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Bad Investment Makes no Cents.

We have spoken at length in the past about various forms of funding and investment in business and the importance of the availability of funding for all businesses in particular small and medium enterprises who may rely on outside funding. Something which is rarely touched upon is the importance of choosing the right investor for your business, and one which can go the distance alongside your company. Failure to choose a sustainable investor can cause serious problems for both your business and the investor.

This issue is especially important this week as it was revealed that many Irish investment firms have been found to have failed to meet the required standard of investors by the Central Bank of Ireland. The bank recently conducted a review of suitability requirements for investment firms and found many companies to be sorely lacking, which is not encouraging news for business owners wishing to secure funding. Michael Hodson, Director of Asset Management has been quoted as saying of the findings:

“The review highlighted that firms need to improve the quality of information collected and how this information is utilised in the suitability process. With the introduction of higher suitability standards, the quality of the information collected is all the more significant.  Boards are reminded that they are responsible for implementing an appropriate governance framework that meets the suitability regulatory requirements and embeds a client-centric culture across the firm.  Investor protection is at the core of the Central Bank’s mandate.” 

The review found that many firms were unable to demonstrate that the required suitability policies and procedures were implicated whilst also pointing out that many application forms were incomplete. Some firms were also found to be reliant on self-assessment alone and had little to no tools in place for assessing suitability for investment, relying heavily on technology. In perhaps the most worrying finding, many companies were found to have nothing in place for dealing with potentially vulnerable clients and companies.

Thankfully, the Central Bank assure companies that in any areas that the findings may be damaging to consumers formal supervisory requirements have been implemented which should reduce risk greatly for prospective clients.

As always we are available for any advice or guidance you may require on business or finance matters.

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

Score One for SMEs

For the past few months, the term Brexit has acted as somewhat of a Bogeyman figure looming over many Irish business as the haze of uncertainty for what a British exit from the European Union would mean for Irish borders and trade with the UK, on which many companies rely. Perhaps the most concerning idea for Irish businesses would be what this would mean for Irish Small and Medium Enterprises (SMEs). We have spoken at length in the past about how important the SME sector is in Irish business, forming the backbone of our economy, and how vital it is to protect these types of businesses in changing times. Many Irish SMEs rely on business with the United Kingdom and so a cloud of uncertainty and insecurity has plagued the sector in recent months.

 

Recently, we have spoken about new funding opportunities coming to light for SMEs and this week it appears that the future may be beginning to look even brighter for these vital enterprises. The Minister for Employment and Small Business Pat Breen has urged SMEs and micro businesses to turn to their Local Enterprise Offices (LEO) for information about a range of supports now available to them. A newly announces suite of Brexit supports is now available to SMEs and microbusinesses through their Local Enterprise Offices which include

  • Access to the ‘Brexit SME Scorecard’ online tool where micro and smaller businesses can self-diagnose their readiness for Brexit – A vital planning tool which may assist many small businesses.
  • A ‘Technical Assistance for Micro-enterprises’ grant to help LEO clients to find new markets and exports.
  • Rollout of ‘Lean for Micro’ nationwide which will make small businesses more efficient and competitive.
  • A ‘LEO Innovation and Investment Fund’ pilot programme to support innovation in micro-enterprises and get them investor ready to scale their businesses.
  • Tailored mentoring to address Brexit related business challenges.
  • Training on specific Brexit challenges, including financial aspects.

As you can see from this list, these supports are specifically aimed at providing information and a framework of support and guidance for these businesses to utilise when navigating the uncertain times ahead. Minister Breen was quoted as saying of the support:

“I am delighted to announce this suite of important Brexit supports which will be available for small and medium enterprises. It is imperative that micro and small businesses have the tools and supports needed to navigate through what is uncharted territory. This is part of the Government’s Brexit planning and I am very pleased that my Department through Enterprise Ireland has been able to accelerate the rollout of these new LEO offerings worth up to €3.4 million, and I urge small and micro business owners to get in touch with their LEO to see how they can help.” 

These supports focus heavily on planning ahead which will be vital in the coming months for all businesses. Should you require further information, guidance or assistance please give us a call.

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

FUNDING THE WAY IN THE DARK

Following the economic downturn, one of the largest business groups to suffer were Small and Medium Enterprises (SMEs). A key component of these types of businesses is often their reliance on funding options and flexible payment terms in order to gain and keep a decent foothold in their area of business. Following the Irish economic crisis, many SMEs were unable to continue their operations due to a reduced availability of finance options. This lack of financing availability also meant that many start-ups were unable to get off the ground during this time.

 

 

Now that the Irish financial situation is apparently on the up, there has been an increased focus by funders and the government on entrepreneurship and SMEs. This is a fantastic starting point and is largely due to the fact that these types of businesses make up for over half of all Irish businesses, and have become somewhat of a backbone for Irish businesses. Recently, it has been reported that more funding options will soon be returning to the Irish market targeting SMEs in particular.

The welcome news recently for Irish SMEs is that one such form of financing which disappeared is set to make a comeback to the Irish market. Supplier Finance is now once again an available option in Ireland, offering financially secure Irish SMEs this method of paying key suppliers whilst accessing previously unavailable cash flow. Supplier Finance is said to be an ideal additional top-up for companies who have hit their banking limit as it will not interfere with any already existing funding plans.

Also known as supply chain finance optimises cash flow by allowing businesses to extend payment terms to suppliers whilst ensuring that suppliers are paid in full. This creates an optimal environment for both buyer and supplier. The additional benefit of this form of finance which lead to its popularity during boom times was that it allows the supplier access to additional cash flow that would otherwise be tied up elsewhere and minimises the risk of financial issues elsewhere in the payment chain.

 

 

Supplier finance is different to other finance options in that it is not a loan, but rather an extension of the accounts and is not considered to be a debt, suppliers receive full payment for their products. This makes supplier financing a very attractive option for a great many financially stable Irish SMEs.

Financially secure companies who have not been suitable for options such as Invoice Finance will be able to avail of this funding option which will be a welcome change for those in difficult to fund sectors.

Should you require any more information, advice or guidance on these or any other business or financial issues, please do not hesitate to contact us here at DCA Accountants where we will be happy to be of service.

 

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

SOWING THE SEEDS OF INTERNATIONAL GROWTH

Success is a very strange beast which appears in different forms for all individuals whether business owners or not. For business owners in Ireland, often the first port of call is to establish some small measure of success on home turf, before seeking to grow the business elsewhere. In the years following the financial crisis we have seen a mass exodus of people leaving our country, visas in hand to find their fortunes elsewhere. It would appear that this has slowed considerably in recent times so today we are going to focus on the other side of the coin, managing to grow your Irish business internationally while remaining on home ground.

 

Recent reports have suggested that since Ireland’s financial recovery has started to pick up some form of speed, many of those who have travelled to Australia or elsewhere and found success there have returned to Ireland in order to utilise their newfound skills and level of success. The Enterprise Ireland office in Sydney is said to be working with more than 150 Irish companies, whilst a vast number of Australian companies are now expanding operations in Ireland. Similarly, Irish recruitment agency CPL created a pop-up office in Melbourne in which it interviewed Irish professionals for positions back in Ireland.

 

So what options exist for growing your Irish business internationally whether you are making your return or have stayed put?

 

The Enterprise Ireland Internationalisation Grant gives Irish businesses the opportunity to grow in international markets. This grant focuses solely on supporting the costs of undertaking new market research which is a valuable asset in growing your business in new areas and the research must focus on an area not already being covered by your business. There are a number of eligibility criteria available through the Enterprise Ireland website including that the business must be based in the Republic of Ireland and employ more than 10 people. There is also an available option for much larger companies. The maximum grant available here is €35,000, which would certainly garner valuable information for growing your company. This grant is open to applications all year round.

 

For smaller companies and SMEs, the Enterprise Europe Network is an invaluable resource which will assist in gaining new contacts and support networks beyond the door of your own business. This is a support network for SMEs and other companies with international ambitions assisting in gaining contacts and providing much needed information about funding available. This is also an important resource when looking to grow your business internationally as it provides valuable information on EU regulations which will ensure that your business is following all appropriate protocol.

 

The Enterprise Europe Network also provide an access to EU funding programme for SMEs to assist in this process as well as giving Irish companies the opportunity to give feedback on EU legislation. This is a resource we would urge all Irish SMEs whether dreaming big or small to engage with.

 

If you have any queries, please don’t hesitate to contact us here at DCA Accountants, where we will be happy to assist and advise in any way possible.

 

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

WHOSE CASH IS IT ANYWAY?

In recent weeks, we have talked quite a lot about the current funding options available for Irish Small and Medium Enterprises (SMEs). As SMEs continue to become a large part of the Irish economy during the recovery, their funding has been an important topic to cover as it is important to ensure the survival and stability of these companies. As previously discussed, the banks remain the largest source of funding to Irish SMEs.

 

Recently, Revenue have warned SMEs about the possibility of additional tax charges on loans which may have been sold to so-called ‘vulture funds’. These vulture funds have long been a hot topic of contention when it comes to SMEs. It was recently discovered that the acquisition of distressed loan books can trigger a demand for withholding tax on interest paid on individual loans, for which the borrower is liable. Under Irish law, companies must deduct 20% tax on interest payments.

 

The problem for SMEs here is that as the banks remain their largest source of funding, this tax does not apply and as such these companies may be unaware of their tax liability should this loan be sold to a purchaser outside of the banks. If your SME loan was sold on by the bank, then you as the borrower may potentially be at risk for owing additional tax and interest along with penalties owed for time passed without payment. This issue becomes a larger and more costly one when it is considered that the issue may not be known for a number of years until finances are more deeply looked into.

 

Tax partner at MG Partners, Aisling Donohue has said that this issue has arisen due to a “combination of bad tax laws and unfairly worded contracts” and that this could cause major issues for SMEs looking to sell their business. “An adviser doing diligence could flag this as an issue and say the SME was exposed to possible interest and penalties and this would mean the company was worth a lot less.” Donohue also stresses the importance of remembering that this applies to companies and not to individuals to avoid further concern.

 

If you are concerned about this and the funding status of your own SME, we would suggest contacting Revenue directly for clarification or alternatively to ask Revenue to create a provision for paying interest gross to a non-banking entity. If you have any further concerns regarding this or any other business or financial issue, please don’t hesitate to get in touch with us here at DCA Accountants.

 

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DCA PARTNERSDECLAN DOLAN & EAMONN GARVEY

VENTURE CAPITAL FUNDING

Venture capital groups have become one of the most popular methods of gaining equity. This method has become so popular of late that Irish Venture Capital Companies have become one of the primary sources of funding for SME’s.

The purpose of venture capital groups is to provide equity to growing start-ups.  These groups may also act as a mentor of investment as they often provide essential advice to the companies in whom they invest as well as assisting in the expansion of the company.

 

It was reported in February of this year that Venture Capital Funding for SME’s had hit the 400m mark. This is the highest level of venture capital funding seen in over 10 years.  Over 80% of this money was dedicated to the expansion of existing companies. This growth in the popularity of venture capital funding has lead to growing confidence among Irish entrepreneurs.

 

Obtaining venture capital is very different from raising debt or a loan from a lender such as a bank and is an option that should be considered carefully. One of the ways in which this method of funding is unique is that instead of seeking security on their investment, lenders of venture capital will usually charge interest on the loan. Another way in which this option is different is that venture capital is invested in exchange for a stake in your company; creating a symbiotic relationship between the investor and the company they are investing in. The investor’s return is dependent on the profitability and growth of our business.

 

Recent research has shown that Venture Capital backed companies grow faster than other companies. Research has also shown that these companies are more profitable than their peers at a similar level. As well as injecting cash into the business, the investment is also likely to inject the start-up with credibility

 

So, is Venture Capital a viable option for your company?

Venture Capital is the best option for you if you are hoping to rapidly grow your company, and have the ability to protect your intellectual property throughout the investment period. In order to appeal to venture capital investors it also helps to have a USP (Unique Selling Point).

 

If you decide that Venture Capital Funding might be for you, you must ensure that your investor has a strong track record, excellent credentials, industry contacts that can help you grow your business and the time to invest in growing your company.

 

There are a wealth of venture capital funds available in Ireland at your disposal. For your convenience we have compiled a short list of those available:

 

  • AIB Seed Capital Fund
  • AIB Start-Up Accelerator Fund
  • Bank of Ireland Early Stage Equity Fund
  • Bank of Ireland Start-up and Emerging Sectors Equity Fund
  • SOS Ventures Ireland Fund
  • Frontline Ventures Fund
  • Delta Partners
  • Enterprise Equity

It is vital to choose the correct investor for your business, as your investors will be some of your most important contacts. Your venture capital provider should be able to provide advice and guidance as well as capital and it should be a relationship that will grow alongside your company.

NEW FUNDING FOR IRISH CONSTRUCTION SECTOR

A recent report has suggested that Sankaty, a well-known leading global credit specialist is now looking towards lending in Ireland. It was reported that Sankaty has been planning to raise up to $1 billion for a lending fund intending to target businesses that have found it difficult to gain funding in the wake of the recession – in particular, those in the construction sector.

 

Sankaty have teamed up with Irish financier Dermot Desmond to back a new venture called Broadhaven Credit Investments, which was officially set up on June 24th 2014. The venture is being fronted by Stewart Doyle and David Cullen and is backed by Sankaty London team.

 

Broadhaven has earmarked €200million to support house construction in Ireland, one of the sectors of Irish business which has been hit hardest by the financial crisis. The hope is that this extra funding may reduce the risk of another housing bubble, and by extension the consumer may see a reduction in the skyrocketing house prices. Broadhaven is prepared to support credible house builders in Ireland. Despite having its primary focus be on the construction sector, Broadhaven also intends to widen its gaze to the wider lending world by extending its funds to some Irish SMEs.

 

It is believed that while the initial seed capital for Broadhaven is estimated at €200million, there will be additional opportunities for this seed capital to grow exponentially over time. Sankaty has told potential investors in its new fund that the middle market presents an opportunity to earn “attractive risk-adjusted returns with significant premiums to the liquid credit markets. Structural changes in the global banking sector continue to constrain traditional lenders, leaving a supply and demand imbalance for middle-market financing.”

 

Since the company’s inception, Sankaty has invested over $7.5 billion in middle market investments and brings a debt-oriented approach to funding, and the move to the construction sector is an interesting one for such a huge company. Similarly, the move into this sector for such a well-known financier as Dermot Desmond may suggest that the long-suffering housing market in Ireland may indeed be about to pick up.

 

The funds being raised for this venture will have a six-year lifespan and offer funds over a three-year period. These funds may be an attractive prospect for you and your business. Should you require any assistance on how to manage your funds or repayments we here at DCA Accountants are here to offer you advice and assistance.