NEW MORTGAGE RULES

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The Central Bank’s much debated and often bemoaned stricter mortgage rules were finally officially announced last month and officially put into place only last week.

 

Under these new tighter guidelines first time buyers appear to have business as usual as they can continue to apply for a 90% mortgage up to a limit of  €220,000. Anything above this limit will be subjected to the new 20% deposit requirement. Given that the average house price in Dublin is approximately €269,000 (according to latest published results from myhome.ie) it would seem unlikely that many buyers will escape the clutches of this requirement entirely.

Those looking to trade up on their existing homes will be entirely subjected to the 20% requirement for the entire sum of their loan which has caused concerns that many young couples and families may find themselves ‘locked out’ of the property market or, having already taken a step onto the first rung of the property ladder in easier financial climates, may find it impossible to take the next step, or fall off completely.

 

There will also now be a cap on the amount that can be loaned, something that banks and mortgage lenders previously had left to their own discretion. This sees lenders being restricted to only borrowing 3.5 times their income. Given that there is massive disparity between wage scales across various sectors, this rule would seem to leave those in lower earning sectors out in the cold.

 

It was reported last week that banks have been urging mortgage defaulters to seek a familial ‘dig out’ to help them meet their mortgage repayments.  These new tightened mortgage rules could now see buyers returning to the ‘bank of Mum and Dad’ model of purchasing in order to meet the deposit demand. It was recently reported that the Credit Union will be willing to allow parents to borrow significant amounts to assist with their children’s deposit as the prospective buyer themselves would be unable to take out a loan.

 

As the Capital Acquisitions Tax on gifts currently allows an un-taxed amount up to €225,000 we may well expect to see these rules also tightened. As it stands, without the addition of a parental gift the average couple can expect to be saving for at least four years to meet their deposit requirements for first time buying, whilst those trading up may well be reliant on these so-called ‘dig outs’ when they have outgrown their current dwelling.

DCA Q&A: SHOULD I PROMOTE FROM WITHIN?

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Q: The last few years have been frenetic setting up my own business. There have been a lot of long hours and stress. Now I’ve got my business to the point where it’s doing quite well, and I’d like to take a step back from the company and appoint a managing director.

In order to do this, I need someone to take on a large part of my role. I’ve identified a potential candidate among my staff, but I worry that choosing not to bring in someone from outside the company is a mistake. Are there any benefits to bringing in someone from outside?

 

A: Deciding to take a step back from your business can be a difficult decision, so it’s understandable that you want to make sure that you’re handing over the reins to someone capable.

 

There are pluses to bringing new blood into an organisation. They can bring different skillsets to the table, which can be extra important if you’re looking to expand the scope of your business or move into new markets. A fresh perspective can do wonders for a business, as the right candidate can see areas for improvement that are easier for an outsider to pinpoint.

 

But there are downsides to external hires. Looking outside of the company can damage morale, especially in small companies. Recruiting externally can be an expensive undertaking. Training an outsider is going to take longer than training an individual who has a working knowledge of your business.  Also, with all external hires there is the risk that the candidate will not fit within the company structure, or that they won’t like the company.

 

If you can promote from within it can lead to a better working atmosphere within the company, which can have a positive effect on productivity. Existing staff already know the ropes, so you don’t need to spend as much time training them in. There are other potential financial benefits. In-house staff may be happy with a salary raise, which may not be as high as the salary you may have to offer an external candidate. Promotion from within can help foster a good atmosphere, giving staff the message that hard work is rewarded with career advancement.

 

External candidates are excellent when looking to expand your business, but the motivation behind this promotion/hire is for you to take a step back from the business. In those circumstances it seems like an in-house promotion would be the most straight-forward option, particularly as you’ve identified a potential candidate from your existing staff. It is important, however, to make sure that you are evaluating their skills correctly. A diligent worker does not necessarily make a good managing director, and it’s worth making a list of the key skills involved in the role and trying to see how their competencies measure up. If there is nobody in your business with the requisite skillset, then the obvious next step is to look outside the company.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

KEEPING IT IN THE FAMILY

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When going into business with anyone it is important to make sure that you are acting in your own best interests. But is it harder to secure your position when your business partners are your family?

 

 

There are benefits to going into business with your family. You have a certain amount of trust built up and it’s hard to double cross someone who you’ll see at Christmas dinners and family barbecues. However, if that trust gets broken during your business dealings then it can affect both your personal and professional lives and therefore be doubly difficult to deal with.

 

In order for any business to be successful it needs to be run professionally. All family members must conduct themselves in a professional manner. That means trying to keep a firm distinction between your business lives and your professional lives, and it also means that when you’re in work you need to act like you’re with any group of colleagues. This creates a better impression to clients and non-familial employees.

 

Part of acting professionally is making sure that you are protected legally in case the business fails, or goes in a direction that you’re not comfortable with. For some people this seems counter-intuitive. Surely the biggest plus to going into business with your family is not having to worry about being treated shoddily. But families can fall out, and if yours does its best that you walk away from this business with what you’re legally entitled to.

 

While it might make sense to you to cover yourself, you might find it difficult to broach the subject with your loved ones. It might feel like you’re accusing them of not having your best interests at heart, or that you suspect that they may not be honest in their dealings further down the line.

 

However, the reasons for families needing to cover themselves legally aren’t necessarily malicious. Most of the time it’s not because of acrimonious fallings out, it’s because their life is in flux. If a member of the family committed money to the business, and then needs to withdraw capital or sell their share due to an ill child, it may be difficult to agree what the person is entitled to. This failure to agree may cause bad feeling, whereas if there is a legal agreement written up prior it’s clearer what is supposed to happen if circumstances change. Therefore it acts as a firewall, separating your business and professional lives.

 

Eamonn Garvey

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

Q&A CAN I CLAIM TAX RELIEF ON TRAINING?

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Q: A few years ago, I decided to set up my own business providing IT solutions for small companies. My area is quite niche, and while I have many qualifications I’ve seen a course advertised that would enable me to expand my services. It’s not a postgraduate course as such, more of a further professional training course.

 

While the financial benefits might be huge in the long term, in the short term my bottom line will take a hit as the fees are fairly hefty. As a sole trader, and the sole earner in my family, things will be tight and I was wondering if there was any assistance available for training?

 

A: Undertaking further training is an essential component in any business. It can be a fiscally demanding undertaking, but broadening your range of services is a clever move, especially in a fast-paced industry such as IT.

 

Revenue have a tax relief programme to help offset the cost of sharpening your skills. Tax relief, as I’m sure you’re aware, reduces your tax liability on moneys earned. This information relates to training courses only, postgraduate courses are subject to different criteria.

 

In order to qualify, your training course must fall into one of two areas – foreign languages or information technology. These are looked on as two areas that have the potential to make Ireland more competitive on the world stage, so it’s in the interests of the country to support it. As your business is IT based it falls into one of these categories.

 

There are a few other criteria to meet in order to qualify for tax relief. Your training course must be approved by FÁS, be of less than two years duration, and result in a certificate. That certificate must be one of competence in the area, not just of attendance.

 

Your course must cost more than €315 to qualify for the relief, and the maximum relief available is €1,270. Administration, registration and examination fees are not covered by the relief. Any portion paid for by an employer is also not eligible, but as a sole trader that is not applicable to you. You can also only claim tax relief for one training course in any tax year.

 

If you pay your fees in instalments, and any payments are made in the tax year following the year in which the course began, you can either claim for relief in the tax year that the course commenced, or in the tax year when the actual instalment was paid. Any claim must be made within four years of the tax year to which the claim relates.

 

There is a list of courses that are approved for this tax relief, and they are renewed on an annual basis and are available on the Revenue website.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

IS GREED GOOD? EXPANDING YOUR BUSINESS

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If you’re running a successful business, you may well want to expand. But is it always a sensible decision?

 

Is It What You Want?

Starting a business is a risky proposition, and the statistics on how many start-ups ever make a profit make eye-watering reading. But when you were navigating the doom, gloom and paperwork to get your business venture off the ground, how did you envision it in your mind’s eye? You may have seen yourself presiding over a large company, in which case expansion makes complete sense for you.

But you may have set up your business with the sole aim of providing yourself with a wage, the freedom of being your own boss, or exploiting a gap in the market to do something that you really love as your profession. If you are happy with the status quo, or the idea of taking on more responsibility and potential debt makes you feel sick to your stomach, then perhaps this is not a good course of action for you.

 

Will it Damage Your Brand?

For some reason, it is assumed that if you have a successful business then the only prudent thing to do is expand. But just because other people think it’s a sensible thing to do, doesn’t mean that it actually is.

Sure, there are a lot of pluses to expanding your business. But there are an awful lot of potential risks to take into consideration. Will your unique selling point, the aspect that has made your business this successful, translate to a bigger market? If, for example, your disarming personality puts clients at their ease, an expansion could mean that you can’t be physically present for every job. While clever recruiting could go some way to ameliorating this, it may mean that your USP vanishes, and with it repeat business as your customer begins to see you as interchangeable with other companies.

 

Will Expansion Spread You Too Thin?

Expansion inevitably involves taking on more staff, but you may need to take on extra work yourself while you wait for the cash to do so, or during the transition phase. As people who run their own business tend to work longer hours on average than salaried employees, this may further eat into your free time.

Also, spreading yourself and your staff too thin may lead to mistakes which could damage your core business.

 

Do you have the skillset?

If you’re considering expansion then you’re obviously good at what you do. But managing a larger business requires specific skills. Managing a team from a distance or through middle management can be harder, and calls for a lot of extra documentation and company policies. This may be right up your alley, but it isn’t everyone’s strength and merits consideration.

 

In Summary

Expanding your business has the potential to deliver big rewards, but also involves risk. Not just to the loans needed for expansion, but to your core business. Think hard about the risks involved. If it doesn’t make sound business sense on paper, and the idea of it doesn’t excite you, then stay as you are. And always make sure that you’re bolstered by solid advice at every stage of the process.

 

Eamonn Garvey

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

HOW TO VALUE YOUR BUSINESS

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Whether you are looking to sell or just starting out, it is vital to know the true value of your business. The future value of your business is something that might not have crossed your mind in the early stages but is important to bear in mind.

 

Firstly, you must look at the value of your business assets, incorporating all equipment and taking into account anything you would need to buy if you were to start your business from scratch.

 

You must also of course take into account the income of the business, and approximate the yearly revenue stream. Bear in mind that revenue is not always the same as profit and when valuing your business you must take into account that any buyer will have to recoup any profit lost. It is also important to estimate future earnings as they will certainly count towards the value of your business overall.

 

Essentially, a business is worth whatever someone is willing to pay for it and in turn what you would be willing to sell it for. You may not know the true value until the business is placed on the open market but there are a couple of simple and common methods available for valuing your business. Whether or not you are planning to sell in the near future, valuing your business can help you maximise each aspect of your business. Valuing your business may also help you pinpoint possible future issues.

 

There are two most common methods of valuation:

 

Valuation based on sales:

 

This model determines the value of the business by multiplying annual sales by a determined multiplier. This multiplier is subjective and will depend on your specific business, as there will be a standard based on the business type that will then be adjusted to suit your specific business and cause it to either be increased or decreased.

 

Valuation based on cash flow:

 

This model is based on your company’s ability to generate a profit. The profit will be projected over a number of years to calculate the businesses overall value. When the projected profit over a fixed number of years has been projected, interest rates must then be taken into account and removed from the final figure

 

It might be wise to try both models in order to find the best option for your business and to bear in mind that these valuations are always subjective.

DCA Q&A: I’M A SOLE TRADER, HOW DO I GET SUPPLIERS TO TAKE MY BUSINESS SERIOUSLY?

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Q: I’m in the process of setting up an online business selling educational toys. I’ve set myself up as a sole trader, set up my website and enabled it as an online store. Unfortunately I’ve run into a Catch 22 situation because I can’t start trading without stock, and as I’m not trading online I worry about looking like a Mickey Mouse operation to the very companies I’m looking to buy the much needed stock from. Most of my targeted suppliers are on mainland Europe. What can I do to make it clear that I’m a reputable business, and is my sole trader status going to cause me problems?

 

A: Operating as a sole trader isn’t necessarily a barrier to being taken seriously by suppliers, and there are a lot of advantages to it. What you’re experiencing at the moment is something that a lot of fledgling businesses go through, and there are some things that you can do to establish your credibility as a legitimate business.

 

The first thing to do is to get a VAT number. You mention that your suppliers are based in Europe, and many European businesses won’t do business with you unless you have one. A VAT number will allow the supplier to verify your business. As you haven’t started trading yet you probably don’t have one, and if your projected turnover for your goods is less than €75,000 you don’t require one by law. However, you can voluntarily sign up for one which would probably be especially helpful in your case.

 

Another important thing to bear in mind is the maxim money talks. It may be difficult for you to get goods on credit at this early stage, but if you’re able to pay up front most suppliers will have no problem dealing with you. Remember, suppliers are in business too and it’s in their own interests to supply to you. If you don’t have the cash flow available to pay up front, you may have to start trading with a smaller range of products and expand as you build up more favourable relationships with your suppliers.

 

Even if a company tells you that they require cash up front now, ask them what their criteria is for instalment plans further down the road. Not only is this useful information, it establishes that you are taking your business seriously and that you’re in it for the long haul. It’s a statement of intent.

 

If you’re still unsure, don’t be afraid to contact them directly. Although it can be intimidating approaching major suppliers as a sole trader, most companies will be happy to tell you exactly what they require from prospective business partners. Chances are they’ve dealt with people in similar situations before, or perhaps been in that situation themselves. We’ve all got to start somewhere!

 

Best of luck in your business endeavours.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

FAILURE TO FUND? ALTERNATIVE FINANCING

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Whether you’re looking to set up your own business, or expand an existing one, an injection of cash can make all the difference. We look at some alternative ways of raising funds for your business.

 

Until recently if you were looking for cash to expand your business the two main options available to you were private investment or a grant from Enterprise Ireland. But finding the right investor for your business can be tricky, and not every product or service fits the criteria for Enterprise Ireland. Still – there are other options available to you other than a humiliating turn on Dragon’s Den.

 

Crowdfunding

Crowdfunding, also known as crowdsourcing, entails using the internet to build up capital for your project. You pitch your project on a dedicated website, and people who believe your idea has potential can invest a variable sum. A big plus to the process is that it allows you to connect with people who you may not have encountered in the natural run of things, such as investors from abroad. This can be particularly useful if you are planning on targeting customers outside of Ireland. It can also be easier in some instances to get a large number of small investors, as opposed to one or more larger backers.

Ireland already has a number of indigenous crowdfunding companies, and global leader Kickstarter’s planned entry into the Irish market means it’s set to get more popular. There are downsides to it – if you don’t reach your set target, you don’t get any of the money pledged to your project, and successfully marketing yourself to meet your target can be time consuming for a fledgling business, particularly for entrepreneurs or businesses with a small number of employees.

The type of product or service that you have will have an impact on how successful a crowdfunding campaign can be. Novel and innovative ideas tend to get the best response.

 

Friends & Family

Borrowing money from friends and family is common when starting out, but the maxim about not mixing business and family didn’t come from nowhere.

With all business endeavours there is an element of risk, and it’s important that your close ones realise this. Make it clear from the start whether they are giving you a loan or if they are investing in your company. It’s an important distinction; the former means you will have a sum to repay, the latter means they can expect – or hope – for some return on their investment. Bear in mind that, like any investor, they may look for influence in how your business is run, which may or may not be helpful. Don’t rule out the idea of a legal agreement just because you’re dealing with someone you trust – it’s best to have these things hammered out at the beginning to avoid misunderstandings.

If none of the above funding options are applicable to you, then don’t rule out bootstrapping. Coming from the phrase to pull yourself up by your bootstraps, it is entrepreneurship at its grittiest, using personal income, savings and the lowest possible operating costs to get off the ground. Easier said than done, true, but many of the world’s biggest corporations – such as Apple, Coca-Cola, and Dell – began from these humble origins.

 

Eamonn Garvey

Partner, DCA Accountants and Business Advisors

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

DCA Q&A: WILL A FRANCHISE MAKE START-UP FINANCE EASIER?

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Q: I’m in the early stages of a potential career change, opening my own food service business at the age of 45. While I have good equity value in my home, and have never failed to pay my mortgage, most of my savings are locked away in a pension fund, so I will need to borrow quite substantially to meet start-up costs. One of the options I’ve been considering is a franchise – while this would add to the costs, it would help me hit the ground running. I’m also hoping that it will make credit easier to obtain – am I right?

 

A: Depending on the franchise, you may well be. In fact, some franchising organisations have a scheme to offer start-up credit to their franchisees, though you’ll usually need to put up some of your own cash to participate. Perhaps it would be viable to take out a personal loan, or borrow from friends or family?

 

Failing that, banks will of course take the benefits of a franchise into account when they’re evaluating a loan application – particularly if you’re talking about an established brand, that reassurance that you’ll have customers who know you from day 1 is very good. They will, however, be aware of the downsides: higher ongoing costs and a less-flexible business model. You can find quite a useful pointer on the pros and cons of franchising – particularly in the food service space – here. Your business advisor in the bank should be aware of these points, and they will feed into the approval decision.

 

In short, a franchise won’t get you finance on its own: you’ll still need a solid business plan and a good lending proposition. But it will answer some of the questions that a bank immediately has about your potential market, and – depending on the kind of documentation provided by the franchisor – can add credibility to your projections. A good credit history and equity in your home will also be in your favour.

 

We advise a lot of businesspeople – and potential entrepreneurs – in the early start up stages, as critical decisions made at this juncture have a major impact on your business going forward. If you’d like to set up an initial, no-obligation chat about your options, just  contact us to set one up.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

GETTING ATTENTION

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n a competitive marketplace, getting the right type of media exposure for your small business is a great help – and doesn’t need to cost the earth.

 

For the past few years, a key aspect of business development has been building and maintaining a strong social media presence. While this is vital, it’s important not to overlook the value of ‘old school’ media coverage.  It can increase awareness of your services, your brand, and can also establish you as one of the forerunners in your field.

 

Customers reading messages relayed via your social media and website can be sceptical, and even doubt if posts by customers are genuine. Getting coverage by a reputable media source imbues your brand with their credibility, and for relatively unknown companies that credibility can be crucial.

 

Mainstream Media

Local radio stations and newspapers are an obvious first port of call, especially if you will be pulling consumers directly from the locality. But just because you’re a small business doesn’t mean the media outlets that you approach have to be. Journalists like to use a range of sources, and if you have a unique perspective you have the potential to really add colour to their coverage.

 

Crucially, journalists will get excited by a unique ‘hook’ that links your business to a particular current event. If you run a mediation service, for example, offering some insight to coincide with the release of statistics or a high profile break-up. If you run a sports injury clinic, and a high-profile person has been afflicted by an injury, advice about how to prevent and rehabilitate that injury will interest broadcasters and newspapers.

 

Expert Articles

If you are an expert in a niche field, it may be that media outlets would be interested in an expert article in its own right. Research suitable publications, and contact editors with your article proposal, industry credentials, and any writing experience that you may have.

 

Bloggers

The term ‘media’ has been redefined somewhat over the past few years, and is important to think broadly in terms of your media approach. If you can’t get coverage from national or local mainstream media – or if your service isn’t a good fit for it – it may be worth approaching influential bloggers in your industry with a unique story or an expert article. The benefit to this is that you may be more likely to hit potential customers through this method. Also  as the article isn’t for general consumption, you can go into a level of detail that may have gone over the heads of readers unfamiliar with your industry.

 

Rejection

There can be many reasons why a media outlet choose not to profile your company, or commission an article from you. It often takes a few pitches before you come up with an angle or an article that interests an editor, so don’t get disheartened. Being gracious and thanking them for their consideration regardless makes a good impression, and makes them more likely to contact you in the future. Also, consider courting informal feedback from editors about what kind of angles and articles they’d be interested in. Getting media attention can a long process, but stick at it, and you’ll make some inroads soon enough.

 

Eamonn Garvey

Partner

DCA Accountants and Business Advisors

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.