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YOU TALKING TO SME?

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There is no disputing the fact that the past couple of weeks have been one of uncertainty for our little island as confusion and lack of clarity reigned supreme following the general election as we were without government until decisions could be reached. Whilst it may have seemed that the uncertainty would continue on, decisions were eventually made and our new government came into being. Despite these changes coming into place so recently, promises and plans are already being made and put into place for some major changes which might be of benefit to you and your business.

Recently it has been suggested that there will be a massive surge towards tackling the country’s ongoing mortgage crisis with measures aimed at assisting existing homeowners and, one would hope additional measures to assist prospective homeowners. These measures would be of great benefit to workers and business owners alike who may be struggling with savings or payments.

With Small and Medium Enterprises (SMEs) beginning to form somewhat of a backbone to Irish business, accounting for just over half of all Irish businesses, it is no surprise that it has recently been reported that a newfound focus on these small businesses is said to be close to the top of the agenda for the new government. A document which formed the basis of negotiations between the Independent Alliance and Fine Gael is said to outline the dire need to make progress on the issue of credit availability for Irish SMEs.

It is reported that the Independent Alliance in conjunction with Fine Gael have signalled the need to make available €1billion in additional finance to assist Irish SMEs in initial set-up and expansion issues. Lack of competition in the banking sector in Ireland has resulted in our SMEs paying more for credit than elsewhere in Europe. This, in conjunction with the discrepancies between what large companies pay for credit and that which is paid by SMEs in Ireland, makes it increasingly difficult to not only get a small business off the ground, but to keep it running. We have spoken at length in the past about the issues associated with SMEs attempting to borrow from traditional banking lenders and also new non-traditional lenders, so this new push could be a step in the right direction for the future of business in Ireland.

It is said that the new government’s focus to tackle this issue will be on developing new alternative funding sources which will be open to SMEs from peer-to-peer lending to investment opportunities in order to reach their financing goal of €1billion. The hope is that this will stimulate competition in this sector which will in turn lead to the wider availability of funding. The draft document outlining these proposals is due to be published later in the week and should also detail a commitment to increasing the earned income tax credit from €550 to €1650 for the self-employed by 2018, another step in the right direction for small business owners in Ireland.

As always, whether you are a small or large business owner, or just starting out on your own should you require any financial or business advice please do not hesitate to contact us here at DCA Accountants where we will be happy to help.

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~ DCA PARTNERS, DECLAN DOLAN & EAMONN GARVEY

SHOW SME THE MONEY!

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The question of financing can often be the difference between taking action on setting up your own business, and deciding not to go ahead with it. Certainly in recent years, financing has become somewhat of a fraught term with cash flow being a major issue and less options being made available to Small and Medium Enterprises (SMEs). Banks remain the top choice for these companies to gain finance as only a small minority seek alternative options for financing their business. It has been reported that even after finding themselves declined for finance from the banks, many SME owners still do not seek out alternative funding options. With the financial climate in Ireland beginning to take a slight turn for the better in recent months, perhaps now would be a good time to begin looking beyond the banks when you want to begin or grow your business and are in need of the financial backing or financial boost to do so.

 

The Strategic Banking Corporation of Ireland has recently urged SMEs to look towards alternative funding options to the banks, as this may allow them to access funding more suited to their individual needs. With the Irish economy now making a valiant attempt to recover, there are a number of new lenders emerging which offers a great deal more choice to SMEs which previously would have had very few options after being declined by the major bank lenders. Due to a newly competitive market, these lenders can often offer quite competitive rates and have the financial confidence to accept what major banks may see as being a risky investment. Another positive aspect of the arrival of these new lenders to the market is that many have the ability to deliver funds far faster than major lenders.

 

Many SMEs may suffer from seemingly weak financial reports when compared to larger companies, or be in the midst of a restructuring plan, which may result in them being declined by bank lenders. Perhaps these new more widely available lenders could now make all the difference for these companies which will now have more options to choose from.

 

Invoice financing is one such way for SMEs to avail of funding through companies such as Clancy Cashflow Solutions who welcome businesses which have been declined by larger lenders and allow borrowers to release funds tied up by their debtors in order to immediately make use of funds. Whilst some lenders create an impossible situation for borrowers wherein they may not have access to enough cash to make it until the payment of the loan, this financing option allows for swifter access to funds, sometimes even within 24 hours.

 

Invoice financing works by raising an invoice to your customer which is then forwarded to the funder who will allow for the almost immediate release of a portion of the requested funds to allow your business to stay running smoothly.

 

Should you have any financial queries or issues that you require advice on, please don’t hesitate to contact us at DCA Accountants, where we will be happy to help in any way.

 

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~ DCA PARTNERS, DECLAN DOLAN & EAMONN GARVEY

CREDIT RISK MANAGEMENT/INSURANCE

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Credit Risk immediately sounds like a term which should strike fear into business owners everywhere. Nobody wants to hear the word risk when associated with your business, but it needn’t be that way and today we are going to speak to you about managing your credit risk.

 

Credit risk can be simply defined as the potential that a borrower may fail to meet financial obligations on previously agreed terms. The main goal of the Credit risk management systems we will be speaking about today is too secure overall credit risk parameters and ensure that neither borrower nor lender suffer as a result of these risks. Managing your Credit Risk can have great benefits for your business including increasing cash flow, increasing credibility, better business development, and more secure trading options to name but a few. Having this backing may also give you peace of mind in terms of the security and longevity of your company.

 

Following the financial crisis, borrowing and lending became a financial minefield, and whilst things have since eased up and more options have recently become available for both parties, the need to be vigilant remains. 25% of all bankruptcies are caused by unpaid invoices, so you may be currently taking more risks than you were aware of. The risks associated with borrowing and lending have not eased as much as one might expect in recent years, and both parties must be aware of the dangers associated.

 

Some Credit Risk Management companies offer to advise and protect clients in order to allow safe trading, effectively insuring a company’s finances ahead of trading. The first step in Credit Risk Management is to gain a full and comprehensive picture of the company’s finances and position as well as having a solid idea of the company’s ability to lend to customers. Having this comprehensive picture then allows the creation of an appropriate action plan for managing your credit risk, having a simple plan in place will then pave the way for more sophisticated credit management solutions in your company’s future.

 

Credit insurance is one fairly simple way to manage your credit risk which may assist your company in growing profitably. Cash flow is the most important and also the most vulnerable aspect of business and credit insurance could give your company peace of mind against any bad debts. Credit insurance insures your company against the potential of your customer’s failing to pay their debts within your agreed parameters. This in turn ensures that your company finances and risk scores do not suffer when it comes to your own future borrowing. Non-payments are one of the top ways in which your business can be weakened, and Credit Insurance can be the ideal way to navigate this issue. In this way, you are assured that your company will reach its anticipated targets even if there have been some defaults.

 

If you find yourself in need of advice, support, or guidance in how to go about credit risk management in your business please don’t hesitate to contact us here at DCA Accountants where we are always happy to help.

MORTGAGE WOES KEEP BUYERS ON THEIR TOES.

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Mortgage rules have been a point of contention in Ireland for some time now and whether house prices fall or rise, it has become increasingly difficult for those hoping to gain footing on the first step of the housing ladder. Last year, mortgage rules were changed to mean that only 3.5% of income can be borrows, and there must be a 10% deposit on all mortgages up to €220,000, and a further 20% on any cost above this figure.

 

At the time of this change it was suggested that these rules would be in place for a period of a year and then re-examined. As they were put in place in February last year, all eyes will be on these rules to see if there is any change which might allow for easier purchasing. DNG have suggested that they would like to see the borrowing limit raised to 4% and the 10% deposit rule extended to €300,000 as they have seen over the past year that many people are becoming trapped by these rules and are unable to buy due to higher house prices and stricter rules.

 

It has been reported this week that we may see an even bigger shake up in the mortgage industry. An Australian lender, Pepper is reportedly set to offer new incredibly competitive mortgage rates which will target first-time buyers in particular. This arrival of a new lender is expected to push current Irish lenders into offering new lower rates in order to respond to competition and demand.

 

Already since the announcement we have seen Bank of Ireland offer a new bonus. This bonus would see them add 10% to first time buyers onto their existing deposit savings. Additionally, Bank of Ireland were already offering 2% back of every new mortgage.

 

Pepper is said to be set to offer rates as low as 3.55% for both first time buyers and those looking to switch lenders. Pepper Ireland boss Paul Doddrell has suggested that Pepper will also be first in line with offers for those who have found themselves refused by other banks, including those who are self-employed. It is suggested that Pepper will also be able to lend to those who found themselves in arrears during the financial crisis, but have now found their way back to meeting payments.

 

Whilst these new offers may not be a complete end to Irish mortgage woes as these offers will only be available through brokers, the suggestion of another adjustment of the overly tight mortgage rules will be a welcome one for many first time buyers and prospective first time buyers. It is hoped that we will see a general reduction in rates, with the onset of further competition in the Irish mortgage market. If you require assistance with your own or your company’s finances whilst hoping to gain a mortgage, please don’t hesitate to contact us here at DCA accountantswhere we are always happy to help.

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.

A LITTLE LESS CONVERSATION…

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What does the Government’s latest Action Plan for Jobs promise to your business?

 

In this day and age, it’s easy to be cynical about much trumpeted Government initiatives, especially ones promising increased employment. But as JobBridge showed, for better or worse, these top-down programmes have the potential to change the market dramatically. So parsing the Government’s latest action plan for jobs in search of reforms that will affect your business is a pretty worthwhile exercise.

 

The third instalment in the Government plan contains 385 actions to be spread across all 16 Government Departments and 46 Agencies. Not all of these are directly relevant to domestic businesspeople, of course, as a good chunk of Government effort is still focused on attracting and retaining Foreign Direct Investment (FDI).

 

Encouraging Entrepreneurship

Fortunately, however, the Government has realised that two thirds of all new jobs in recent years have been created by start-up businesses. Some of these might seem superficial – a county based public competition to find the best entrepreneur in Ireland – but a budget of €2m in funding for awards is nothing to be sniffed at.

 

31 new Local Enterprise Offices are also promised to drive start-ups across the country, along with the introduction of an Entrepreneurial PhD programme to train Science Foundation Ireland (SFI) scientists to launch their own businesses. Looking to the longer term, the Government has also pledged a review of tax supports for entrepreneurs to see if they can be improved or simplified

 

Competitiveness and Manufacturing

Companies facing a squeeze from labour and other costs can also take some heart from the plan, as improved competitiveness has also been targeted. Aside from a new system of reporting to Cabinet on competitiveness issues, the Government has promised concrete action on manpower issues. This includes the provision of 6,000 Momentum placements to enhance skills – if you’re an education or training provider, the scheme is something you can check out here. For employers in the service sector or other lower-wage industries, the rollout of new reformed Workplace relations structures should also be a major boost. Meanwhile, a set of new measures have been rolled out to support productivity improvements and higher levels of R&D in manufacturing businesses.

 

Finance

As any businessperson will tell you, the finance to reach sustainable profitability is one of the most important ingredients for success, but many find it extremely difficult to obtain from banks. If you’re likely to be looking for finance in the next year or two, though, the latest action plan offers some hope. The Government has promised more new non-bank sources of lending to SMEs, adding to €2bn already available, including new working capital products for exporters and a retail mini bonds market via the Irish Stock Exchange. Meanwhile, the Department of Finance has pledged to monitor new bank lending to SMEs on a monthly basis to bring added scrutiny.

 

There are a smattering of other measures – Regional Enterprise Strategies, proposals for a successor to the National Spatial Strategy, new supports in sectors such as Agriculture/Food, ICT and Tourism – that won’t apply to everyone, and a few that are vague. It remains to be seen, for example, whether the Year of Irish Design 2015 brings any momentum to the design and crafts sector in the medium term. But some items in the Action Plan for Jobs 2014 are genuinely exciting and worth checking out. If you would like an initial no-obligation meeting to discuss opportunities that the plan may present, or your own unique business needs, simply contact us.

HEADER: DCA Q&A – WILL A GIFT HAVE TAX IMPLICATIONS?

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Q: My nephew is in a precarious financial situation at the moment and, while I have provided for him in my will, I feel the money would be a lot more useful now rather than when I die. I believe I could set aside some €40,000 for him, which would give him and his family huge piece of mind. Before I approach him, however, I want to make sure that this won’t come with any negative tax implications. If he’ll have to pay tax on the gift, how does he do it, and is there any way to reduce the tax he has to pay?

 

A: You’re not the first person with cash to spare and a desire to help out relatives before you pass on. That’s why, while the Revenue Commissioners do levy Capital Acquisitions Tax (CAT) on gifts of cash, property, shares, vehicles and other high-value items, there are generous exemptions available to cut down this liability.

Because you are related to the recipient, he will be able to claim a large gift tax-free. Unfortunately, in your case, your gift will fall above the tax-free threshold of €30,150 allowed for gifts to siblings, grandchildren and nieces or nephews. If you want to give 40,000 to your nephew, he will need to pay 33% tax on €9,850 of the gift.  He can do this by filing an IT38 Return through the Revenue Online Service website. If he’s struggling with the paperwork, a useful guide is available here. [http://www.revenue.ie/en/tax/cat/leaflets/it39.html].

In terms of reducing the liability, your options are unfortunately limited. You can’t, for example, give your nephew €30,000 now and €10,000 in 2015 to avoid CAT – the exemption thresholds apply over a person’s full life, and apply to any gifts your nephew receives from grandparents, siblings or other uncles and aunts. Even if you reserve €10,000 for him in your will, it will still count towards the exemption threshold, so CAT will have to be paid on that.

Based on the information available, the only option I can see is gifting money to his own children, if he has them. If you go down this road, of course, the money will have to be transparently set aside for those kids. Even so, knowing that cash is there will doubtless ease financial pressure for the whole family.

Of course, depending on your circumstances, there may be other options for helping out your nephew – and generally managing your finances – in a tax-efficient way, and tax planning is a big part of what we do. If you would like to talk in a bit more detail, don’t hesitate to contact us [link] for an initial, no-obligation meeting.

 

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