Advice for Business Owners
28 Aug 2015
Beavis Morgan’s advice column for business owners
In this edition of our column, we focus on two topics for entrepreneurs and business owners:
- Raising finance through crowdfunding
- Protecting your business against risk
It is the aim of any owner manager to achieve growth and success for their business, but sometimes it can be hard to see where this is possible. In order for businesses to start up on a solid financial footing, survive and thrive business owners must seek opportunities to maximise potential and put adequate measures in place to protect the health of their business, both now and for the future.
Here we discuss how companies can attract both debt and equity funding through crowdfunding platforms. We also talk to Chris Jelf of award-winning UK consultancy, Jelf, about managing business risk.
Harvesting the power of the crowd
To explain in brief, crowdfunding is an increasingly popular, primarily online method of raising finance by asking a large number of people each for a small amount of money. These people, or investors, make a pledge online via a crowdfunding platform, such as Crowdcube, SyndicateRoom or Seedrs, to mention a few.
The practice first gained attention as a result of the financial crisis, when traditional fund raising routes dried up and businesses were forced to look elsewhere for funding. Since then, in both the UK and globally we have seen some very exciting crowdfunding developments.
Unlike the traditional methods of fundraising, crowdfunding can also offer non–financial benefits such as rewards, meaning that some investors may accept more risk than the traditional capital investors.
Whether it be donation/reward, debt or equity-based, crowdfunding is an innovative way of using the internet to harvest the power of the crowd - the public - to raise funding and enhance brand awareness via regulated crowdfunding platforms.
Protecting your business against risk
Knowing how best to protect a business and keep it safe is another challenge faced by business owners. Chris Jelf of specialist insurance, employee benefits, healthcare insurance and financial planning services provider to corporate, SME and individual clients, Jelf, explains how to protect business value through the use of avenues such as key man insurance.
Key man insurance covers a business against the loss of key team members due to sickness or death. This is useful when a business’ income relies heavily on people it would struggle to replace.
Chris explains: “Key man insurance is basically life, critical illness and income protection insurance on a key person, or people, in a business – those on whom the company has a financial dependency for generating sales and profit contribution. The long-term absence or death of a key person in a smaller business can, realistically, cause the death of the company. The point of key man cover is to support the business when such an event unfortunately affects a person who makes the business work, thereby helping the company to survive and ultimately thrive.”
Chris goes on to explain how key man insurance works: “In short, a company buys the cover on the key employee, pays the premiums and is the beneficiary of the policy. If that person suddenly dies or becomes critically ill, the company receives a pay out. The business can then use the funds as it sees fit. For example, the money may be needed to pay off debts, to recruit a suitable replacement, or even to close the business down in an organised systematic way. In the face of an unfortunate event, key man insurance can give your business alternative options, other than immediate bankruptcy.
“Of course you don’t expect the worse to happen and key man insurance may not be on the forefront of your mind whilst you are tackling the challenges and workload of running your business,” Chris says. “But you don’t want to be in a situation where, by the time you need it, it’s actually too late.”
With the UK economy finally turning a corner and showing further growth in the first quarter of 2015, entrepreneurs and businesses owners must take advantage of this more positive outlook by:
- tapping in to the various alternative fundraising opportunities available,
- safeguarding against risk, and
- implementing strategies to ensure that all opportunities for brand awareness and sales are maximised.
Throughout each business lifestage, from start up to exit and beyond, it is essential that business owners partner with the right advisers who can guide them through the various challenges, whilst always seeking opportunities to reduce their tax bill, enhance wealth accumulation and succession planning, and ultimately maximise profitability.
For more information about any of the topics covered in this article or to find out more about how we can help you and your business, please contact Beavis Morgan Client Partner Richard Durell in the first instance.