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Welcome to the world of business finance. Full of tempting offers and lots of promises, applying for business finance seems to be exactly what every self-respecting business should do. But is it? In this beginner’s guide to business finance, we look into your options for it, what you need to have in order to apply for it and how it could be used to benefit your business.

Understanding Your Business Finance Options

Like with most things, when it comes to finance for a business, one size does not fit all. Consequently, there are many different options available:

  • Term loans
  • Overdrafts
  • Peer to peer lending
  • Line of credit
  • Grants
  • Pre-sales
  • Angel investors
  • Business incubators and accelerators
  • Crowdfunding
  • Friends and family
  • Venture capital

The type of business finance you choose does matter significantly, which is why taking your time to chat with a business advisor makes good financial sense. We’re here to help: book a time now.

How to Get Business Finance

Just like when applying for a residential mortgage, you need to be fully prepared, although in a slightly different way. While there will be specific criteria for each finance option, in general you will need to have organised your:

  • Business plan – what is the opportunity you are needing cash for? How will you take advantage of it, and what exactly will each dollar be spent on? What are the risks and how will you manage them?
  • Finances – you’ll need a budget which demonstrates how you will meet and make finance repayments, details of past and future cashflow and two years of profit and loss statements.
  • Security – if required, what security can you offer the financer to mitigate the risk of lending to you?

Once you’ve put your application together, it’s time to approach the financer. Remember, they’re not wanting the wow factor, but rather how you will meet repayments.

Beneficial Ways to Use Business Financing

Like with any type of repayable financing, it’s important to note that it does involve going into debt. Because of this, you’ll want to make the right decisions as to what you will use it for. Some examples of financially smart ways to use it include:

  • Purchasing new equipment which will allow you to produce your product or service faster and more cost effectively
  • Debt consolidation – rather than paying lots of little loans, refinancing into one with a lower interest rate will save you cash
  • Marketing – paying for an advertising campaign to bring in new clients or customers to boost your cashflow
  • Purchasing inventory – especially for seasonal businesses, using financing to purchase new inventory for the upcoming months can make sense

Before you jump headfirst into obtaining any business finance, give us a call. We can help you decide if this really is the best option for you, and help you create a workable plan to obtain and repay it.

How will you get the money out of your business when it’s time for you to move on? A business exit strategy will give you the knowledge in advance of how you will wrap up your involvement in your business. It can also help increase the amount of money you will be able to recoup too.

No one has a crystal ball and we can’t see what the future will hold. There are many reasons why you may need to leave your business, including health, family, a need for money, a change in interests and retirement.

Developing an exit strategy includes the creation of a detailed plan which identifies the steps to be done for you to leave your business. To identify the most suitable exit strategies for your business, an assessment of both you and your business should be done, along with a review of the implications the strategies would have.  This then provides you with a documented plan which states what the options are, the pros and cons of each and the amount of cash you could expect with each option.

Regardless of the length of time your business has been operating, the creation of a business exit strategy is a must. In this article, we will explain the benefits of having a strategy, what your options are and how to develop an appropriate strategy for your business.

What Are the Benefits of Having a Business Exit Strategy?

The benefits of having a strategy in place to exit your business include:

  • You can mould your business into the best shape for your chosen exit option. This will give you the best possible value from it.
  • It allows you to groom successors from within the business to make the transition flow smoothly for everyone.
  • You can leave the business at a time which suits you and when the market conditions are advantageous.
  • A protection plan for your financial assets will be in place.
  • The value of your business remains protected and buyers see this as a positive feature.
  • Informing strategic decision making by keeping the end goal in site.

You’ve worked hard to build your business, so why not do everything you can to protect your investment? Next, we’ll look at some exit strategy options you can choose from.

What Are My Business Exit Strategy Options?

To develop the most appropriate exit strategy for your business, you need to lay all of your options on the table first. To maximise the value of your business, your chosen strategy must be flexible and appropriate to meet your needs and requirements. Your options include:

  • Liquidation – basically this is the closing of your business and selling all of its assets. For many small businesses, this is often the only option. The advantages are that it can be done quickly and easily, with the biggest disadvantage being that you’ll receive only a low return on investment.
  • Merger or Acquisition – your business is purchased by a larger company who then merges it into their operations. Advantages are that it is highly beneficial for the purchasing company, and that you are likely to receive a fair sale price.
  • Initial Public Offering – this is when you sell your shares in the business to the general public. It requires a lot of pre-work to get this up and running.
  • Passing to Family Members – your business is kept in the family, and you are able to groom your family successor. You also may still retain a say in what happens with the business too. However, it’s easy for families to fight over the ownership and management of the business, and they may not even want it.
  • Selling to Employees – you may have a manager or a group of employees who would like to purchase your business.
  • Selling to an outside buyer – you could advertise and sell your business to someone who is not currently connected to it.

This then leads to the question; what should you do next?

Creating Your Business Exit Strategy

We recommend having a chat with us before you develop your exit strategy. Not only can we assist with a valuation of your business, but we can also help you identify the key data you need to collect to make the best possible decision.

This can include collecting information about:

  • Appearance of premises
  • Condition of assets including machinery and software
  • Accounting systems are current and appropriate
  • Customer files are up to date and easily accessible
  • Policies and procedures are documented
  • Employees are fully trained and efficient

You will also need to consider:

  • Who your target buyer is and where you will find them
  • How long you are prepared to allow the leaving process to be when it’s time for you to get out
  • You have at least two years of financial records available to share with the purchaser. You should also be prepared to answer questions regarding your expenses, revenue and historical cashflow.
  • That your business can run without you being there. This may mean training up employees and stepping back from your role, as well as having regularly reviewed written processes for employees to follow. Aim to step back at least several months before the planned exit
  • The value of your business as it stands, and what improvements you could make which would increase its value
  • How you will promote your business to buyers, also known as your sales pitch
  • What your family’s wishes are, if you are considering creating a succession plan for them to take over the business
  • Goals for your business in the future, including what your role will be and when you want to leave the business. Do you want to remain a stakeholder and continue to have a say in how the business will run? Or is a great financial exit more appropriate for you?
  • When is the optimal time to leave your business? This can include data regarding the historic revenue of your business, periods of growth and busy times of the year.
  • That your website is updated, easily modifiable and you can arrange training for the new owner.
  • All debts must be paid in full and any existing personal finances removed from the business.
  • All outstanding invoices are paid in full.
  • Non-core assets are sold off and the business is streamlined.

As business advisors and accountants, we can help with the creation and documentation of your exit strategy. We’re only too happy to help; get in touch with us today.

Your considering turning your hobby into a profitable business but have a few questions you’d like answered first. We’re guessing they include questions such as:

  • How do I know if it will be successful?
  • What steps do I need to take to set up a new business?
  • Should I quit my job and do my business full time?
  • How do I know if I’ve got what it takes to run a profitable business?

As you’re thinking seriously about turning your hobby into a profitable business, you must already be passionate and reasonably confident about it. So, let us help you understand what steps you will need to take to turn your hobby into a business.

Am I Ready to Take the Next Step with My Hobby?

Before you jump into making any big decisions, there are a few questions you should be asking yourself first:

  • Will I enjoy my hobby when I have to work to a deadline to fulfil orders?
  • Do I like my hobby enough to live and breathe it 24/7?
  • Am I happy with the quality of the goods I produce and know that my customers would be satisfied too?
  • How much are you prepared to sacrifice to start up this business (emotionally, physically and financially)?

If you are happy with your answers, then the chances are that now is a good time for you to start looking into turning your hobby into a business.

Can a Hobby Become a Profitable Business?

Yes, absolutely! There is a catch, though; it requires plenty of hard work and determination. A hobby is something you do because you enjoy doing it. A business is when you sell products (which you could make by doing your hobby) for a profit.

The Ministry of Business, Innovation and Employment (along with the IRD), clearly state that if you sell goods regularly online or in person, you are in trade. This means that you are in business if you:

  • Buy and resell goods
  • Intend to make a profit selling goods
  • Are creating goods to sell for a profit
  • Offer your goods to others to sell on your behalf
  • Receive payment (cash or otherwise) for goods

If you already are or want to be selling what you make for a profit, then it’s time to get serious!

First Steps in Turning a Hobby into a Business

A profitable business is one which receives more income than it has expenses. That sounds simple enough, but it is the biggest thing new businesses struggle to achieve. A business is more likely to fail in its first two to three years, making planning and preparation before starting a business vital. To successfully turn your hobby into a profitable business, you will need to do the following:

  • Research your industry – who else is making products like yours? What do they sell them for? Is there a market for your type of products?
  • Investigate your own products – what is the time and cost involved in making each product? What can you realistically sell them for? How much profit will you make, and is it enough? What makes your products different from those sold by your competitors? Do some product testing in that you ask your target audience what they think of your product, if they would buy it, and how much they would pay. Check out how others promote products similar to yours.
  • Create a business plan – this is your blueprint which contains all of the steps you will need to take over the first year. It also lists your goals, where you will go for help if needed, your additional resources and how you will sell your products. We can help you with your business planning – just ask!
  • Investigate the rules and regulations for your industry – there are some industries including clothing, food and toys which have many compulsory regulations to follow. Not meeting these can result in huge financial penalties against you.
  • Apply for a business IRD number
  • Decide upon your business structure – sole trader or company – and set it up
  • Register for GST if necessary
  • Open a business only bank account
  • Organise your business’ resources including domain name and website, logo and graphics, social media accounts and products
  • Seek advice from a business advisor. Yes, it will cost you money when things may be tight. However, it is best to pay a small amount now and get things right from the start, than to be out of pocket for huge expenses if you make bad decisions.

You’ll also need to decide if you are going to treat your business as a supplementary income and keep your existing job. Or if you are willing to resign and work on your business full-time. There’s pros and cons for both options, and it all comes down to the level of risk you are prepared to take.

We are more than willing and able to help get your new business off on the right foot. Our business planning services team can help you create realistic goals and identify the steps needed to achieve them. Get in touch with us now, and let’s have a chat over coffee: our shout!

Taking the Next Steps in Turning Your Hobby into a Profitable Business

Most likely you’ve got a website up and going and are busy building a following on social media. Creating an online presence is an affordable way for a new business to sell and promote its products. Other activities you’re involved with should include networking both in person and online with other small business owners, following helpful business blogs (like ours), and keeping up to date with the latest developments in your industry.

It’s also essential that you keep financial records for your new business. This includes keeping receipts for expenses, details of all income received, bank records, credit and debit notes, details of wages and PAYE if required. A company structured business will have different financial reporting requirements than a sole trader, so make sure that understand what they are.

Each year you will be required to create financial statements for your business. The bare minimum of information you must include in these are:

  • Balance sheet detailing assets, liabilities and net assets
  • Profit and loss statement, or income and expenditure
  • Statement of accounting policies
  • Details of this year’s results against last years

If this seems completely overwhelming and is not the reason why you wanted to start a business, we understand. Not everyone wants to be a bean counter and spend hours drooling over columns of numbers. But we do, except we don’t drool – just drink plenty of coffee!

Our team of accountants and bookkeepers can handle your businesses’ financial paperwork and obligations for you. We love diving into tax returns, completing financial reports and identifying ways our clients can reduce their tax obligations; legally, of course.

We offer a range of tailored business accounting packages for all businesses, including start-ups like yours. We’d be honoured to help support you as you make your way in transforming your hobby into a profitable business. Get in touch with us today, and let’s chat!

There are a huge number of benefits to running a business with an abundance mentality, but what is it.

What is an Abundance Mentality

In short, an abundance mentality is an acknowledgement that there is enough demand in the market to support many businesses. Its essentially the business version of the old ‘more fish in the sea’ approach to dating. This allows you to be less desperate to compete and more open to collaboration and developing a community of success.

How Can an Abundance Mentality Help My Business

Co-opetition

When you aren’t focused on every single business in your industry as competition, you develop a much more symbiotic relationship with your industry. This opens up or highlights opportunities for co-operation with your competition, something we like to call co-opetition.

Co-opetition is really at the core of the abundance mentality. With increasingly more businesses across all industries developing services and products tailored to very specific niches, there is growing room for cooperation between businesses with complimentary products or services.

These strategic partnerships allow businesses to focus on delivering the best they can to their customers in their niche. However, they acknowledge that they cant do everything. So they partner with strategic competitors who offer specialised services to a different niche. This way, no matter what the needs of  client or customer, the business is able to help get them sorted.

Specialisation

This focus on delivering to your niche allows you to specialise. This specialisation enables you to become the go-to expert in your field. This not only improves your relationship with existing customers and clients but also increases the likelihood of your industry partners referring to you for things in your niche.

Better Customer Service

Kiwi’s seem to expect a one-stop-shop. However, no business is ever going to be an expert in every single thing a client or customer will ever need. In order to get the best possible outcomes, your clients or customers are going to have to go somewhere else at some point.

Chances are, they’ll ask you before they look around. In a competitive mindset, this is where you say you can help and you inevitably do a sub-par job or just screw it up all together. With an abundance mentality, this is where you refer them to on our your trusted strategic partners.

Our Abundance Mentality in Action

There is no longer a need to look at business as kill or be killed.

Here at MBP, we live by an abundance mentality. We are accountants, but we refer prospective clients to other firms if we think they will be a better fit with them or we don’t think they’ll live into our core values.

Our MBP Bookkeepers are are your expert team of bookkeeping pros, with the backing and support of our team of accountants. However, some clients prefer to have the bookkeeping outsourced. That’s why refer them all to the team at Admin Army.

At MBP, we offer coaching and business development services. However, our coaches aren’t the best fit for everyone. You need to really gel to make it work. That’s why we refer people to the business owners accountability coach, AJ Pipe.

These businesses compete with us on one level or another. However, we acknowledge that we can’t do it all and deliver the same level of consistent expert service, that’s why we need partners.

 

Note: MBP will only be responsible for the terms and conditions for an engagement undertaken directly with MBP. If you undertake a new engagement with a separate firm or a related entity you will need to enter into your own contractual arrangements directly with that firm or entity. We will not accept any liability in respect to any work they may undertake for you.

Its a struggle for many business owners to find the time to work on their businesses rather than in it. If you’ve got limited time and want to get maximum impact, follow our top three weekend business planning tips below. Ideally, the process should take no more than an hour and should give you a solid base to set some goals and make some quick decisions about actions you can take in the next 30 days.

Tip 1: Look Back for Trends

Look at your previous financial information. Go back through your previous annual financial statements and your year to date data. Look at key items like revenue, gross profit and expenses.

The more data the better. Two to three years data will give you a simple trend, five years will give you much greater insight. If you’ve only been in business for a year, use last years budget versus actual.

Plot the year to year changes in percentage terms. If you use Xero, you can add in a formula to your Profit & Loss report to automatically calculate these key figures for you.

How have things changed over time? This is your trend. Use the formula above to make sure gross profit percentage is either holding steady or is increasing.

Is any change in revenue matched with changes in direct costs or overheads? Variable costs like purchases of stock should fluctuate as sales do.

Ideally, small percentage growth in gross profit should translate to larger gains in net profit (your bottom line). This is because your overhead expenses should be pretty static while your direct costs vary with sales levels. If this isn’t the case, look for outliers.

Is there an expense that’s throwing things out of whack? If one item seems to be a little out of control, it needs to be looked into as soon as possible.

Tip 2: Look Forward for Targets

Once you’ve established trends, use them to set targets.

There is nothing wrong with using a quick and dirty uplift to carry forward financial targets for the next month or so. This works well for the short term but for long term success, you really need to set aside the time to invest in your business with some well considered goals and targets.

Take your average annual growth that you’ve highlighted above when assessing percentage gains and trends. Carry this forward from the most recent period to the next for your revenue, direct costs and any other variable expenses. Keep your standard fixed overheads static or adjust by a small percentage to allow for inflation in phone, power and rent charges.

Break this uplifted budget down into monthly chunks. This will give you a month to month target for your financial performance. This then allows you to analyse how many products or services you need to sell to achieve those targets.

Tip 3: Set Actions for Quick Wins in 30 Days or Less

Once you know your trends over time and have used them to set targets, make a list of the things you need to do in the next month to make it happen.

Follow-through is where most business owners fall short. The effort put into your planning is wasted if you don’t set actions to take to work towards your goals and deadlines for executing those actions.

To avoid failing your plan, set some actions to take right now that will be easy to execute and have a big impact. These are the things you can do right now and will have an effect in 30 days or less. Its important to knock out these quick wins now so that you can focus on long term projects the next time you do a business planning session. Quick wins will also help to stop you from feeling like things are happening too slowly. Growth and development is

Some Simple Places to Look for Easy Actions and Quick Wins

Where can you streamline expenses and overheads to avoid eroding your profit gains while maintaining quality of product or service? Look for ways to save on phone, power and other overheads.Is there anything that looks out of control or not in keeping with the trends you assessed earlier? These expenses need to be managed quickly.

Can you get a discount by paying annually rather than monthly? Most subscription based things are a lot cheaper if you avoid financing them over the year and pay annually instead. This can have an impact on cashflow so you don’t need to do it all at once. Look for when things come up for renewal and start saving excess cash to pay them annually at the next renewal. This can have massive savings for things like software subscriptions, ACC and insurance premiums.

What marketing, events or networking opportunities are coming up that you could use to drive engagement and sales? Book yourself into some of these some of these.

Whatever actions you take, make sure they are in support of your short and long term business and lifestyle goals. Most importantly though, make sure you actually follow-through.

Invest in Some Professional Help

Outside support and guidance can be invaluable.

At MBP, our Business Advisors advocate our ‘three F’s’: Forethought, Forecast, Follow-through.  We run business planning workshops to help with your forethought. Our MBP Business Advisors also run cashflow forecasting and management sessions to help with forecasts. They also offer monthly or quarterly coaching sessions to help keep you on track and follow-through with your plan throughout the year.

If you need more active and regular one-on-one support, an accountability coach might be exactly what you need. We strongly recommend AJ Pipe as an independent accountability coach. AJ will “lovingly kick you up the bum” and offer you invaluable support to put your plans into action and will hold you accountable for those actions throughout the year.

If you’d like to discuss your options for planning, coaching and support, get in touch with the team at MBP today. We’d be happy to run through the results of you following our weekend business planning tips in a free Proactive Accounting Meeting.