Category Archives: Business News

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.

Making Tax Digital (MTD) removed from Finance Bill 2017

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Following the Prime Minister’s announcement of a general election, legislation to implement the Making Tax Digital (‘MTD’) initiative has been removed from the Finance Bill 2017.  MTD is the plan for businesses to submit quarterly uploads of accounting information to HMRC, with the first wave of businesses due to be affected from 1 April 2018.

Although postponed for the short term, there has been no change to the MTD proposal, and it is likely that the initiative will return following the general election as part of the Government’s commitment to a fully digital tax system.

As a result of the deferment, it is not known whether HMRC will push back the implementation date of 1 April 2018 for unincorporated businesses with a turnover above £85,000.

We will continue to follow the progress of MTD and keep you up to date with any changes. As always if you have any queries please do not hesitate to contact one of our dedicated MTD advisers.

Andrew Cowking - New Website


Andrew Cowking

Partner
Email: andrew.cowking@pmm.co.uk
Telephone: 01254 679131

 

Julie Walsh - New website
Julie Walsh
Tax Manager
Email: julie.walsh@pmm.co.uk
Telephone: 01254 679131

 

Jill Morris - New Website
Jill Morris
Run My Business Director
Email: jill.morris@pmm.co.uk
Telephone: 01254 679131

 

Lucy O Gorman - New wesbite
Lucy O’Gorman
Run My Business Manager
Email: lucy.ogorman@pmm.co.uk
Telephone: 01254 679131

 

 

 

PM+M Two-Wheeled Professionals Networking Ride

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The afternoon of Wednesday 19 April saw the third 2017 gathering of PM+M’s two-wheeled professionals cycle-networking ride. The weather, yet again, was kind and the group met at The Green Jersey in Clitheroe to head out for 25 miles of pleasant riding and business-related conversations. Thanks to modern technology and GPS tracking the route can be viewed using the following link https://www.relive.cc/view/949367024  but took in Bashall Eaves, Cow Ark, Whitewell, Chipping and Chaigley.

The turnout, as ever, was excellent and we certainly weren’t short of representation from many different disciplines including lawyers, bankers, estate agents, marketing specialists andmore!

As ever the conversation flowed as well as the route and I am aware of at least a couple of follow-up meetings in the diary. Post-ride feedback was as positive as ever and the format universally praised. Collaborative communication within the group is so good that the route was planned to allow one of our riders to swing off home on our return to Clitheroe in time to successfully sell a car without missing the ride!

If you are interested in an invite to the next event then please get in touch.

Neil Welsh - Navy
Neil Welsh
Independent Financial Advisor
Email: neil.welsh@pmm.co.uk
Tel: 01254 679131

Scam Alert – A Notice To Clients

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You cannot be too careful in a world where data is easily accessible to everyone. A lot of scams may seem obvious but some clever scams may seem real and could potentially catch you out.

There’s a new scam in town and this one is targeting the elderly. The scammer will call the victim and tell them that ‘HMRC’ would be looking to take them to court over unpaid taxes but if they wished to prevent this they had to provide various details to them – including bank details.

HMRC have confirmed that this a scam and there are a large number of hoax callers who are attempting to trick elderly people into giving away sensitive information.

If you think you have been targeted by this scam, please contact to Action Fraud by visiting www.actionfraud.police.uk or by calling 0300 123 2040 to report this as it is a criminal offence.

The Importance Of Right To Work Checks

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A client recently faced a Home Office enquiry into the status of one of their non-EU employees. It was resolved (eventually) with a positive outcome for our client, however, the reality could have been very different. It brought to the surface the significant risk that the business may have needed to amend its strategy for growth in the UK market had it not been able to recruit the required expertise from outside the EU. Of course, the realities of the UK labour market post-Brexit could still impact on this.

All businesses should review their HR and employment policies and processes on a regular basis, especially where it relates to Sponsored Migrant Workers (SMW’s), and I discussed this with Jane Carroll, Partner at Solutions for HR, based in Bury.

Jane commented “Under UK immigration rules, it is a criminal offence to employ a person who is not entitled to work in the UK, therefore before employing any candidate it is essential that you ensure he or she has the right to work here. The easiest way to do so is to check all job applicants’ documents as part of your normal recruitment process – whether you believe candidates to be migrants or not. The necessary documents will depend on a candidate’s individual circumstances. You must ensure that the documents are valid.” Employers should not underestimate their obligations during the recruitment and on-boarding to the HMRC, and to effectively ‘police’ the movements of all SMW’s during their employment.

Jane continued to say that there is a useful online service which allows users to quickly check that the specific circumstances allows someone the right to work in the UK. This includes determining whether the vacancy could be filled by anyone in the EU. The site is anonymous and asks five simple questions to give an immediate answer. The test can be found at: https://www.gov.uk/legal-right-work-uk.

If someone you wish to employ is not permitted to work in the UK without restriction, they will need to apply to work under a points-based system and are likely to require a certificate of sponsorship from an employer. As such, to employ workers under the points-based system, you will need to register as a sponsor.

Jane warned that you can be sent to jail for up to five years and receive an unlimited fine if you know or should have known that you employed someone who doesn’t have the right to work in the UK.

The advice is to safeguard yourself and your business by carrying out the correct right to work checks on employment, but to also ensure robust HR administration processes to flag up visa expiry dates to ensure rights to work remain valid.

If you would like to revisit your processes or seek advice, please contact Helen Clayton at helen.clayton@pmm.co.uk or call 0161 641 8684.

Are You Ready For Your MBO?

shutterstock_274686614 (1) So, you are currently working in a management role, but with no, or minimal, shareholding in the business and you believe that the current owner is thinking about retirement or perhaps going off to do something else altogether. Suddenly, you may have the opportunity to buy the business and have the potential to benefit from all your hard work and those great, new, business ideas you have been harbouring. It sounds to me like you have a chance to do a management buy out (MBO).

Where to start?

The first step can often be the hardest to take. You must raise the matter sensitively with the owner and how you do this will depend on your relationship with him or her. What you mustn’t do is kick anything off behind the owner’s back, as this may be upsetting as well as possibly being in breach of your contract of employment. You need the owner on your side. Assuming you get the green light, who will be in your team? Whoever it is must be 100% committed and understand the risks and rewards associated with being a business owner. Each team member will be asked to invest some capital personally and may also have to sign up to guarantees. You must suss out who is up for this. You don’t want anyone pulling out part way through because that would be very disruptive. Importantly, your team must be complete and cover all the bases; management, sales, production and finance. Finance is particularly critical. MBOs often require a significant level of debt and operating in this environment may require a change in emphasis to focus on cash flow, margin and cost control as well as the all-important sales figures.

Plan early

You will need a robust business plan so the sooner you can get cracking on this the better. Your MBO will more than likely need financial backing from one, or perhaps more, lenders or investors. They need to understand the business, believe that you and your team can deliver your growth plans and see how they can make a return.

Choose your advisers

You will need a corporate finance adviser. Don’t go for cheap. Don’t be tempted to go with the current company accountants as they will almost certainly advise the existing owner and thus have a conflict of interest. Choose an experienced adviser who has a track record in completing MBOs. Importantly, choose an adviser you can get on well with if the going gets tough.

Spring clean the business

Work with the owner and your advisers to tidy up before you start talking to funders. They will subject the business and your plans to detailed due diligence so you don’t really want any surprises.

Choose your financial backers

Your financial backers will be an integral part of your business life for at least 3 years and perhaps more. You need to choose those who you can rely on for support. Hopefully, things will all go according to plan, but if they don’t, having a supportive and flexible backer will be crucial. Your corporate finance adviser will know who to approach and what they want to hear.

Jim Akrill - website
Jim Akrill 
Corporate Finance Partner
Email: jim.akrill@pmm.co.uk
Tel: 01254 604353