Uncategorized Archives - BDS Chartered Accountants

Like every plant needs water and sunlight to grow, every business needs financing. Starting a business or expanding an existing one requires investment, and it can often be confusing for small companies to weigh up their options.

Is it time to sell a stake?

As a business owner, you may struggle with the concept of relinquishing shares in your company. After all, you’ve built it from nothing. It’s a dilemma — is the additional capital worth handing over some control?

Selling a stake to an external investor can change your company forever — it’s a decision not to be taken lightly. Who should you consult, how do you go about planning, and how can you safeguard your company for the long term?

Here are some factors you should consider.

Do you have a business strategy?

If you’re looking to sell a slice of your company, you need a proper business strategy. What will you use the money for? Where will the company be in a decade? What are your earnings projections? Every decent investor will want details.

Consult people you trust

Before you head to lawyers and financial advisers, speak to friends about your plans. Ask people close to you with investment experience whether your sale options are realistic and achievable.

Work with professionals

Once you’ve tested the water, select advisers you can count on with a strong track record. Work through your options and get their view on whether a sale is the right choice for you.

Produce realistic forecasts

As you consider selling part of your company in exchange for a cash injection, always use realistic forecasts. Any adviser worth their salt will be able to spot inflated numbers, and dishonesty early in the process could come back to derail discussions later.

Protect what you’ve built

If you’ve chosen to bring new investors on board, great. But you need to protect your business, your legacy, and everything you stand for. New investors might have their own ideas on the direction of your business. Ensure your ‘mission’ and company ethos is made clear in any shareholders’ agreement.

Find like-minded investors

Don’t just think about the money. When considering investment partners, try to find backers aligned with your goals. Again, your mission statement can be important. Find investors who agree with it to avoid issues down the line.

New Zealand has a new system of employment bargaining with the passage of the Fair Pay Agreements (FPA) Act which took effect from 1 December last year.

Fair Pay Agreements bring unions and employer associations together to bargain for minimum employment terms for all covered employees within a sector or occupation.

Visit Employment New Zealand’s website to find out what the new law means for you.

An outright stake sale might not be the best fit for your company. Here are three different paths you could take:

Asset finance:

A loan to pay for a particular business asset, such as a vehicle or piece of machinery.

Pros

Interest rates can be competitive if you are able to go through a mainstream bank, and you won’t need a huge down payment.
You may be able to own the asset outright at the end of the loan term, upgrade the asset, or return it.

Cons

Due to interest payments, it can be expensive to use asset finance rather than cash.
The whole asset isn’t tax deductible while you’re paying for it — only the payments in the liabilities column on your balance sheet.

Crowdfunding:

Reward-based crowdfunding through websites such as Kickstarter or Pledgeme.

Pros

Can be useful for market validation.
Appeals can be launched by early stage growth companies, and those working off prototypes.

Cons

Potential intellectual property concerns if an idea is made public.
Compelling public offerings can be time-consuming.

Peer-to-peer lending:

Websites including Lending Crowd link borrowers with people willing to lend small amounts. Peer-to-peer lending platforms are relatively new and you should do your research before considering this option, including checking the latest guidance on the Financial Markets Authority website.

Pros

Lending process is less time-consuming than a bank loan, with interest rates occasionally lower.
Loans are unsecured — you don’t need to put up collateral.
You are unlikely to be asked to give up equity in your business.

Cons

Costs in addition to interest payments may apply, such as setup or platform fees
High default interest rates (in addition to the agreed interest rates) likely apply
Missed payments can affect your credit score.
If you have a low credit rating, borrowing costs can be high.

Like to talk through your options? Give us a call today.

While getting a business loan from a bank can be painful (with reams of red tape to wade through), it’s not impossible.

Here’s what banks are looking for.

Motivation: Why are you in business, and what is your vision for the future? You should be able to explain this in a few short sentences.
Capability: What skills do you and your staff have? What technology and equipment do you use, and are there any gaps?
Financial position and forecasts: Are you in good financial health? What’s the state of your balance sheet? You will need to answer these questions and provide forward-looking statements.
Personal spending: The bank will want to know information about your personal spending. Are you a risky splurger, or someone who runs a tight ship at home?

If you run an innovative company offering the world something new, a partnership with an angel could be right for you.

Angel investors are a great match for fast-growing businesses who want funding and are willing to hand over a slice of equity. In most cases, there are no collateral obligations to angel investors if the company fails.

Angels are usually experienced and successful entrepreneurs with a network of connections (picture the TV show Dragon’s Den). They provide vital assistance, contacts, and know-how.

Not every angel investor wants to take equity in a business. Some are happy to provide conditional loans. For more information, speak to your local Regional Business Partner Network.

At the height of the pandemic in 2020, the government announced its free Digital Boost support package to help small businesses transition to a digital world. The scheme was such a success, the following five services will be available until the end of June.

Real world video case studies, showcasing how small Kiwi businesses have transformed their operating models. Real people share their experiences of how digital tools helped them.
Digital Boost Educate, a free digital skills platform available to small business owners and their employees who want to accelerate digital transformation. The platform features 500 video tutorials and Q&A sessions.
Digital Boost Directory – The Right Tool, a private sector initiative providing a collection of digital technologies, products, and services for businesses.
Digital Boost Alliance Aotearoa, an initiative between large corporations and the government to motivate and inspire small businesses, individuals, and communities through digital technologies. You can get free, discounted, and subsidised advice from Alliance members.
Digital Boost Checkable is an extension of Digital Boost Educate that helps businesses prioritise their time and efforts on the road to digitisation. Cutting-edge artificial intelligence and natural language processing are used to deliver workable action plans for small business owners.

Is less stress at the top of your Christmas list? For the sake of your sanity and the best interests of your business, follow these steps to remain calm and collected as the year comes to a close.

Outsource! Look at everything you need to do before 25 December. Is it doable without losing the plot? Write a list of what you can pass on to a trained virtual assistant or someone (less busy) in your team.
Say No. Often there’s a sense of guilt when we refuse an invite, opportunity or request but if you take everything on, you’ll suffer. It’s already a busy time of year, so the next time someone asks you something – check to see if it’s something you want to do or feel you have to do. Then if you can, politely say no.
Lean on your support network: Will you be working longer hours in the lead up and during the festive season? If you need to be able to prioritise your business over everything else, you’ll need a hand to make sure other areas of your life stay standing. Talk to your family. Enlist their help if you need it. You could even do a skill-swap with friends – mow their lawn in exchange for a meal.
Leave some tasks till 2020: There’s often a feeling of ‘I jussssst want to get this done by the end of the year’ running through our veins in December but taking time to relax over the holidays means letting a few things go. Write a ‘to do’ list then break it into three categories: must do, should do, can probably wait.
Hide your phone: The best present you can give yourself over the Christmas break is presence. Time away from work, spent doing what you love to do, and truly relaxing. Putting your devices in a drawer (even just for an hour!) will do you the world of good before launching into the new year.