A loss of cash flow for an SME due to claims against them can significantly hamper operations, grinding some actions to a halt and running the risk of putting you out of business. For instance, leading up to 2019 the cost to businesses in the UK due to injury reached £5.6 billion. But there are ways that small business owners can protect themselves against personal injury claims to ensure the smooth running of their operations.

Employers’ liability insurance

Employers’ liability insurance is a requirement for any business operating in the UK. Not only is it essential but it must also cover your employees for a minimum of £5 million, or else your company can face a fine of up to £2,500 per day. There is an additional fine of £1,000 if you as an employer do not display your EL certificate or present it to an inspector when requested.

However, if you only employ a family member or someone abroad, employers’ liability insurance may not apply to your business. The benefit of employers’ liability insurance is that it covers both current and former employees, both of whom can make claims against the business.

Protecting yourself with a robust policy insures against personal injury claims, whether that’s something an employee picked up recently or something that was caused historically to an ex-employee – such as asbestos-related illnesses, vibration injuries or carpal tunnel syndrome. Your business will be protected as long as your cover was in place at the time of injury, even if you are no longer trading.

Public liability insurance

While good to have, it is not a legal requirement for UK companies to have public liability insurance. This may see you skip getting this insurance cover but it’s worth considering as you may otherwise open yourself up to injury compensation payments, which can be crippling.

To put into context why public liability insurance is worthwhile, this is what it covers in a nutshell – the cost of legal action and the ensuing compensation if a third party is injured on your premises, at their home, office or place of business due to work you have done.

This level of protection is particularly important when your business operations commonly deal with having people on your premises or you carry out work for a third party on their property. As a small business, the cost of legal fees alone can be taxing on your margins, let alone losing a claim and having to payout.

Property insurance

Typically, a property insurance policy will provide some basic liability cover should there be an accident on your premises. As with most insurance covers though, the devil is in the details. Look closely at the policy for your business property insurance and discover what level of protection you are offered.

It’s common for some protection to be offered with this policy but in an instance where negligence is a potential factor, an insurance company may decide to challenge and pursue damages. When deciding on which insurance policies your business may need, a thorough risk assessment is essential. Not only at the beginning or when you move premises but continually throughout the lifecycle of a company as methods, equipment and people change.

Building inspections

Safeguarding against personal injury claims is more than simply buying all of the insurance covers under the sun. For starters, that is an expensive approach and doesn’t necessarily stop someone from getting injured under your watch.

Prevention is better than cure, as they say, and ensuring your building is fit for purpose is an excellent defence against potential personal injury claims. Investing in regular inspections might seem like an expense a small business can do without but they also help to point out any defects or potential dangers your premises has.

Finding these problems and removing them not only makes your workplace safer and avoids potential injury claims but it can also help to create a better working culture while avoiding employee downtime due to injury. When staff feel safe in the workplace they are more likely to want to stay. In addition, known as ‘key-person risk’, SMEs should protect their business from the disruption and negative ramifications of relying on and ultimately losing a key member of staff.  

Building inspections can encompass equipment and working environments or stations to ensure that your staff have the right tools for the job without putting themselves at risk of injury. For instance, in an office, a risk assessment could raise a need for adjustable chairs and a brighter environment to ensure staff avoid back pain and headaches. Ultimately, removing lost time due to injury helps a business remain more productive.

Employee training

One final step for small businesses to protect themselves against personal injury claims is to better train and educate their staff about working safely. Training is an essential component of any job role and safety training should not be overlooked in terms of its importance.

Everyone is responsible for their own safety but in a working environment you are liable, so enforcing safe working procedures is a must to safeguard yourself and your employees. With lessened teams as well as potential personal injury claims, employers with injured workers have plenty of costs to worry about. Creating effective training channels and outlining what your employees’ rights and laws are improves understanding and makes for a happier and safer workplace.

1. Outsource

As you probably know, hiring internally is very expensive, and can often go beyond the cost of just a salary. Things like digital marketing, payroll and accounting can be outsourced pretty easily. This allows you to benefit from expert help without having to pay the extra costs of an employee and training for them. 

2. Use the cloud for storage

Instead of forking out for expensive hard drives, use cloud storage to keep everything in one place. This will protect your documents in the event of theft or damage and will also work out less expensive in the long run. Not to mention that having everything in a unified place will make it easier for everyone to be as productive as possible. 

3. Take advantage of remote working

Although remote working can seem intimidating when you’re not used to it, there are many advantages of remote working. You can still track employees’ performance when they work from home, and the added benefit is that you don’t have to worry about the physical costs of keeping employees when they’re remote. 

Video interfaces and other unified platforms are perfect for your communications system, especially when some or all members of staff are working remotely. 

4. Embrace word-of-mouth advertising

When you’re smart about it, you can advertise your business on a very tight budget. Word-of-mouth advertising is and always has been one of the best ways to advertise businesses or products, so make sure you get outside and get creative with your advertising methods. 

5. Review all expenses

Every little thing adds up so make sure you take the time to review all of the small expenses and you’ll be surprised at how much you can save from cutting out anything that isn’t strictly necessary. It may seem counterintuitive to spend your time looking into everything tiny thing that your business spends money on, but it will definitely help you to save a little extra cash. 

6. Buy in bulk 

Buying in bulk is very important when trying to save money. Almost anything you can think of can be bought in bulk. As a rule, the more you buy, the cheaper the price per unit. Not only this but it’s better for the environment to buy in bulk because the products will come with less packaging and also don’t have to travel as far. 

7. Reduce unnecessary maintenance costs

Do you really need a daily cleaner for your office? Could you perhaps clean your own windows or use the dishwasher less often? 

Take a moment to look at how much you’re spending on maintenance and how much of that is really necessary. Encourage all employees to clean up after themselves, tidy the kitchen during quiet periods, and so on. 

As you can see, you don’t have to have a big budget to get big results. With these money-saving tips, your SME will be able to cut costs without sacrificing quality. 

While we would need to go country-specific to understand the obstacles in serving these segments, I would generalise that business banking for small firms still has a lot of room for pain removal whereas consumer banking has less room, due to competitiveness and more advanced evolution. The profit dynamics of serving small firms would also be better as the loan quantum tends to be larger. The downside, of course, is that bad debt would also tend to be higher. 

The large proportion of retail customers are salaried rather than self-employed, and thus unless an economic shock that drives a significant uptick in unemployment happens (e.g., Covid-19 and unemployment in the travel, hospitality and retail sectors), banks have already built into their debt servicing ratios a higher interest rate as a buffer to more realistically factor an individual’s ability to repay at higher levels of interest. Small firms, however, may have higher variability and fluctuation in their income generation ability, introducing greater uncertainty in their ability to repay. To mitigate against this, banks generally ask to see their bank balances over 6 months to ascertain cash-at-hand and use this as a proxy to compute the debt servicing. However, vital data missing in this calculation is what other loans the SME has taken, a service generally provided by business credit bureaus. 

Global Challenges For SME Credit

The SME credit bureau landscape is generally underdeveloped in many markets like Southeast Asia, Africa and Latin America. A report by the Asian Development Bank Institute found that “in the bank-dominated financial systems in Asia, SMEs have difficulty accessing cheap finance”. Two examples of a nationwide SME credit bureau, in Japan and Thailand, were highlighted, but the report concluded that “other parts of Asia lack such systems to accumulate and analyse credit risk data and to measure each SME’s credit risk accurately”. Hence, most banks are still assessing credit based on bank statements and collateral, and SMEs who can’t show such assets are not receiving the working capital loans that are vital to their survival and growth. According to a Bain & Company report, SMEs remain a largely underbanked segment in most markets. Approximately 80% of surveyed SMEs say they need to borrow but lack access to affordable credit. 

Even in countries where the SME bureau can accurately risk rank SMEs, banks still lack key data to help them throttle working capital based on the amount of business a company does; rather than underwrite loans on a per transaction basis, which is data or paper-work intensive. Thus, some of the most progressive banks are beginning to turn their attention to accounting systems to obtain the crucial data needed to underwrite an SME customer. An example is Mettle by NatWest, which announced in 2020 that it was giving all its customers free access to FreeAgent’s cloud-based accounting software. UK digital banks like Starling, Tide and Mettle all support connectivity to SaaS-based accounting software Xero and FreeAgent. Starling and Mettle also support QuickBooks, while Tide supports Sage. 

The Future Of Digital SME Banks

I believe native connectivity between accounting systems and digital business banking will become a standard in a couple of years, and that’s because of the accounting information for underwriting. Balance in the bank, which is the most common credit evaluation method today, isn’t a good predictor of an SME’s ability to repay the working capital loan. It’s what I would call third-order data, in the sense that the predictability gets better as you move from third-order (bank balance) to second-order (monthly profit) to first-order (accounts receivable or AR vs accounts payable or AP). These second-order and first-order data are found in the accounting systems of most companies. 

One of the concerns about using accounting data for underwriting is the ability to discern legitimate entries from fraudulent ones. I had the opportunity to speak to a senior executive in a UK bank who was heavily involved in the design and development of a digital SME bank serving micro and small SMEs. His view was that they have not encountered major issues with fictitious entries. The jury is probably still out on this topic, and to avoid moral hazard problems, routines that can ascertain the authenticity of the transactions via comparisons against time, day and person making the entry, etc., can and should be implemented. 

Right now, more banks are using SaaS accounting software connectivity for lead generation than credit underwriting. That’s the next stage for any progressive digital SME bank. This will represent a significant breakthrough in the ability to extend lending to businesses that don’t generate the cash flow to show sufficient bank balances, but it also represents a significant breakthrough for the industry at large, as banks will now be able to dynamically flex their working capital limits based on AR and AP movements. Frequent adjustment of limits isn’t something that happens today, and the ability to do it automatically based on a firm’s business velocity will allow savings in capital (as capital needs to be put against undrawn limits), and also create a means to reduce limits as business slows, so that funds set aside for working capital cannot be used for other purposes, which is the case now as the loop isn’t closed. This development isn’t limited to SMEs. It applies to all businesses, and my prediction is that such a development will happen and transform the way banks lend to businesses globally. 

SME Digital Banks Can Make Operations More Efficient

SME digital banks can also help small businesses become more efficient in their operations. Operational efficiency is an issue with small firms. One contribution to operational inefficiency is the delay between the outlay of expenses to order or build the product or solution required and the time they receive the payment from their customers. Late invoicing, late payments, and long credit terms all contribute to lengthening this timing mismatch, and the gap needs to be funded with working capital loans. Integrating the digital banks’ payments capabilities with the accounting system can eliminate the need for double entries in both the accounting and digital bank platforms. In addition, reconciliation can be much reduced, by automatically assigning all invoices a unique sub-account number, so that the system can tell who has paid and who hasn’t, without reconciliation. Late payers can also be automatically sent collection notices and reminders. Other capabilities include sending invoices where payers can click on the invoice to pay. These are all opportunities for SME digital banks to remove pain points for small businesses. 

A final reason to build a digital bank to serve the micro, small and medium SMEs (MSMEs) is that in many countries where consumer digital banking is already of a relatively high standard, SME digital banking often lags significantly. Banks have tended to prioritise consumer and corporate banking for their digital transformation initiatives. After the substantial investments in these segments, what’s left is usually a lack of further appetite to invest in MSME digital banking. The same opportunities exist here as in the consumer banking space, to attack and serve the bottom-of-the-pyramid using disruptive innovation, the focus on creating a data-enabled digital bank to help MSMEs with their business financial management, and significantly improving the banking experience, lowering operating costs so that you can target the MSME, etc. These are all proven opportunities in consumer banking in countries like China and Brazil but have yet to impact most MSMEs.

This article was written by Dr Dennis Khoo, adapted from his new book Driving Digital Transformation: Lessons from building the first ASEAN Digital Bank.

If you’re an SME, then having a digital presence is crucial when it comes to attracting new customers and clients. Whether you are wanting to help the business seize new opportunities or make it more diverse and inclusive by improving user experience (UX), reinventing your business could be the best thing you ever do.

Increase Inclusivity

The internet has become a crucial part of our lives; we use it for everything from shopping to banking. However, not everyone has the same experience if they have some form of disability. Unfortunately, only 1% of one million websites meet accessibility requirements. By creating an accessible design, you are removing any obstacles that could prevent your visitors from having the same experience when using your website. The majority of finance websites are not outwardly accessible. Instead, information about their accessibility is only available through a click-through link towards the bottom of their homepage.

Most big-name companies design their websites as if they are the end-user. On the other hand, SMEs can dedicate the time and resources to create a website that offers the same experience for everyone. To appear inclusive, you can add an accessibility widget, but that is still adding in an extra obstacle for disabled people to go through. An alternative could be to make the website text larger, which will benefit some of those visitors to your site and create a more inclusive UX.

It’s not just websites that need to be more accessible, though. Banking companies are designing credit cards that are suitable for blind and partially sighted people. This highlights the fact that the finance industry is slowly becoming more inclusive for all customers.

Other ways that you can ensure your website is more inclusive include:

• Easy-to-understand language
• A lower colour contrast ratio
• Skip-to-main-content accessibility enhancement
• Support keyboard navigation
• Adding alt text to images

Improving Website User Experience

It takes new users a maximum of 15 seconds to decide if they like your website. Those few seconds must capture the user’s attention before they look elsewhere. By having a poorly-designed website, you’re harming your business, which is something to consider when you reinvent your digital presence. You can ensure this by using web templates that match your business requirements. Online services have a wide range of templates suitable for any sector, which is especially important as over 70% of people admit they judge a business's credibility based on their website.

By creating a website that is compact and convenient, you can make sure the UX is the best it can be and that it showcases the message you want visitors to take away. Rebranding can have an impact on the design of your brand, from the company logo to the colour palette. It can also affect the company's tone and make it more in line with its sector. This is why blue is a popular colour amongst finance websites as it offers your clients a sense of trust in you.

Other ways you can improve the website UX include:

• Create engaging content
• Use bullet points
• Choose a minimalist layout
• Provide information concisely
• Check your website speed
• Use SEO techniques to help people initially find your website

Finding The Underserved Market

Unlike larger businesses, SMEs can focus on a specific market while finding openings into unique opportunities, and the finance sector is one of the most innovative industries. The key to finding underserved opportunities is centred around innovation, such as identifying problems and coming up with profitable solutions.

Financial innovations that have already come about include online and mobile banking and cardless cash points. For those who are not comfortable using this technology yet, in-person branches are available to help. When they have the time and staff available to look for these openings for new solutions, SMEs can be at the forefront of change. A rebrand can demonstrate this and show that their business is all about helping find solutions to the toughest problems.

A benefit that comes with reinventing your digital presence is you can use it as an opportunity to reach out to people who are looking for solutions to their problems. This way, you can figure out the possible directions the financial industry is going to take.

Overview

Reinventing your digital presence not only shows potential clients that you are aware that nothing is set in stone – and can adapt to a constantly evolving society – but also how flexible you are to the changing needs of the products you have to offer. From using a different website template to making sure your content is inclusive to all, rebranding takes a lot of time and effort, but it will be worth it in the end, especially if you need to realign your business’ beliefs. Unlike larger businesses, SMEs can create their own niche in an otherwise large financial sector by innovating and becoming the change they want to see.

Not all entrepreneurs are good with numbers and keeping records, which is why it’s so crucial that they have a solid plan in place for money matters. Whether you’re thinking of starting a small business or want to improve the way you handle your books, these tips can help you to achieve more control over your financial situation.

Accounting Software

If you’re still using spreadsheets to keep track of your finances, it might be time to invest in accounting software. This will help you to keep all your records secure while maintaining accurate information. There’s less room for human error thanks to the software’s ability to make calculations for you and you’ll never misplace an invoice or receipt again. What’s more, many types of accounting software will also help you to handle payroll and have better visibility over your cash flow.

Invest Your Money

When starting out it can be tempting to hold onto your money tightly, but this can often do your business more harm than good. While you need to be making a profit, it’s important that you reinvest your money in your business. This is crucial for future growth and will help you to increase your profits in the long term. Whether you’re thinking of hiring a marketing agency, upgrading your website or building an app, take some time to improve the services you’re offering to your customers to see your revenue increase.

Be Aware Of Tax

Everyone knows they have to pay tax, but are you planning for it throughout the year? Many business owners only start thinking about tax as their deadline approaches, but this can put you in a tricky financial situation if your payment is bigger than you expected. Make sure you’re calculating tax as you go and setting aside funds that you know aren’t really yours. This way you can avoid any disasters at the end of the tax year that could potentially see your business folding before it’s even had a chance to grow.

Choose Loans Carefully

People have different attitudes to loans, with some refusing them completely and others taking out too many. Loans aren’t all bad but you do have to choose them carefully. If you need an injection of cash to get your business off the ground, a loan could be well worth your time. But taking out loans with high interest rates could hurt you in the long run, especially if you’re not investing the money as wisely as you should.

Insurance

Finally, insurance might be an extra expense in the short term, but it can save you thousands further down the line. Make sure you thoroughly research the types of insurance your business can benefit from to give yourself complete coverage. You want to be fully protected from potential lawsuits as well as natural disasters like floods and fires. 

Small business owners who have been able to survive the initial storm need to understand how the new trends are going to impact the financial structure of their companies. Here are six accounting trends every small business owner should know about in 2021. 

1. AI and automation

Automation has been a familiar sight in various fields, and now it's set to improve the productivity of accountants. Artificial intelligence (AI) and automation can be used to learn case-specific tasks and automate resource-intensive, repetitive, and time-consuming tasks.

Automated tasks are streamlined for everyday interactions and it is a good way to prevent human error. A few areas that can be automated are bank reconciliations, workflow optimisation, and forecast generations. By leveraging the power of data-driven AI and robotic process automation (RPA), accountants can prioritise high-value projects, enabling firms to scale quickly. 

2. Advanced accounting software

In 2021, accounting software can no longer function simply as an on-site asset. The improvement in cloud infrastructure has pushed companies to adopt flexible, cost-effective, and always-on cloud accounting solutions. 

When you're working with a large amount of data and you need to constantly cross-reference them, you'd expect your numbers to be available instantly.  Cloud hosting makes that happen, alongside offering you a seamless, real-time collaboration with different parties. The low cost of deployment is another advantage to hosting accounting software in the cloud. Major accounting platform QuickBooks has a host of options you can make cloud-first. Check out the best QuickBooks hosting providers to understand which one suits your business. 

3. Big data

With the adoption of technology comes the ability to analyse a large volume of data. Cloud-based software and AI work with data to understand the relationship between variables, and it is up to the accountants to narrow them down to comprehensible metrics. Accountants must evolve into all-around financial advisors and help clients understand what a particular data set means for their business. Increased reliance on data analysis also puts the focus back on the need to secure internal resources and make the data cybercrime-proof. 

4. Blockchain

Blockchain technology has gone from strength to strength, and in the future, it will play a pivotal role in accurate data tracking. Blockchain facilitates decentralised ledger for transparent tracking of financial data. It's still in the early stage of growth in the accounting world but financial auditors have started gaining from it. For instance, companies that use blockchain to record their transactions will be able to receive a far more accurate report from auditors than companies without it. 

However, blockchain needs to be improved and regulated before its full potential can be enjoyed by accountants. As it becomes more streamlined, accountants will pivot towards validating system integrity and company policies.

5. Digital tax management

Small business owners have had to adapt to the rapid digitisation of tax filing. Accountants will assume a bigger role in guiding customers through COVID-specific policies and the impact of the revamped tax structure. Moreover, the rise of the gig economy and solopreneurs has created a further expansion of tax rules, so accountants will look for unified analytics platforms to update tax reports in a timely manner. 

6. Outsourced accountancy

Going forward, companies will increasingly look to outsource a major portion of their accounting tasks to third-party vendors. Small businesses have already started outsourcing to save costs and increase efficiency, and the trend will only get bigger in the future. 

The biggest push to managed accountancy services is the realisation that people can now work in remote settings and be equally, if not more effective, in terms of communication and productivity. Since cloud computing and big data will be able to handle most of the day-to-day tasks, small businesses will look to cut down on the labour costs and reinvest in core business operations. On top of that, outsourced accountancy gives business owners an opportunity to leverage industry experts at a fraction of cost. 

When the world goes through major economic changes, businesses need to stay abreast of the latest trends to meet the new demands. Small businesses can avoid complacency by actively investing in the technologies that are impacting their business operations, including accountancy. Needless to say, customers will prefer doing business with the ones who have embraced change.

Most small business owners aren’t accounting experts and are happy to use whatever tools they are familiar with to track their expected payments. This might be a messy notebook with illegible handwriting where thousands could be lost just because someone couldn’t read a number correctly. 

Many use spreadsheets, which is great for hypothetical planning but can only provide a snapshot of outstanding accounts receivable at a given moment. Maintaining control over all of the processes around collecting and recording payments quickly becomes an overwhelming task. There are many examples of a simple formula mistake leading to massive consequences – such as Reinhart and Rogoff’s, which ultimately changed policy around the world.

Hiring a dedicated resource is a luxury many solo upstarts cannot afford, so they muddle through it themselves and drain their motivation. The brainpower that should be used on growing their business is being wasted on formatting spreadsheets instead.

Many apps can help to streamline the process and reduce the headache for business owners though they may be reluctant to try. In the short term, it’s deceptively easier to stick with what you know even though better methods exist. This is why the apps you choose to help you accomplish anything in business must be simple, intuitive and integrated – otherwise, they just add to the challenge at hand.

One good example of a solution with a speciality in accounts receivable is vcita, a platform that’s been working with small businesses for over a decade and takes into account just how busy the owners are. And because vcita is a versatile business management platform that includes modules for client communications, appointment scheduling, lead nurture and document sharing, the accounts receivable functionalities are all the more useful.

When it comes to accounts receivable processes, growing small businesses need to issue invoices, collect payments, automate reminders and run reports. But these are just the basics. When everything is built to work together with your CRM, messaging engine and service booking system, the value is compounded, because there’s nothing you need to integrate yourself, and the information is all where it needs to be.

Here are three ways companies can use vcita’s platform to reduce friction in their accounts receivable processes.

Cash flow drill-downs to the individual customer level

Maintaining individual relationships once a company starts to scale can be a nightmare. Correspondence might be all over the place in emails, calls, texts, document comment threads and anywhere else. It’s hard for businesses to track the invoices they’ve sent and whether they’ve followed up. They might invent a manual process that only needs a small human mistake to ruin a client relationship.

It can lead to embarrassing situations where a client has been asked for money they say they’ve already paid but you can’t match the payment. A client might slip through the cracks where everyone thinks an invoice has been sent but no one is quite sure, and the company bleeds money silently.

Software providers like vcita make this whole process far simpler. Every transaction and interaction with every customer is displayed in one timeline thread where you can see exactly what services have been delivered, what appointments have taken place, what messages and files have been shared, whether invoices have been sent and whether corresponding payment has been received. 

It means that when companies talk to customers, they can do so from an informed point of view rather than asking questions you should already know the answer to. Some companies will love the ability to set up automatic payment reminders, so you don’t have to ever personally bother customers for money.

Segmenting data to reveal what you need to know

Many DIY spreadsheets used by small business owners are a mess. They add columns and formulas as they need them, so it becomes more and more cluttered. As specific situations change throughout the day, keeping the data updated can quickly become unwieldy. What’s more, a simple formula mistake can cause huge relationship damage. 

This makes it hard to get a good overall picture of how business is going. Business owners can’t be blamed for procrastinating decluttering until tax season arrives. Then it’s a mad scramble to make sure all the details are correct to avoid a hefty fine.

vcita makes this easy by providing beautiful displays in a way the average spreadsheet user just couldn’t do. Owners can have a dashboard where they can see payments at a glance and filter by status. They can see how much money they are awaiting at the click of a button rather than all the manual steps needed for whatever self-made system they are using.

Your dashboard is updated in real time which can be a life saver as potential problems can be identified early before they get out of control. It makes it far easier to manage the collection of money and stay afloat, and you can even export your data slices for sharing with accountants, financial advisors and other apps.

Auto-populating invoices with services rendered

Invoices are crucially important to the functioning of a small business. The later an invoice is sent, the later the money comes in and the harder it is to deal with all the expenses in the meantime. It’s an opportunity to show professionalism and create a longer-lasting relationship with a client. Something hacked up in Microsoft Word with poor formatting makes a company look amateur and makes clients take them less seriously.

Typing out an invoice by hand leaves so much room for human error and the reputational damage that follows. No one wants to receive a bill larger than they expected and it’s hard to overturn this negative feeling. When you build a new invoice draft with vcita, you can automatically pull in all of the services you’ve delivered since the previous invoice, which makes it easy to catch up on everything due.

It takes only a few clicks to create and send a monthly invoice to the client from within the app. Alternatively, you can set it up to invoice customers every time a service is booked or an appointment is scheduled, even making payment a required prerequisite to ordering these services. Customers can also choose to securely save their payment details in the system, where the merchant won’t have access to any of it, for faster subsequent payments.

This simplicity means business owners can send their Pro-forma invoices, payment requests and receipts faster rather than needing to dedicate time to go through a painful process of manually calculating the sums and formatting everything to look nice and tidy.

One of the more advanced features here is the ability to add a one-click payment button to email invoices. By making the task so easy for customers, it means there is less resistance to paying on time, leading to faster payments. You can also request payment by simply texting a link.

More time for the fun stuff

By speeding up the accounts receivable process, business owners can spend more time on what they really want to do, while tech handles the administrative-financial work. 

Business owners can have peace of mind knowing their clients will have a professional perception without all the manual labour it would otherwise take. Accounts receivable is a critical part of any business, and it’s understandable to be hesitant about using unfamiliar software. Yet solutions like vcita are battle-tested and can make all the difference.

There are no right or wrong choices, but there are some that are more helpful than others. Take the time to figure out exactly what you want your investor to be like, take the necessary steps to prepare, and then approach your goals with intent and purpose that go beyond the pursuit of financial backing.

To discuss the two main avenues of securing investment for an SME, we’ve taken a look at the operations of Buxeros Capital, a public and private social impact investment fund, and used its methods of securing investment for up and coming start-ups in the emerging markets landscape as an example of good practice in finding the right investor for you.

1. Private Equity Funds

Private equity funds are investment firms that operate outside of the public stock exchange and arrange transaction-based investments on behalf of investors and private firms looking for investment. They are the gateway to securing longer-term more cash heavy individual investors that are willing to take a risk with your business and deliver cash on the back of a promise that they will see returns within a certain time frame.

Buxeros is a both public and private equity fund that does this, however in order to approach a more niche investment sphere, it secures funding for small to medium enterprises that specifically aim to have a positive impact on local economies within emerging markets. The Buxeros team, like other private equity firms you might find, includes private equity veterans, seasoned entrepreneurs and strong partners in each region across the globe. One of its largest partners is Ramphastos Investments, an investment firm owned by Marcel Boekhoorn. This means that combined with its partners, Buxeros has the professional expertise, contacts and know-how you will need to not only secure investment but secure the right investment.

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One recent investment deal that Buxeros struck was with Profort, a business that provides orthopaedic care for people who need prosthetics or other low-cost limb treatment in Colombia and neighbouring developing countries. The firm is set to launch its first branch in Tunja this year and has secured the funds necessary to expand into other decentralised areas that will need and benefit from their services. Without an investment fund to help Profort reach the correct local contacts and without the specificity of Buxeros’ client remit to have a positive impact on local economies, this may have not been possible, which goes to emphasize how necessary it is to find investors that make sense and can help you with more than just the money.

2. Government Backing

Buxeros Capital was established in 2016 and has since operated in conjunction with the Dutch Good Growth Fund (DGGF), a government backed project form the Ministry of Foreign Affairs which aims to match each investment Buxeros secures for small to medium enterprises in emerging markets.

Numerous governments around the world have similar initiatives and have capital dedicated to investment, particularly in emerging markets and developing countries. In this case, the DGGF provides half of the investment funds Buxeros’ aims to secure for its client. However, it won’t always be necessary for a government backed investment project to be conjoined with a private equity fund in order to secure the government’s investment, so have a dig and find out what your local government offers and how you can make the most of this.

A firm that has truly benefitted from the backing of the DGGF, alongside Buxeros’ input, is Blue 21, a Dutch enterprise focused on the research and development of floating architecture and urban development, particularly in areas affected by rising tides and where living on the waters is central to the locality’s lifestyle. By working alongside the Dutch government, and with the local authorities being corporately invested in the venture, the combination of expertise, cooperation and unified drive holds great promise for success and in this case has provided great confidence in delivering results that have positively affected Dutch localities on the waters.

Blue 21's floating homes

Having a combination of government backing and a private equity firm like Buxeros behind their venture has been incredibly useful, not just because they have the funds to move forward, but because they are now within arm’s reach of new opportunities and the prospect of expanding into more developing nations and making a difference in more and more places that need their help.

Karina Czapiewska, expert developer at Blue 21, put it like this: “The products that Blue21 develops are very complex; a floating building, district, town or even a city. Therefore, each product that is being developed cannot exist without a location, which in turn must consider the local context, local rules and regulations and often even the lack of context, rules or regulations that still need to be created along the way.

“To arrange this, a strong collaboration with the local authorities is needed. These collaborations start at a very early stage and it can often take a long time before anything is developed at all. Buxeros has a large network and plenty of experience in several parts of the world, and they have proven to be crucial in finding the right contacts, the right network and the right funding.”

"Each product that is being developed cannot exist without a location, which in turn must consider the local context, local rules and regulations and often even the lack of context, rules or regulations that still need to be created along the way."

Conclusion

In terms of expertise, cashflow, international rapports, know-how, contacts and support (all of the things you will need to grow and expand your business), finding the right combination of government help, whether it’s financial or not, and investor backing, whether it’s through a peer to peer arrangement or a private equity fund, will be ideal for your plans.

Securing investment is difficult and can take months if not years at a time, but if you have something you know will work, then find the people who will and more so, want to back you financially because they believe in it and because they too wish to see it succeed.

For Buxeros, the approach to securing investment for SMEs in emerging markets has meant that the firms looking to be funded got more bang for their buck. They set out to secure the necessary funds they needed to expand but walked away with the addition of investment partners that can connect them to the right people, government help and support from local authorities, as well as a partner that is 100% intent on seeing the positive impact of their venture succeed.

Corné Melissen (Director of Buxeros Capital)

Commercial finance intermediaries are divided on Brexit. One out of four respondents consider it a key challenge, while one fifth believe that it will bring new business opportunities. However, commercial finance intermediaries have a positive future outlook. 77% of respondents believe that the number of loans they broker will increase; more than half of these even go so far to say that they believe it will rise by a lot.

According to recent statistics from UK Finance, conducted with the support of industry organisations NACFB and FIBA, UK lenders approved over 290,000 loans and overdrafts to small and medium-sized businesses (SMEs) in 2018, worth £28 billion in total. Commercial finance intermediaries, including brokers, accountants and business advisers, are often the invisible hand in these transactions. They play a crucial role in helping UK businesses source the right funding from all the different options offered.

However, despite the healthy size of the SME loan market in the UK  there is still a £22 billion funding gap, with many businesses struggling to obtain capital for their needs , according to the Bank of England. What’s more, recent stats from the British Business Bank highlight the importance of commercial finance intermediaries stating that businesses receiving external support when looking for funding are 25% more likely to become high-growth companies.

Commenting on the survey findings, Niels Turfboer, managing director at Spotcap, said: “Commercial finance intermediaries are an important part of the SME funding jigsaw. The survey insights show that there is a lot of potential for them to help fill the  £22 billion funding gap. The more adaptable and open-minded to change intermediaries – and lenders – are, the better and faster they can compete and grow their business.”

Adam Tyler, the executive chairman at FIBA, the Financial Intermediary & Broker Association, adds: "We benefit hugely from such a wide range of lenders and to know that SMEs are still not aware of the choice is very disappointing. My own research has revealed similar shortfalls and the more we can do collectively, the more small businesses can get the funding they require."

Graham Toy, CEO of the National Association of Commercial Finance Brokers, responded to the findings: “The research chimes with our own view of the commercial finance broker’s role in supporting and advising business borrowers. Brokers have a positive outlook partly because they remain instinctively agile, with many of them having weathered the unpredictability of a post-2008 world.”

What is the enterprise investment scheme and could it be useful to you and your business? Below Tony Stott, Chief Executive of Midven, has the answers.

The Enterprise Investment Scheme, we believe, is one of the investment sector’s best-kept secrets. Despite helping 26,000 privately-owned small businesses to access £16bn worth of funding for growth over the past 25 years, and securing attractive tax-efficient returns for investors in the process, the scheme has a relatively low profile.

That is now changing, however, as savers seek out new opportunities to plan for their long-term financial needs in the face of increasing restrictions elsewhere.

Most obviously, the once-generous rules on contributions to private pension plans have been steadily curtailed. Today, most investors are limited to annual pension contributions of no more than £40,000; moreover, higher earners, with annual incomes of more than £150,000, get a smaller allowance – as little as £10,000 a year for those with incomes of more than £210,000. The lifetime allowance, which levies tax charges on pension funds worth more than £1.03m, is also a problem for increasing numbers of people.

By contrast, the EIS offers much more generous allowances, with investors able to put up to £1m a year into qualifying companies. For many savers, the scheme therefore represents an increasingly valuable opportunity as a complement to pension saving, particularly as it may also be a more flexible option. Investors must hold on to their EIS shares for only three years to retain their tax incentives; pensions, by contrast, can’t be accessed until age 55 at the earliest.

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Those tax incentives are certainly alluring, spread across income tax, capital gains tax and inheritance tax:

• investors receive 30 per cent income tax relief when they make an EIS investment, reducing the cost of a £10,000 investment to just £7,000;
• profits are also tax-free, even where they exceed an investors’ annual capital gains tax allowance. The scheme also enables investors to defer paying tax on previous capital gains if they reinvest the profits on which the bill is due. Losses, meanwhile, can be set against tax;
• EIS shares are exempt from inheritance tax. Once they have been held for 2 years.

Understanding the investment opportunity

It’s important, however, not to let the tax tail wag the investment dog. After all, tax reliefs aren’t much use to investors who end up losing their starting investment.

It’s only fair to point out that the Government offers these tax breaks partly because it recognises the high risk of EIS qualifying companies, due to their illiquid nature. To be eligible for the scheme, companies must meet some restrictive tests: amongst other criteria, they must have assets of no more than £15m, fewer than 250 employees and be less than seven years’ old. These small, early-stage businesses are, by their nature, more likely to fail than larger more established companies.

That said, the best of these privately-owned companies also tend to deliver much more exciting returns than their larger counterparts trading on recognised stock exchanges. And investors can mitigate the risks of EIS investment through diversification. While would-be EIS investors do have the option of investing in individual companies with EIS-qualifying status – including many businesses on equity crowdfunding platforms – it is also possible to get exposure through a managed fund of such businesses run by a specialist asset manager. Such vehicles represent a potential way to spread your bets.

There are no sure things in investment, but the tax breaks on the EIS, allied with the opportunity to build a portfolio of shares in potentially high-growth companies, are an tempting mix for long-term savers. They are likely to be particularly attractive to those who are running out of pension allowance.

Indeed, the secret appears to be getting out there, with official figures suggesting EIS popularity has surged in recent years.

Figures from HM Revenue & Customs reveal that in the 2016-17 financial year, the most recent period for which data is available, some 3,470 companies raised a total of £1.8bn of funds under the EIS, though this was an initial estimate that HMRC expects to increase. In 2015-16, 3,545 companies raised £1.9bn of funds.

This won’t be a scheme for everyone. Investors will need to be prepared to accept the risk of partial or total losses, significant volatility over the short term, and to be patient. But for investors seeking out new opportunities to maximise the financial provision they are making for the long term, then EIS may be worth considering with your independent financial, legal and tax advisor.

Oxford Economics recently published research titled “the big business of small business”, which states bank lending to SMEs has fallen 3% since 2015. This is in the face of a rise in credit provisions to large companies of 43%. The report states that SMEs are being given the ‘cold shoulder’ resulting in an impact on recovery against small businesses.

Sam Moore, Managing Director of Oxford Economics, says the findings of the research offer a “stark reminder” of “the uphill challenges which small businesses face when dealing with the traditional banking sector”. Although SMEs are responsible for half of all employment in industrialised countries and 50-60% of GDP, the focus of banks is still on loaning primarily to larger firms. A primary factor for this is the “lingering effect” of the financial crisis ten years ago, with the impact it had on the small business lending market still being prominent today.

Why is the merchant cash advance rising in popularity?

The way consumers access their money and choose financial products has changed drastically due to technology continuing to advance at an incredibly fast pace. Oxford Economics state that it is estimated a third of all digital consumers now use a form of FinTech (Financial technology). This ranges from apps which allow you to take a loan out, online banking or invest in stocks and shares, among other things.

Small businesses, due to the poor treatment they are receiving from banks, are also beginning to get on board with FinTech. As the financial services landscape changes due to a number of innovations within the sector, the reliance on traditional banks has fallen substantially in favour of a FinTech solution.

How does a merchant cash advance work?

A merchant cash advance - or MCA - is a form of alternative business finance for small firms and sole traders. Whereas traditional bank loans require borrowers to pay back a set amount of funds on set dates over time, a merchant cash advance – also known as a business cash advance – works on a rather different basis, with the amount repaid at any one time proportional to turnover. That’s because it’s a form of finance based on a company’s credit or debit card transactions.

Given the difficulty of obtaining a traditional bank loan for many businesses, it’s understandable that a great number turn to this innovative source of finance.

What advantages are there to a merchant cash advance?

There are many advantages to a merchant cash advance. For instance, during busier periods when a business is making more money, more of the MCA will automatically be paid back, compared to leaner times when it won’t pay so much. With an MCA, there’s also no need to worry about keeping a certain amount of money to one side to pay on a set date - it really is a flexible, scalable and manageable form of business finance

With high approval rates, approvals within as little as 24 hours, zero APR, no fixed term, no other hidden charges and no need to provide security or a business plan, merchant cash advances are becoming an ever-more invaluable part of many firms’ cash-flow management.

An MCA also frees you up to use another type of finance alongside it, such as a bank loan or equipment lease, in the knowledge that the MCA won’t imperil your entire financial future in the way that other loans can if you are unable to keep up with the repayments.

Given such wide-ranging advantages as the above, it’s no surprise that so many firms that may otherwise struggle to obtain finance – especially those in the leisure sector, such as bars, restaurants, clubs and shops – are increasingly deciding to use their future credit card receipts as a means of securing quick funding through an MCA.

There is no denying that the traditional role of FDs and CFOs is changing. As a finance professional, you will appreciate that the finance function is becoming an increasingly multi-faceted profession with responsibilities expanding into ever more varied aspects of the business – and this is particularly true for those working within the UK’s SMEs.

On the 15^th-16^th May 2019 at the prestigious London Montcalm Marble Arch, the Finance Leaders’ Summit offers a unique conference dedicated to finance professionals with an SME-focused agenda. The speakers will delve into the challenges and issues facing finance leaders and their increasing role diversity with a focus on ‘Leading the Finance Function through Change and Innovation’.

Hosting FDs and CFOs from across the UK, join them as they come together to discuss the most pertinent topics and challenges facing your industry right now, including:

• Tech innovation and funding options
• How to excel as a Private Equity-backed CFO/FD
• Keeping up with digital marketing and CRM software innovation
• Managing M&A – finding the best option for your business
• Lessons learned from expanding into new markets
• Understanding contracts – mitigating the risks

Head over to our website or email fls@realdealsmedia.com to register for your delegate pass today.

Want an exclusive preview of our speaker line-up? Download our complimentary ebook to hear what our headline speakers are saying about ‘Transformative Times for the Finance Function and its Leaders.’

FDs and CFOs may be eligible for one of our discounted delegate passes. Email fls@realdealsmedia.com for more details and to apply.

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