due to commence on 1 April 2017 and a number of groups of companies were planning to restructure their holdings utilising the new rules.
  • The reduction of the dividend allowance from £5,000 to £2,000 due in 2018/19 – as yet there is no indication that this will change.
  • The £1,000 tax-free allowance for property and sundry income which was due to come into effect on 6 April 2017.
  • First year allowances on electric vehicle charging points – due from 1 April 2017.

Assuming no major surprises in the election result, it is expected that the government will legislate at their earliest opportunity at the start of the new parliament.  However, it is unlikely that such legislation will be retrospective in respect of the proposals due to start on 1 April 2017 but this has not been confirmed.  In the meantime, our advice is to hold fire on any planning under the new rules and keep a close eye on developments.

For further advice on any of the above issues contact Claire Astley on Claire.astley@pmm.co.uk or Jonathan Cunningham on jonathan.cunningham@pmm.co.uk

Companies House

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Companies House is the vehicle through which businesses, accountants and other professional advisors file various information, which is then made publicly available.  It’s an organisation that deals with volume and there are various performance metrics in place.

Its most recent business plan encompasses objectives similar to those that you might expect to see in your own business:

  • Providing excellence in company registration and search
  • Helping companies to ensure their recorded information is current, complete and correct
  • Building a high-performance culture by adapting to and embracing change.

I’m not sure I’ve ever considered Companies House to be a business. It’s just been a place where certain documents must be filed, where I can access publicly available information and where I can do some research on businesses that I would like to work with.  The above certainly changes my view on this and the business plan certainly supports a move into current times.  We need an efficient delivery model that is easy to engage with and reduces the administrative burden, wherever possible, for businesses.

The introduction of the confirmation statement last year, which replaced the annual return, is one way in which filings have changed.  Online filing has evolved considerably in recent years, resulting in less paperwork and postage costs. The aim for 2017 is to achieve a take-up of 87% of digital filing services.  There is also a focus now on increasing the number of accounts to be filed digitally – the aim being 99% to be filed online.  This is a far cry from arranging a courier at the last minute to get down to Cardiff in order to meet a filing deadline. It will still need some planning to ensure deadlines are met (hopefully not at the last minute to save everyone the unnecessary stress) but hopefully the push towards digital will be a positive move for all users.

Pauline Rigby, a partner in Corporate and Restructuring at Forbes Solicitors, commented “Companies House has since 2014 been working on its strategy. At that time they prepared a 5 year plan. Very similar to other businesses, 3 years into that plan and Companies House have taken time to reflect on what they’ve achieved and how their strategy needs to be amended to move them further forwards to ensure that their strategy reflects wider changes in society. Online filing and accessibility has to be key as well as retaining a fluid strategy just like any other business.”

If you have any queries on changes in what should be filed and when and how, then please do get in touch with Anne Ramsden by email at anne.ramsden@pmm.co.uk or by calling 01254 679131.