business west - finance factor
DESCRIPTION
Business West's financial presentation run by Mike Stutter and Yvette ColesTRANSCRIPT
![Page 1: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/1.jpg)
The Finance Factor4th July 2012
![Page 2: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/2.jpg)
Seven Deadly Sins of Raising Finance
Yvette ColesFinance Coach
![Page 3: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/3.jpg)
Finance Workshop Agenda
• Introduction to Programme• The “Seven Deadly Sins” of Raising Finance• Working Capital Management, Budgeting & Tax
Planning• Funding Options for Growth• Invoice Finance• Asset Finance• Financial Planning for Business Owners• Trade Finance• Questions & Next Steps
![Page 4: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/4.jpg)
The “Seven Deadly Sins” of Raising Finance
1) Asking for Too Little, Too Late
• Plan Ahead
• Working Capital Budgeting for Growth
• Capital Expenditure Requirements
• Invest in Relationships
![Page 5: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/5.jpg)
2) Jumping In Without Considering All Your Options
• Banks
• Specialist Finance
• Government Backed Schemes
• Money for Nothing
• Investors
![Page 6: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/6.jpg)
3) Failing to Provide enough Financial Data
• Quality Financial Information is Critical
• Market Research
• Credible Assumptions
• KPIs
• Serviceability - Capital & Repayment
![Page 7: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/7.jpg)
4) Skipping Over non Financial matters
• Business Acumen• Track Record• Culture of Organisation• Management & People• Operations & Processes• Customers• Competition• Risk Management
![Page 8: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/8.jpg)
5) Underestimating what`s involved in Investment
• Challenges
• Timeframes
• Personal Commitment
• Due Diligence
• Negotiations
• Valuation
![Page 9: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/9.jpg)
6) Not being sufficiently Attractive to Investors
• Investors Options
• Reality of Success
• Growth Potential
• USP
• IP
• Exit Strategy
![Page 10: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/10.jpg)
7) Not Delivering a Great Pitch
• Plan
• Prepare
• Practice
• Props
• Professional Support
![Page 11: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/11.jpg)
Remuneration Planning, Capital Allowances & R&D Tax Credits
Martin AtkinsFrancis Clarke Accountants
![Page 12: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/12.jpg)
Understanding Finance For Business
TAX, TAX, TAXMartin Atkins
![Page 13: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/13.jpg)
Subjects to Cover
• A little about us
• Budgeting, Cashflow and Working Capital
• Remuneration Planning
• Capital Allowances
• Reliefs for Innovation (R&D and PatentBox)
![Page 14: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/14.jpg)
A Little About Us…
• Established over 90 years
• 7 offices across region
• Over 350 staff and 48 partners
• Award winning
![Page 15: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/15.jpg)
Budgeting, Cashflow and Working Capital
• Planning
• Monitoring
• Problems
• Solutions
![Page 16: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/16.jpg)
Remuneration/Tax Planning
• Salary and Dividends
• Income sharing
• Home as office
• Vehicles
• Other sundry items (phone, staff party, goodwill)
![Page 17: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/17.jpg)
Capital Allowances
• Annual allowances
• What qualifies?
• Vehicles
• Retrospective building claims
![Page 18: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/18.jpg)
Reliefs for Innovation
• Research and Development
• PatentBox
![Page 19: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/19.jpg)
Register for access to factsheets, updates and newsletters at
www.francisclark.co.uk
![Page 20: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/20.jpg)
Break
![Page 21: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/21.jpg)
Funding Options for Growth
Yvette ColesFinance Coach
![Page 22: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/22.jpg)
Funding Options for Growth
• Bank
• Alternatives
• Debt
• Equity
• Grants
![Page 23: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/23.jpg)
Business Challenges
• Economic recovery – do we or don’t we?• Business as usual or opportunity = RISK• Intention to expand – but have the tools in place to support?• Connected – Global Marketplace• Right people/skills? • Available resources/funding?• Network – who to ‘tap into’ and when?
![Page 24: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/24.jpg)
Business Evolution•
Entr
epre
neur
ial
•Ex
ploi
tatio
n
•Fa
st G
row
th
•M
atur
e
•D
eclin
e
•G
ROW
TH
• TIME
![Page 25: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/25.jpg)
Current Finance Landscape
• Banks – “Open for Business”??• Risk Profile• Financial Packaging – Capital
Expenditure/Working Capital/Expansion• Asset Finance• Invoice Finance• Solutions For Business Schemes
![Page 26: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/26.jpg)
Banks
• Risk • Overdrafts & Loans• Ability to Repay = Serviceability• Financial Viability (Ratios)• Security• Track Record
![Page 27: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/27.jpg)
Enterprise Finance Guarantee (EFG)
• Replaces SFLGS• Accredited Lenders• Min £1k Max £1m• Refinance of existing debt• Government Guarantee 75% on debt• 2% premium• Personal Security
![Page 28: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/28.jpg)
Other Lenders (Debt)
• South West Loan Fund
• Funding Circle
• Regional Growth Fund – Assisted Asset Purchase
• Cleantech Fund
![Page 29: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/29.jpg)
Grants
• R & D Grant – TSB
• EU Grants – EEN
• Environmental – IYRE
• Grant for Business Investment (GBI)
![Page 30: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/30.jpg)
Equity Sources
Investment for shares in a Limited Company
• Dragons Den!• Friends, Family, Staff• Crowd Funding• Angel Investors• SWAIN• Venture Capital – YFM Ventures• Private Equity• Flotation/AIM listing
![Page 31: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/31.jpg)
Characteristics of Equity
• Risk Capital• Ownership dilution• No interest cost but high returns required• No Security• No repayment until maturity• Potential skills of investor• Leverage for debt
![Page 32: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/32.jpg)
Equity Statistics
• Most equity invested in mature larger companies
• 6% of private equity into start up & early stage companies
• 5% average success rate with angel investors• Expensive money – ROI 35%+• 6 months average lead time
![Page 33: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/33.jpg)
Investor Attractiveness Criteria
• Management Team – experience & skills• Strong USP – product/service• Growth & future ROI• Strategic assets or defendable IP• Market research & demonstrable demand• Commercial reality & scaleable• High profitability & cash generation• Committed to a credible exit strategy
![Page 34: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/34.jpg)
Investment Ready Process
• Understanding Equity & Investor Attractiveness • Valuing the Business• Deal Structure/Negotiation/Due Diligence• Taxation (SEIS & EIS)• Professional Advisers• Costs• Timing
![Page 35: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/35.jpg)
Invoice Finance
Ruth BethelBibby Finance
![Page 36: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/36.jpg)
Invoice Finance – what it is; how it works;and how it might help your business to grow
![Page 37: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/37.jpg)
Ruth Bethel
Business Development Manager
07889 643625
![Page 38: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/38.jpg)
agenda
1. What is Invoice Finance?2. Factoring – a description 3. Invoice Discounting – a description 4. What it costs5. How to apply – what a financier asks for6. Security7. Additional “extras” – credit insurance8. Specialist products offered
9. 1
![Page 39: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/39.jpg)
What is Invoice Finance
Do you ever think – “if everyone paid what they owe me I’d be fine”?
Well invoice finance solves that cashflow dilemma, where customers will pay you next month (or the month after) but you have wages or suppliers to pay this month.
You send a copy of your invoices to your financier and they advance you a percentage of the gross invoice value.
Typically this is 75%-85%
You receive it usually the day after you upload (or email) the invoice(s) to the financier
You get the rest, less the financier’s fee, when your customer pays.
![Page 40: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/40.jpg)
Factoring
Factoring offers you cash
against your invoices PLUS the
factor will do your credit control
and sales ledger administration
for you.
This can be done either in the name
of the factor or confidentially – as if
you were doing it yourself.
![Page 41: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/41.jpg)
Factoring- money plus credit control
You issue your invoices to your customer and send copies to your factor. You have your money a day or so later – and leave the credit control to the factor. You should have a dedicated professional credit controller who will work hard to develop good relationships with you AND your customers. The factor will phone, email and write to the customers, and send monthly statements.
![Page 42: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/42.jpg)
Invoice Discounting
Invoice discounting just offers advances against invoices without any credit control service.It is usually offered to businesses that are large enough to have their own credit controller and can prove that they are effective in managing their sales ledger and collection of money – the financier wants to make sure they get repaid!The business will need to provide regular management information to the financier and reconcile ledgers to them monthly.The financier will also audit the business regularly.
![Page 43: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/43.jpg)
What does it cost?There are two elements of the cost.
1. Service charge – expressed as a percentage of the annual factored or discounted turnover.
This is usually subject to a minimum annual cost;
e.g. T/O £400k. Service fee 1.5% subject to an annual minimum charge of £5,500.
2. Discount (interest by another name) on the money advanced. Typically between 5%-8% per annum. E.g. If a business’s average advance was £100,000 all year round, they would pay between £5000 and £8000 discount (interest)
![Page 44: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/44.jpg)
How to apply – what a financier looks for
Criteria is more stringent for invoice discounting. This is a higher risk product for a financier, so businesses usually have to be established with a history of making profits. They also must demonstrate ability to collect their debts and run a computerised accounts package like Sage. A traceable paper trail is also needed, with proof of deliveries or job sign offs.
![Page 45: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/45.jpg)
How to apply
You need to be prepared to supply both financial and operational information to your potential financier.As well as wanting to know that your business has a future and a game plan, the financier will want to know that your paper trail is robust and that the debt is collectable.Your potential financier may want to conduct an audit of your business which will involve spending most of a day with you
![Page 46: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/46.jpg)
How to apply; the info you will need
Sales ledger (customers who owe)Purchase ledger (supplier/bills to pay)Your latest accounts and/or MIDetails of your major customersExamples of paid and outstanding invoices with paper trail, (delivery notes/sign offs)Proof that your VAT and PAYE are paidYou will need to provide full details of your company and ID for Directors and major shareholders to comply with UK law.
![Page 47: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/47.jpg)
Security
You will be asked for:
A debenture –from a limited Company
Possibly a bill of sale if unlimited
A personal guarantee from Directors
Other priority deeds if appropriate
![Page 48: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/48.jpg)
Addition options: Credit insurance
NOTE: this may not be an option as your financier may insist that you have this protection
Credit insurance covers failure of your customers: i.e. If your customer goes bust the insurance will pay out – provided they agree cover in the first placeLike all insurance, it is up to the insurer to agree to take the riskExpect to pay between 0.5-1.5% of T/O
![Page 49: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/49.jpg)
Specialist products offered
Export factoring. Usually restricted to 20/30% of ledger. 100% available from Bibby Factors International LtdConstruction sector will struggle to get funding as high risk of failure: Exception, Bibby Construction FinanceIT. Again, not a popular sector as products unseen and often subject to disputes.
![Page 50: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/50.jpg)
Thank you for your attentionI will be happy to speak to
individuals during lunchtime if anyone has more
questions after this session
Conclusion and ANY QUESTIONS?
![Page 51: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/51.jpg)
Lunch & Networking
![Page 52: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/52.jpg)
Asset Finance
Oliver NashArmada Finance
![Page 53: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/53.jpg)
Independent Financial Planning for Business Owners
Martyn SullivanSt James Place
![Page 54: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/54.jpg)
Martyn Sullivan BA (Hons) DipCIIAssociate Partner
Financial Planning for Business Owners
The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Services Authority) for the purpose of advising
solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. ‘The St. James’s Place Partnership’
and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place Representatives
![Page 55: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/55.jpg)
Purpose of today
• Introduction
• RDR
• Shareholder protection
• Loan protection
• Key man protection
• Gender Neutral Pricing
• Pension Reform
• Close and Questions
![Page 56: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/56.jpg)
Introduction
![Page 57: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/57.jpg)
Introducing St. James’s Place Wealth Management
• An award-winning, FTSE-250 Company
• Founded in 1991 by Lord Jacob Rothschild,
Sir Mark Weinberg and Mike Wilson
• Providing tax-efficient wealth management solutions to private and corporate clients.
• £31.5 billion client funds under management
• Over £24 million donated to the St. James’s Place Foundation
![Page 58: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/58.jpg)
Wheel of Corporate Services
RetirementPlanning
Corporate
Protection
Exit Planning
Tax and Accountancy
TrusteeInvestment
InsuranceBroking
Wealth Management
Employee Benefits
GroupPensions
Some of the above will involve services that are separate and distinct from those offered by St. James’s Place
![Page 59: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/59.jpg)
The Retail Distribution Review(RDR)
![Page 60: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/60.jpg)
The Financial Services Profession
• 1985 – UK population 60 million• 365,000 Registered Financial Advisers
• 2007 – UK population 61.7 million• 57,000 Registered Financial Advisers
• 2009 – UK population 62 million• 25,000 Registered financial advisers
• How many advisers are expected to be left standing post 2012?
![Page 61: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/61.jpg)
The Financial Services Profession
By 2012 it is estimated there will be
only 10,000 qualified professional advisers…….and with a UK population
of 62.3 million.
![Page 62: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/62.jpg)
Worrying statistics……..
• 95% of businesses have at least one key individual.• 43% of businesses have unprotected corporate debt• 39% of business owners expected their businesses to
fold within 18 months of the death or critical illness of a key person
• A third of businesses (33%) have no Share Protection in place.
• 58% of businesses have no formal agreement to establish what would happen in the event of the death or critical illness of a business owner.
Source: L & G Business Protection Research
![Page 63: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/63.jpg)
Key questions?
• How will you continually cover your costs / make a profit??
A great many business owners we speak to currently are managing to cover wages and no more..• How will you cope if a key employee dies or is
unable to work?• How will you eventually exit your business?• What happens to your business if you die/a
business partner dies?• Will your family be looked after? • Will your business partner/yourself be looked after?• What plans have you made to lessen the impact of
forthcoming and future legislation changes?
![Page 64: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/64.jpg)
SHAREHOLDER PROTECTION
![Page 65: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/65.jpg)
Aim
This section is designed to provide an overview of shareholder protection, the issues and tax position of this type of planning
![Page 66: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/66.jpg)
Agenda
• Why is shareholder protection important?
• Calculating the value of the company
• How do you write shareholder protection?
• The shareholder agreement
• Wills
![Page 67: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/67.jpg)
Why is shareholder protection important?
• Business continuity
• Funds are available to the people who want to
buy the shares
• To improve the tax position on the death of a
shareholder
• The deceased’s estate receives the funds in a
timely manner
![Page 68: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/68.jpg)
Calculating the value of the company
• Multiple of maintainable profits
• Dividend Yield
• Net Assets
• How providers assess the level of life cover
![Page 69: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/69.jpg)
How do you write shareholder protection?
• Own Life Plan
• Business Trust
• Equalisation of premiums
• Critical Illness Cover
![Page 70: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/70.jpg)
The shareholder agreement• Why set up a shareholder agreement?
• Cross Option Agreement
• Single Option /Critical Illness
• Buy and sell agreement
![Page 71: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/71.jpg)
Wills
• Why should Wills be reviewed?
• How to structure the Will correctly
• Working example
![Page 72: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/72.jpg)
Shareholders =
Life Assured
Co-Shareholders
Beneficiaries =
Co-Shareholders
Discretionary TrustShareholder’s Will
Policy
placed in trust
Proceeds of Policy
Proceeds exchanged for shares
Shares passed via will/trust
![Page 73: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/73.jpg)
Key Person Protection
![Page 74: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/74.jpg)
Aim
This session is designed to provide an overview of key person protection the issues
and tax position of this type of planning
![Page 75: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/75.jpg)
Key Person Protection
Who is a key person?
![Page 76: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/76.jpg)
Why is Key Person protection important?
• Loss of profit – key sales person
• Minimise business interruption – future projects /
important contacts
• Loan Protection – Is KP guarantor with the bank
for loan?
• Business start up – combination of key individual
skills in early stages
• Management buy out – Investors/backers request
cover for managers key to success
![Page 77: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/77.jpg)
How to structure key person cover?
• Life cover
• Income Protection
• Critical Illness Cover
![Page 78: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/78.jpg)
How do you calculate the cover required?
• Multiple of profits – 2 x gross profit; or 5 x net profit (higher in some cases)
• Multiple of salary – up to 10 x gross salary
• Proportion of salary roll – contribution to turnover / can be distorted via low salary, high dividends
• Outstanding Loans
![Page 79: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/79.jpg)
Questions to consider• If a key person died what would be the effect on the
business value?
• How long would it take to replace a key person?
• How much would it cost to replace a key person?
• Do any of the Directors or Partners have outstanding
loans to the business?
• Will the business be able to service their existing loans
on the loss of one of their key people?
![Page 80: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/80.jpg)
LOAN PROTECTION
![Page 81: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/81.jpg)
Loan Protection
What is it for?
Businesses, partnerships and sole traders need to borrow for:• New machinery• New premises• Credit or overdraft facility• General development/expansion
Amount of cover = sum of the above
![Page 82: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/82.jpg)
Tax treatment...
Taxation of premiums• Premiums are not an allowable deduction from
profits• They are regarded as part of the cost for raising
the capitalTaxation of benefits• Generally not liable to Corporation Tax• Treated as a capital receipt and not taxed
Loan Protection
![Page 83: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/83.jpg)
Corporate Protection
Summary...
Key Person Protection is to
replace loss of profits caused by the death or serious illness of
the key person
Loan protection is to repay
outstanding debts or loans in those circumstances
Shareholder Protection is to ensure that both the family members and co-shareholders
are protected on death/critical illness of
a shareholder.
![Page 84: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/84.jpg)
Gender Neutral Pricing
![Page 85: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/85.jpg)
Agenda
• Changes in protection pricing• Important Considerations
![Page 86: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/86.jpg)
Gender Neutral Pricing• Challenge by Belgian consumer group, Test-
Achats, regarding car insurance• European Court of Justice ruling 1 March 2011• Cannot use gender to charge different premium
rates• No appeal allowed• Effective from 21 December 2012• Life assurance, pension annuities, car insurance
![Page 87: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/87.jpg)
Possible Effect on Protection• Female life and critical illness cover up by 20 –
25%• Male income protection rates up by 10 – 20%• Female income protection rates down by 15 –
25%• Actual changes unknown but rates will change
![Page 88: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/88.jpg)
Act Now• Plan must be issued by 21 December• Application status is not issued• Applications needing underwriting to providers by
September• Providers may impose gradual increases at any
time
![Page 89: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/89.jpg)
Summary
• Protection rates are at an all time low
• ACTION– If you need to audit your protection
arrangements then act now with the view to secure protection rates before the costs rise
![Page 90: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/90.jpg)
Pension Reform - Auto Enrolment
![Page 91: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/91.jpg)
![Page 92: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/92.jpg)
Source: Daily Express, 18 May 2011
Source: Daily Telegraph, 29 August 2011
More people having to defer retirement
Millions must work after 70
Source: Daily Mail, 15 January
2011
Half of pensioners too broke to stop work
Headlines….
![Page 93: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/93.jpg)
We are all living longer!!
We will all be working longer!!
We will all inherit less “The Parent Trap”!!
Issues to consider….
![Page 94: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/94.jpg)
A third of today’s babies will live to be 100
Source: Daily Telegraph, 27 March 2012
![Page 95: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/95.jpg)
“Till death us do work….Children born today may have to
wait until they are 80 before they can retire”
Source: Metro, 22 March 2012
![Page 96: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/96.jpg)
The Over 75’s• 2008, 9.5 Million people were
aged 75 or over• By 2033 this will increase to
17.3 Million• Businesses will have to adapt!
Source: Daily Mail December 2012
![Page 97: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/97.jpg)
“Many millions of us will be spending around a third of our
lives or more in retirement”
Source: Steve Webb, Pensions Minister, December 2010Source: Steve Webb, Pensions Minister, December 2010
![Page 98: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/98.jpg)
Most believe “retirement is over”Nearly three quarters of people
believe retirement as we currently understand it will not
be possible in the future
Source: BBC Newsnight, 7 September 2010
![Page 99: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/99.jpg)
“Where as it used to be the case that up and coming generations tended to be
more prosperous than their parents, now we’re going
to be in reverse”
Source: Historian, Jeremy Black
![Page 100: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/100.jpg)
“Work until 70 to pay for your
old age”
Source: Daily Telegraph – 3 January 2012
![Page 101: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/101.jpg)
Retirement Provision• 4 in 10 companies said that by 2020, staff
will work to 67.• 1 in 6 companies expect Retirement age to
be between 68 and 70.• 9 out of 10 workers will work part-time/set-
up own business to supplement income.• 9 out of 10 final salary schemes shut to new
members.
Source: Daily Telegraph – 3 January 2012
![Page 102: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/102.jpg)
Alarming decline in saving for retirement
Source: Daily Telegraph – 30 December 2011
![Page 103: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/103.jpg)
Income needs in retirement are not smooth or certain
Income
Age
Active Life –Higher Income
Less Active –Lower Income
Residential Care –Higher Income
![Page 104: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/104.jpg)
Back to the Future!
Life used to be easy!
£ £Do you want a small one or a big
one?
![Page 105: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/105.jpg)
Back to Basics• How are you going to afford to retire?
• My business is my pension?• Inheritance?• Downsizing?• Property portfolio?• Investment Portfolio?• Pension portfolio?
• What does retirement look like for you?
• Are you prepared to work until 75?
• What provisions have you made
already?
![Page 106: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/106.jpg)
Workplace Pension Reform• The Government wishes to promote personal
responsibility for retirement savings• State Pensions are currently unaffordable
and this will only get worse as we live longer• The current pension system does not reach all of
the UK population• Employers will share the responsibility (and
cost) of employees retirement• Auto enrolment ensures employees join an
employer’s pension scheme• Where no employer scheme exists then a
Qualifying Workplace Pension Scheme (QWPS) will need to be established. The National Employment Savings Trust (NEST) is an example of one.
![Page 107: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/107.jpg)
Timetable• Auto enrolment will start from 1 October
2012• Exception – large employers with 50,000 or
more employees are able to start earlier• Start date (known as the staging date) for
individual employers depend on size and PAYE reference
• Employers with several PAYE numbers, start from the earliest date
• Minimum contribution rates phased in over a 4 year period commencing October 2012.
![Page 108: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/108.jpg)
Minimum Contributionsof ‘Banded Earnings’
Minimum Employer
Minimum Employee Tax Relief
Oct 2012 – Sep 2017 1% 0.8% 0.2%
Oct 2017 – Sep 2018 2% 2.4% 0.6%
From October 2018 3% 4% 1%
![Page 109: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/109.jpg)
Auto enrolment - the basics!
• Employees aged 22 to State Pension Age and• Working or ordinarily working in the UK and• Earning more than the ‘income trigger’ for
automatic enrolment (£8,105 in 2012/13) and• Not currently in a QWPS.
![Page 110: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/110.jpg)
Auto enrolment - the basics!• Default: Must be auto enrolled into a QWPS within
one month of the later of:– the employer’s staging date– date of joining the employer– attainment of age 22– exceeding the ‘income trigger’.
• An employer can use the optional waiting period of three months rather than the default one month before an employee needs to be automatically enrolled.
![Page 111: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/111.jpg)
Qualifying Workplace Pension Scheme (QWPS)
• All employers must automatically enrol employees into a QWPS
• Note there will be no exemptions!• Includes business owners employing their spouse!• Employers will be able to certify that their current
Defined Contribution scheme meets the required contribution levels but– This scheme may only be used for existing members if
the auto enrolment requirements are met• Where no QWPS already exists, the employer has
to designate an alternative for auto enrolment.
![Page 112: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/112.jpg)
Auto enrolled scheme• Alternative qualifying pension includes a
personal pension or occupational pension scheme
• Employees who choose to opt out have to be automatically re enrolled every three years when they can choose to opt out again
• There is some flexibility around the timing of re enrolment of employees. This allows employers a window of three months before and after the scheduled date
• If an employee volunteers to rejoin, the employer must allow this at least once a year.
![Page 113: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/113.jpg)
Nest (National Employment Savings Trust)
![Page 114: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/114.jpg)
What is NEST?• A QWPS• Designed to meet needs of low to moderate
earners and their employers• Can be used to fulfil auto enrolment duties• A trust based defined contribution scheme• Run by NEST Corporation – a not for profit
corporate trustee • Contributions currently subject to maximum of
£4,200 pa• No transfers in or out permitted, to be reviewed in
2017– Except monies in or out under a pension sharing order
and at retirement to purchase benefits• Charges are 0.3% AMC and contribution charge of
1.8%
![Page 115: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/115.jpg)
Scheme Registration
• The employer must advise The Pension Regulator within four months of the employer’s staging date details of their QWPS
• And they must reconfirm details of the QWPS every three years
![Page 116: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/116.jpg)
Penalties!!
The Pension Regulator will have the ability to impose penalty notices
if an employer does not comply with their new duties
• Fixed penalty of £400 where an employer fails to respond to a warning notice from The Pension Regulator
• An escalating penalty of £50 to £10,000 a day (depending on the size of the employer). For example if the employer fails to pay contributions on time
• Fixed penalty of £1,000 to £5,000 for prohibited recruitment conduct, for example where an employer screens job applicants for their intention to join the pension scheme.
![Page 117: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/117.jpg)
Things for you to consider• What is your staging date?• Can you use an existing scheme if it qualifies
(check with scheme provider)• Are you able to amend an existing scheme to
meet qualifying criteria• Either, set up a new scheme which meets the
qualifying criteria; and/or• Use NEST – for some or all of your employees• Offer a combination of options for different areas
of the workforce.
![Page 118: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/118.jpg)
Assessing the impact on costs and proposed strategies for minimising this
• Review costs of different contribution options (certify alternative to ‘banded earnings basis’)
• Strategies for minimising costs including review of salary sacrifice
• Consider impact on current reward strategy• Review of payroll, HR and admin processes and
relevant support
![Page 119: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/119.jpg)
Where can I obtain more information?
The Pension Regulator (including staging dates)Visit
www.thepensionregulator.gov.uk/pensions-reformCall 0845 600 1011
NESTVisit www.nestpensions.org.ukCall 0300 303 1949
![Page 120: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/120.jpg)
Next Steps
• Know when you need to act• Start the planning process• Brief key management personnel• Mobilise an implementation team• Communicate the changes to staff
![Page 121: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/121.jpg)
Other areas of Financial Planning not covered…
• Business Profit Extraction• Business Succession Planning• Relevant Life Plans• Exit Strategies• Investment planning for business owners
![Page 122: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/122.jpg)
QUESTIONS?
![Page 123: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/123.jpg)
Important Information
Please be aware that past performance is not indicative of future performance and the price of units and the income from them may go down as well as up.
The information contained herein represents the view and opinions of the individuals quoted, and not those necessarily held by other investment managers or St. James’s Place Wealth Management.
Tax rates, trust information and all other limits shown in the this presentation or discussed are set by the UK Government and correct as at 30/04/2012.
UK members of the St. James Place Wealth Management Group are authorised and regulated by the Financial Services Authority. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. St. James’s Place Wealth Management Group plc Registered office: St. James’s Place House, 1 Tetbury Road, Cirencester, Gloucestershire, GL7 1FP.
St. James’s Place guarantees the suitability of the advice given by members of the St. James’s Place Partnership when recommending any of the wealth management products and services available from companies in the group, more details of which are set out on the Group’s website www.sjp.co.uk/products
![Page 124: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/124.jpg)
Break
![Page 125: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/125.jpg)
Trade Finance
Tim BurdenLloyds TSB International
Trade, South West
![Page 126: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/126.jpg)
Tim Burden International Business Manager
&
Nigel Scott International Business Manager
Introduction to Trade Finance
![Page 127: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/127.jpg)
Page | 127
Agenda
What is Trade Finance The Impact of Foreign Currencies Why use Trade Finance Examples of Trade Finance
Introduction to Trade Finance
![Page 128: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/128.jpg)
Page | 128
What is Trade Finance?
Trade Finance is a term for services provided by a bank to assist
in financing of Trade Transactions and can include:
Trade Services Import L/C Export L/C Export L/C Confirmations Inward (import) Documentary Collections Outward (export) Documentary Collection Guarantees, Bonds, Indemnities Standby L/C’s
Trade Finance Import Finance Pre-Shipment (Export) Finance Post Shipment Finance
Introduction to Trade Finance
![Page 129: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/129.jpg)
Page | 129
Trade Transactions involve
Movement of Goods & Trade
Documents
Movement of Cash
Seller
Buyer
![Page 130: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/130.jpg)
Page | 130
Foreign Exchange - the impact of using other currencies
UK Furniture Business who purchase from China and sell to UK retailers.
Receive an order on 01 January 2010 from John Lewis to supply 1000 sofas in April 2010 @ £700.00 per sofa (they expect to receive £700,000.00).
Cost of Goods to Co - $1000.00 per Sofa.
Exchange rate at the time of the order is 1.6100. At this exchange rate each unit costs £621.11
Expect to make £78.89 per sofa; a total margin/profit of £78,890.00
Company will receive the goods in April and have 90 day payment terms (therefore, will be settling the invoice on 01 July 2010)
They have the choice of fixing the exchange rate at 1.6100 for delivery in June or doing nothing and paying at whatever the exchange rate is when they come to settle the bill.
Introduction to Trade Finance
![Page 131: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/131.jpg)
Page | 131
What happened to the rate?
Daily QGBP= 16/12/09 - 04/01/11 (GMT)
BUDGET RATE @ 1.6100 Price
USD
.1234
1.45
1.5
1.55
1.6
16 01 18 01 16 01 16 01 16 03 17 01 16 01 16 02 16 01 16 01 18 01 16 01 16 03
Q1 2010 Q2 2010 Q3 2010 Q4 2010
Introduction to Trade Finance
![Page 132: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/132.jpg)
Page | 132
Rate went to 1.5060 – increasing costs reducing GPM
Daily QGBP= 16/12/09 - 04/01/11 (GMT)
BUDGET RATE @ 1.6100
Break Even @ 1.4285 Rate at point of payment - 1.5060
Price
USD
.1234
1.45
1.5
1.55
1.6
16 01 18 01 16 01 16 01 16 03 17 01 16 01 16 02 16 01 16 01 18 01 16 01 16 03
Q1 2010 Q2 2010 Q3 2010 Q4 2010
Introduction to Trade Finance
![Page 133: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/133.jpg)
Page | 133
Lock in Profit, or take a risk?
PROTECTED POSITION
GBP/USD Rate GBP cost from $1,000,000.00
supplier invoice
Profit/Loss
YES 1.6100 £621,118.01 £78,890.00
NO 1.5060 £664,010.62 £35,997.39
Break Even 1.4285 £700,000.00 £0.00
Introduction to Trade Finance
![Page 134: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/134.jpg)
Page | 134
why use trade finance?
![Page 135: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/135.jpg)
Page | 135
why use trade finance…
provides transactional borrowing aligned to underlying contract(not balance sheet driven)
Gives a pre-shipment conditional guarantee of payment to suppliers
protect title to goods pending receipt of payment(documentary collection / export letter of credit)
improve end-buyer (debtor) risk(export letter of credit / export letter of credit confirmation)
Introduction to Trade Finance
![Page 136: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/136.jpg)
Page | 136
why use trade finance…
assist exporters to raise finance to complete order(export letter of credit)
Assist importers to finance goods(import letter of credit)
speed up receivables(export letter of credit / avalised bill of exchange
slow down payables(import letter of credit / documentary collection / avalised bill of exchange)
Introduction to Trade Finance
![Page 137: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/137.jpg)
Page | 138
Introduction to Trade Finance
In order to provide trade finance facilities, the bank will usually want to be involved in the underlying transaction, i.e. have ‘control’ of commercial & shipping documents relating to the transaction.
The banks ability of provide trade finance therefore depends upon the payment terms agreed between the importer & exporter.
For this reason early involvement of the bank in any transaction where finance might be required is essential.
Please Remember……
![Page 138: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/138.jpg)
Page | 142
CASE STUDIES
Introduction to Trade Finance
![Page 139: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/139.jpg)
Page | 143
case study 1 – import finance
wholesale & retail of books, stationary & toys funding through CID line – 85% advance rate – including export
lines in USD & EUR new large order received 50% Gross Margin goods sourced from suppliers in Far East suppliers require payment when goods on water additional $320K required – but current facilities fully utilized but CF wont discount until goods delivered and invoice raised
Introduction to Trade Finance
![Page 140: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/140.jpg)
Page | 144
case study 1 – Import Finance
SupplierOrderPlaced
SupplierPaymentMade
GoodsShipped
Goods ArriveIn UK Port
Goods Cleared& delivered
End-Buyer Pays
1 3530 60 65 170
Invoice DiscountingIncreasedOverdraftRequired
Invoice raised& Discounted
Introduction to Trade Finance
![Page 141: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/141.jpg)
Page | 145
case study 1 – Import Finance
Import Finance agreed on a documentary collection basis as goods ‘pre-sold’ we pay collection using import loan and release
documents to customer against trust receipt goods cleared & delivered to buyer invoice raised and discounted – proceeds repay import loan safer then overdraft lending because
we control the payment to supplier and retain ownership of stock we know the end buyer and receive repayment through CF.
Introduction to Trade Finance
![Page 142: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/142.jpg)
Page | 146
case study 1 – Import Finance
SupplierOrderPlaced
SupplierPaymentMade
GoodsShipped
Goods ArriveIn UK Port
Goods Cleared& delivered toASDA
End-Buyer Pays
1 3530 60 65 170
Invoice DiscountingImport Loan
Invoice raised& Discounted
Introduction to Trade Finance
![Page 143: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/143.jpg)
Page | 147
Case Study 2 – Pre Shipment Finance Manufacturer of Air Traffic Control Simulation Systems Undertakes contracts around the world Received order for delivery to Buyer in Turkey End buyer payment terms - Letter of Credit Working Capital required to fund project build stage After due diligence agreed a Pre Shipment Finance Facility
Introduction to Trade Finance
![Page 144: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/144.jpg)
Page | 148
Export Order timeline
Activity:
Ship goods/present docs under LOC for first 40%
of payment (£1.2m)
Day: 1 30 60 90 120 127
Order hardware£250k (£0)
Pay hardwareSupplier (£250k)
Pay developeroverheads (£50k)
Pay developeroverheads (£50k)
Pay developeroverheads (£50k)
Pay developeroverheads /goods
ready to ship (£50k) Receive LC from Turkish
Bank
Introduction to Trade Finance
![Page 145: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/145.jpg)
Page | 149
case study 3 – post shipment finance
established UK exporter (middle-man) contract to supply kit to middle east goods delivered in stages over 7 months end-buyer seeking finance over 6 months post delivery suppliers offering 60 day open a/c terms contract and payment terms beyond scope of company’s balance
sheet but very good track record in the sector & region
Introduction to Trade Finance
![Page 146: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/146.jpg)
Page | 150
case study 3 – post shipment finance
OrderReceived
Goods ReceivedFrom Suppliers
Goods ShippedTo End-Buyer
Suppliers Paid
End-Buyer Pays
1 7 42 102 242
Orders PlacedWith Suppliers
62
60 Days Credit
Funding Gap 140 days
Introduction to Trade Finance
![Page 147: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/147.jpg)
Page | 151
case study 3 – post shipment finance
end-buyer able to provide series of letters of credit usance terms of 6 months from shipment agreed with risk on middle eastern bank bank and country risk acceptable to LTSB ‘post-shipment’ discount (without recourse) of middle eastern banks
payment obligations (payment risk confirmed by LloydsTSB)
Introduction to Trade Finance
![Page 148: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/148.jpg)
Page | 152
case study 3 – post shipment finance
Export L/CReceived
Goods ReceivedFrom Suppliers
Goods ShippedTo End-Buyer &Docs Presented
Suppliers Paid
L/C Paid &Discount Repaid
1 7 42 92 102 427
Orders PlacedWith Suppliers
62
60 Days Credit
L/C AcceptanceDiscounted
Introduction to Trade Finance
![Page 149: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/149.jpg)
Page | 153
case study 3 – post shipment finance
bank & country risk mitigated not balance sheet driven suppliers paid on normal terms exporter paid cash on shipment of goods end-buyer has 12 Months credit
Introduction to Trade Finance
![Page 150: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/150.jpg)
Page | 154
If your business requires trade finance facilities, your bank will usually want to be involved in the underlying transaction, i.e. have ‘control’ of commercial & shipping documents relating to the transaction.The banks ability of provide trade finance therefore depends upon the payment terms agreed between the importer & exporter.For this reason early involvement of the bank in any transaction where finance might be required is essential.
Government Support is available for Exporters UKEF – Working Capital Scheme UKEF – Bond Support Scheme UKEF – Insurance scheme
Introduction to Trade Finance
![Page 151: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/151.jpg)
Page | 155
QUESTIONS?
Introduction to Trade Finance
![Page 152: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/152.jpg)
Questions, summary & coaching engagement
![Page 153: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/153.jpg)
Summary
• Overview of Coaching Support
• Coach Engagement 1:1
• 01275 376233
• www.businesswest.co.uk
![Page 154: Business West - Finance Factor](https://reader035.vdocuments.site/reader035/viewer/2022062617/54c1abed4a79593e768b45e3/html5/thumbnails/154.jpg)
Thank you for attending The Finance Factor
workshop.