WHAT INVESTORS WANT

So many companies are looking for investment at the moment, whether to scale up or even get off the ground and develop a marketable product. Rather than simply focusing on your company’s needs and what kind of investor you’d like, it’s important to recognise that this is a buyer’s market – any potential investor you speak to will often have a choice of prospect companies to direct their money towards. In this extremely competitive environment, it’s worth actually thinking about what investors want.

 

Proven Viability

 

More than anything, investors are seeking proven viability. They’ll first look at the fundamental financials of a company. Has it got a history of generating profits over the last number of years? Is its liquidity position in a healthy state? In other words, if an investor looked at its balance sheet, would they see it has ample cash reserves to deal with ongoing day-to-day expenses? One can’t work without the other. You could have a situation where a business has healthy profits on paper but, when you unravel the mechanics of what makes the business work, you’d see that its cash-flow situation is not so strong. That’s a big negative.

Having said that, investors are a law onto themselves and they may see something in a business that may bring value. You could have a scenario where an investor sees a healthy turnover and a healthy client or customer base, which may be appealing. An investor could see potential synergies from shared resources, cutting into the overheads and so on, to turn it into something more profitable. However, that’s a more difficult sell.

 

Define the Opportunity

 

In either case, it’s important to actually convey the opportunity – whether that’s increasing profits or developing new revenue streams – that a cash injection will give. If you’re going to draw on investment, I would always advocate preparing a strong business plan incorporating financials, historic financials and what the strategy is. It must communicate clearly what’s planned after investment is drawn down. A very well prepared business plan is crucial to drawing in investors, or even getting their attention. It’s not good enough to have financials on their own.

Some business owners are reluctant to share data – either on their core financials or opportunities identified in the market – with people they don’t know that well. This is understandable, and often healthy. A non-disclosure agreement is common now for parties that are looking to potentially invest. While its protection may be scant against someone who’s determined to act in bad faith, it at least sends out the signal that this information is privy only to someone who might invest in the business.

 

Screening Investors

 

You can also do an element of screening, looking into a potential investor’s background, doing a search, or getting information through a third party to see where they’re coming from. It may help get an idea as to how much is behind a person’s interest. However, it’s impossible to eradicate the risk completely.

You’d be forgiven for being quite downbeat about the hunt for investment – it’s tiring and sometimes exasperating. But companies that have healthy turnover, a wide customer base and a history of generating profits are always seen as a good bet by those with money. At DCA, we spend a lot of time preparing business plans for people who want to send an idea out there for potential investment. It’s something we’ve been doing here for a number of years with great success, and we would be happy to offer you a free, no-obligation consultation on this issue. Feel free to contact us [link] to set up an appointment.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors.

 

If you have a question for our DCA Q&A section, please email us at info@dca-ireland.com and we’ll get back to you.

Individual names and company names will not be published to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

CAN A DEBTOR COMPANY RIP ME OFF?

Q: I’m owed a decent chunk of money by a small business that has quite a successful website generating most of its cash. I received notice of a creditor’s meeting and chased up the issue with the company owner. The discussion got a bit heated after he admitted he was planning to continue on with his core business with a new company while walking away from his debts. Surely this is illegal? Is there any way this kind of carry-on can be stopped?

 

A: Unfortunately, ‘phoenix companies’, where a firm goes into voluntary liquidation and a new firm takes its place, are becoming more common: while it allows business to continue, it means creditors get burned if business owners are unscrupulous. In fact, according to a study carried out in October of last year, one in 20 businesses showed ‘phoenix company’ traits, which include common directorships and common business lines of failed firms.

 

In this case, I’d hazard a guess that the new company has bought the assets – including the website and anything else that generates revenue – from the old one. If a former director of the soon-to-be-liquidated firm is the only prospective buyer, this is legitimate.

 

That said, the business owner may face repercussions if he is found to have traded recklessly. Under the Company Law Enforcement Act of 2001, the liquidator will have to give a report to the Office of the Director of Corporate Enforcement (ODCE) outlining how the actions of the director contributed to the failure of the company. Then, if it chooses, the ODCE may apply for the directors to be disqualified as a director for a period through the courts.

 

To put the business into voluntary liquidation, the owner of the company needs to make what’s called a declaration of solvency: a clear statement that the firm is fundamentally solvent and can pay its debts within 12 months. If the company really is unable to pay its debts, then the creditors have the right to choose a liquidator through a creditor’s voluntary winding up.

 

There are a few circumstances in which a company can be deemed unable to pay its debts: if a company owed over €1,270 has served a written demand that has gone unpaid for three weeks, where a sheriff has not been able to execute a court judgement for a debt, or where the courts are otherwise convinced that the company is insolvent.

 

At the moment, you don’t know whether this is the case. What I would suggest is going to the creditor’s meeting, seeing the lie of the land, and finding out what the real position is: one confrontational conversation with the owner won’t give you that.

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

HOW CAN I EXIT THE BUSINESS?

Q: I’m a 50% shareholder in a small limited company. We’ve been breaking even for the past three years and are on course to turn a profit this year. The only problem is that I want out – I’m sick to my back teeth of the work and received an excellent job offer in a related field. How do I go about exiting? I haven’t broached the issue with my partner, though we have a good working relationship. Does he have to buy back my shares, or is there a simpler way?

 

A: You need to discuss the situation with your partner: most of the options open to you depend on at least some co-operation from him, and things could get very messy if you’re going around behind his back.

 

The simplest option is for you to simply stop working at the business, and for the company to hire someone else in your place. That way, you retain your stake in the company without it being a major burden on your time. For that approach to work, your partner will need to be on board. Depending on your contract, you may have to inform your new employer as well.

 

If you’re set on exiting the business completely and selling your shareholding, you should refer to the shareholder’s agreement (assuming you have one) to see what you can do. In some cases, for example, shareholders are restricted from selling to third parties, or have to give first option to their other shareholders on any transaction.

 

Depending on what the agreement says, you can go down one of three ways. The company itself can buy back the shares from you at an agreed price, or your partner can if he wants to spend his own personal cash. If he’s not willing to buy, and the shareholder’s agreement allows for it, you can sell to a third party.

 

In either case, you’ll need to assign a valuation to the business. As it isn’t hugely profitable, you’re most likely looking at recovering whatever money you put into the business, 50% of the assets, and a relatively small amount for ‘goodwill’ and valuable contracts on your books. This is a tricky thing to define, and you may need to get an independent valuation. In either instance, your first step should be to sit down with your partner, outline the situation, and then jointly talk to your accountants.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

CAN MY BUSINESS PARTNER WALK AWAY?

Q: I’m a small shareholder in a company that’s going south. Basically, the main man (with a 60% share) has been acting as CEO and ran it into the ground: he’s burned through investor money for R&D without  developing a product, taken client money and not delivered the goods, and racked up debts. I and two other shareholders  also have our suspicions that he’s used company money for personal use. Now he’s tendered his resignation as both CEO and a director, and also offered the shares to us for just €1. We’re worried that he’s just looking to walk away (possibly with a substantial chunk of change) from his responsibilities – what can we do?

 

A: Don’t accept anything: call in the liquidators, and get a solicitor, fast. The good news is that he can’t just walk away from debts incurred on his watch – his liability would be set out in the original company formation documents. Also, if he has taken capital out of the business, this should be ruled out under any normal partnership agreement, and you should have recourse under the Civil liability Act 1961 for that money.

 

The bad news is that, if you’re a director and know the business is losing money, you’re under an obligation to try and wind up the business. After all, if you’re knowingly engaged in reckless trading, that can result in a disqualification from acting as a director in the future. This will likely result in liquidator fees. However, for the possibility of recovering some value from the business, and to avoid the grave consequences of a restriction, I’d recommend it.

 

However before you take any drastic action talk to your business advisor or accountant first for assistance with cash flow projections to see if you can prepare a cash flow roadmap out of this problem in the long term.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

THE PERSONAL RETURN

2012 is whizzing by. We’re already nearing the end of May and, while four months might sound like a long time in business, the October 31 deadline for the filing of personal tax returns is starting to loom large. Even with the typical ROS extension to November 15, filing the return isn’t something you can put off forever.

 

Ideally, people should start the process as early as possible in the following year. At DCA Accountants and Business Advisors, we like to try and start the process off around June. It’s good practice to follow up with your accountant in the next week or two looking for a checklist of what documents you need.

 

The vast majority of the hunting will be in receipts. If you’re a naturally disorganised person, you’re leaving yourself exposed to a higher tax bill by not holding on to your receipts or payment details. There are a lot of things out there that people may not be aware that they’re entitled to claim. Examples include medical expenses, bin tax credits, subscriptions for trade unions or other organisations, charity donations, and college or course fees that are relevant to your work.

 

Even if you don’t have receipts for everything, you shouldn’t give up. You can look at bank statements to see what’s paid out of the account, or you can look at cheque stubs. For items like insurance, subscriptions and things like that, it’s often the case that people don’t hold on to the receipts, but they’ll have the record in their chequebook. If you can’t locate the receipts, you can follow up with the provider. Many of these places will give you the supporting information you need by email. The key thing is to give yourself enough time to discover what back up receipts you have and what you don’t have. That way, you can email people to supply a copy of the receipt. If you’re not able to get your hands on receipts but you’re comfortable that, if push came to shove, you’d be able to stand over those payments, give the accountant the estimate of what you paid amounts.

 

Aside from not declaring everything they’re entitled to, many people make the mistake of under-declaring income. For example, some people might have income from a salary, but they might also have arranged to charge the company directors fees. It often happens that, when filing their return, they don’t bring these fees into their personal tax return. That can result in underdeclared taxes and possible penalties or charges from the Revenue.

 

The biggest mistake you can make, though, is filing and paying late. The Revenue will be quite happy to take a surcharge of up to 10% on anything paid late, and interest on top of that. Sometimes, people don’t pay preliminary tax – a tax you must pay before the year expires. Many people miss the boat on that – either they’re unaware or they turn a blind eye. But the Revenue can and will penalise you. The rule here is that preliminary tax must equal 100% of your previous liability, or 90% of your expected liability for 2012.

 

More to the point, filing and paying late can draw attention that nobody wants. The Revenue tries to narrow down the businesses they select for an audit. One thing that can bring a business to their attention is where they’re late with filing their return and late paying their return. By doing that, you’re increasing your chances of being audited.

 

If you genuinely are struggling to meet your deadlines, it is worth getting in touch with the Revenue as soon as possible. It won’t guarantee that you’ll avoid a penalty, but it depends on each case. The Revenue can be understanding of a late return if the circumstances are genuine. If there’s a bereavement or an accident, they might take that on board and allow you some breathing room. In any case, it’s always good to approach them first. It’s even better, though, to get the filing process started well in advance so you’re not put in that position.

 

Declan Dolan,

Partner,

DCA Accountants & Business Advisors.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

DCA Q&A: WHAT SHOULD I DO ABOUT A BOUNCED CHEQUE?

Q: After harrying a client for quite a while, they finally stumped up with a postdated cheque. The only problem is that, when I lodged it, the cheque bounced! I’m absolutely furious – what are my legal options?

 

A: The first thing to note is that there may well be an innocent explanation – either an honest mistake about what money would be in the account on the day you cashed it, or an unexpected delay in processing another payment. After all, it doesn’t make sense to issue a cheque that will bounce, because the issuer gets hit with charges, and it won’t look great if they’re seeking credit either. In any case, the company will have been informed about it by their bank.

 

I reckon your first action should be an initial call to the company itself, asking them to put through a bank transfer immediately. Depending on how close they are, you can call in personally and gauge the situation – if they were simply caught short and are prepared to pay what they can when they can, that’s a very different situation to a can-pay-but-won’t attitude.

 

In the worst case scenario, having a cheque that bounced (rather than being stopped by the issuer) is a big advantage if you need to take legal action: after all, it’s an acknowledgement that a debt exists, so it would be a lot harder for the company to claim they shouldn’t pay up. If this company were intending to stiff you, sending out a cheque was a very silly thing to do.

 

For that reason, I’d be inclined to approach this assuming a genuine mistake. Your frustration is pretty understandable, but I’d try to resolve it amicably before getting a solicitor to seek a judgement against the firm.

 

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

 

EMIGRATION ISN’T THE ONLY ANSWER

Lately, there’s been quite a lot of emphasis on people emigrating from Ireland. It’s hardly surprising of course since a generation of people seem to be fleeing the country in the hope of creating a better life for themselves elsewhere. Documentaries like RTÉ’s Generation Emigration capture the plight of some of these individuals in an illuminating and revealing way and in most cases, the problems faced by some of those showcased before they emigrated can be aligned with many people who still remain here.

 

However, there are still opportunities in Ireland, despite what some of the media reports say. At DCA Accountants and Business Advisors, we come across people every day who have or are thinking about setting up their own businesses. Many have turned to entrepreneurship out of necessity as jobs in the wider economy continue to be thin on the ground, while others have always had a burning desire to be their own boss and create their own jobs. Regardless of how each individual came to the decision to go it alone, in most cases they are finding that Ireland is becoming a very good place to do business.

 

Obviously the business environment here has improved markedly in recent years – rents are lower, labour is more readily available and there has been a growing emphasis at Government level to support those who want to start their own company. The negatives point to constricted cash flow and the availability of credit to get you up and running. However, if your business idea and your business plan can stand up to scrutiny, there are opportunities to secure funding either through financial institutions or private investment. For example, one company we work with managed to attract €50,000 worth of investment last week from an angel investor – we’re finding that with continued volatility in the stock markets and the uncertainty and instability that casts a cloud over much of Europe, those with resources to invest are seeking credible and potentially lucrative opportunities. In the case of the example I mentioned, the investor will receive a 15% return on his money while the business in question now has the funds to develop and expand – it’s win win.

 

It certainly isn’t plain sailing nor do I mean to make it out to be. Having said that, there are opportunities to go it alone and set up your own business. The generation of 20 or 30 somethings also have the advantage of not being saddled with crippling debt nor are they likely to be as plans are challenged over and over again before a decision is made on whether or not to support a new business idea.

 

The Government have also weighed in with some good initiatives. The Back to Work Allowance is a good starting point for budding business people and it offers a helping hand to get a company off the ground. Enterprise Ireland are also worth investigating but if you’re planning on setting up your business with the indigenous market in mind, you’ll be better off talking to your local Enterprise Board or organisations like the Dublin Business Innovation Centre. Starting off with good advice from those with experience will be useful in the long run and they’ll be able to help and provide guidance on sources of finance too.

 

If you would like any information on setting up a business here or advice on how to go about it, get in touch with one of our advisors at DCA Accountants and we’ll gladly offer you a consultancy session free of charge.

 

Eamonn Garvey,

Partner,

DCA Accountants and Business Advisors

 

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

DCA Q&A: CAN WE HOLD BACK WAGES FOR INCOMPLETE WORK?

Q: We had to let one of our employees go last week – it was a mix of cash-flow and levels of competence, as we’d had a couple of clients complaining. As part of a redundancy settlement, we agreed to pay him his full wages at the end of the month.

However, as I’ve been going through his emails and files, I’ve found several jobs that he told me were finished are only half complete. I’ve also found that the clients he was managing are far more angry than I’d thought, and with good reason: he’s been making (and breaking) frankly batty promises to try to keep them happy for months now.

I’m furious – I’ve got to clear up this mess, and I’m 90% sure that we’ll lose business as a result. Do I have to pay him the full wage despite the fact that he clearly misled us?

 

A: Unfortunately, you do. There are set circumstances when an employer can withhold an employee’s wages. If the deduction is required by law (for PAYE or PRSI) or a court order (such as maintenance for a spouse), that’s fine. You can also deduct if an employee has been on strike, or to recover an overpayment of wages or expenses. Any other deductions call for an employee’s consent – arbitrarily taking away the money will get you in a lot of trouble.

 

That’s not to say, though, that an employer has no recourse if an employee’s conduct has actually cost them money – they can seek redress through the courts. Of course, this costs money, and is fairly uncertain, so I doubt you want to do that.

 

What I’d suggest is writing to him outlining exactly what you have discovered, and noting that you do not intend to let the matter lie. The more documentary evidence you have that he deceived you in the run-up to you letting him go, the better. The neatest solution to this, in all honesty, would be for him to waive his right to some (or all) of the payment he’s yet to receive as full and final settlement of any claim you have. However, if he does not agree to do this, you’ll have to pay him what he’s owed and pursue your claim for compensation separately.

 

In the longer term, of course, you’ll have to have a think about what systems and controls you adopt to ensure an employee doesn’t run rings around you again, though I’m sure you already know that. Your best bet is to increase your own contact with clients, letting them know that they can come to you if they’re having any problems.

 

Eamonn Garvey,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

THE FINANCE ACT 2012 – WHAT IT MEANS FOR YOU

Last month, President Higgins signed the Finance Act 2012, a bill which introduced a number of new measures to improve the business tax regime, into law.

 

 

One of the key features in the Bill was the corporation tax relief scheme for start-up companies. Under the new rules, and in accordance with an announcement by the Minister for Finance on Budget Day last December, new companies may be exempt from corporation tax on trading income for the first three years of operation. While this relief was already in place, the Bill confirms that is has been extended to companies commencing trade up to and including December 31st, 2014. Here, the maximum annual liability for which shelter is available under this scheme is €40,000 but the amount of relief available will be dependent on the amount of employer’s PRSI paid by a company and the number of staff it employees.

 

Another key development for business is the tax relief that applies where a company receives dividends from trading profits of a business that is tax resident in the EU or country that Ireland has a double tax treaty with. The rate of tax on dividends received from foreign bodies is usually 25%. However, under this scheme, the relief provides exemption from tax on dividends received by share dealers from portfolio shareholdings. The relief has also been extended in the Bill to also include dividends from companies located in countries with which Ireland has ratified the OECD Convention on Mutual Assistance in Tax Matters This opens up new markets for Irish companies, including Brazil, which is due to ratify the OECD Convention this year.

 

Generally, the Bill includes measures to support job creation and enhance Ireland as a destination for foreign direct investment, including foreign earnings deduction to support businesses that promote Irish exports to high growth economies such as Brazil, Russia, India and China. Also, the Bill sets out to reward the R&D efforts of companies here by allowing firms to reward key staff in this area by giving them the option of transferring a portion of their R&D tax credit to personnel who are heavily involved in research and development. Also, the government has set out guidelines which will make it much easier for businesses to claim the credit.

 

The Special Assignee Relief Programme, which was announced on Budget Day late last year, was confirmed in the 2012 Act. The purpose of the programme is to allow tax relief for Irish companies seeking to attract highly experienced personnel from abroad. Much has been written about the ‘brain drain’ that the Irish economy is suffering and the decision of highly skilled and specialised individuals to snub Ireland in favour of other jurisdictions with less penal tax codes. This measure should go some way to addressing the issue.

 

The Act also saw the extension of tax relief for corporate investment in renewable energy generation while improved relief for excess tax on royalties for the software industry were also highlighted.

 

For a full copy of the Bill, click here or contact us to see how we can help your company take advantage of some of the new measures announced by the minister last month.

 

Declan Dolan,

Partner,

DCA Accountants and Business Advisors

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.

SHOULD WE CHARGE VAT?

Q) We’ve just signed a contract to do some work on behalf of a well known charity. Our payment terms are 50% of the agreed amount upfront, 25% to be paid on completion of half of the contract, with the outstanding balance due once the project has been delivered in full.

However, when we submitted our first invoice, I was told that the charity wasn’t registered for VAT and that I would have to amend the invoice accordingly. I thought this was a little unusual so I asked a colleague of mine who works in another firm that carry out work on behalf of other charities if this was the case. He said that his firm charged VAT in the way they would any client. Is that the case here?

 

A) Generally, you should charge VAT in the normal way irrespective of whether the organisation you are dealing with has charitable status or not. There is no general exemption in respect of VAT for such organisations and therefore you should charge accordingly.

 

However, I can see how this could cause some issues for you – you don’t want to tell your client how to do their job or question their practices. As charities are not regarded as supplying goods or services in the way a trading company would be, they are neither obliged nor entitled to register and account for VAT on their income. However, since your company supplies good and/or services in the normal course of business, you must charge VAT.

 

The problem here is that the charity will not be entitled to a repayment of VAT incurred from its business dealings with you. It’s best to explain to them that you have to charge and that they should look into recouping any funds they feel entitled to themselves.

 

If you feel that they are being non-cooperative, you may have to renegotiate the terms of the contract to take into account a smaller margin if you’re left to foot the VAT bill yourself, or simply walk away from a project that isn’t as profitable as you first thought. This isn’t your problem but it will be if you don’t carry out normal business procedure.

 

Declan Dolan,

 

Partner,

 

DCA Accountants and Business Advisors

 

If you have a question that you would like answered, please email us at info@dca-ireland.com and we’ll get back to you.

Individual’s names and company names will not be published in our Q&A section to protect privacy.

 

For more on our services or to receive a free consultation for your business from one of our experts, visit www.dca-ireland.ie or follow us on Twitter.