For example, if a business is attempting to raise a loan of £50,000, each individual lender may bid £50, £200 or £10,000 – or whatever amount the lender feels comfortable with. The lender specifies the interest rate that they will lend to the business at, and the platform will aggregate as many bids as necessary to reach the £50,000 required. This means that the lenders who specify a relatively high interest rate will be ‘bumped out’ of the loan. Once the auction has finished, the funds are paid over to the business within a few days. Repayments and distribution to individual lenders are handled by the platform.

The benefits to the business are that they stand a better chance of being approved for the loan, can get a better rate of interest and will usually have to put up less security than would be the case for a bank loan. Benefits to the lender are a better return than from a bank savings account and a warm feeling from helping UK small businesses.

The P2P lending market has been growing quickly as it has become more difficult to get loans from the High Street Banks.  2011 was a good year for the main two business P2P lenders – Funding Circle and Thincats. Funding Circle is backed by a pile of VC cash and some notable individuals, and has more of a ‘sausage factory’ feel to it – the bar to getting listed on the platform is high, and based on a set criteria. Proposals falling outside these parameters are rejected – there seems little judgement involved in the underwriting process.

Thincats is a smaller operation, but capable of putting out larger loans because of the quality of the lenders behind it – they tend to be High Net Worth individuals. Their approach is much more like the old fashioned bank manager, so lots of due diligence to get listed, but they will take a case-by-case view. This means that proposals that would not get listed on Funding Circle may well get listed on Thincats. As with all lenders, they each have different appetites – we see this all the time with the High St Banks.

The next 2-3 years should see a big growth in P2P business lending, as more businesses become aware of the product and more investors come to the table. Some of the personal P2P lenders also seem to be dabbling in business lending. It is good to see an alternative to the standard bank lending model. More choice in the market will ultimately benefit UK small businesses and it is these small businesses that will help drive us out of the present economic slump.

All businesses should have a strategy – a medium to long term plan of where they are going. All large and medium sized businesses will have this -  but most small businesses do not. At best, there is a kind of fuzzy idea of a plan the head of the owner.

I’m not talking here about a a business plan. This is the short term planning document that all businesses should have that says what they are going to achieve over the next year or two. What I’m writing about here is the longer term strategy of where you want the business to be in five or ten years.

Often this is a difficult question to answer precisely, and the answer will need to have some built in wiggle room to allow for contingencies. However, when you are thinking about where you wan the business to be in 5-10 years, you’ll need to think about some of the following:

• Do I still want to be running the business then?
• Do I want to sell, or retain control?
• What size will the business be by that time?
• How will my customers have changed?
• Will technological change have an impact?
• What will the financials look like?

Note again, that this is thinking on a longer timescale than the business plan. The most fundamental questions are probably the ones that are most personal – the top two in the list. It is important to say that there is no right answer here – what suits you will depend on your circumstances. It may be the case that you want to sell the business within five years and retire aged 30. Or you may want to continue working in the business until you’re 90. Neither answer is right or wrong. What is not so good is not having the understanding of what you want from the business.

There are lots of professionals out there to help you implement your strategy (accountants are usually a good place to start), but before you contact any of them, take some time to really think through what you want from your business. Is it simply a cash-generating machine to pay your wages? Or is it something you absolutely love doing and couldn’t imagine giving up? Do you have children that want to come into the business? Is the business still going to be around in a few years time, or will market changes have made it obsolete?

Much of this falls under the heading of succession planning, which is largely about personal motivation and realising the long-term value in what you have created. To do this, you need to consider how this is going to be achieved. For example, can you achieve your personal goals if your business is suffering from long, slow decline? If not, then you will need to look at the nature of the business, and this is where personal and business motivation go hand-in-hand.

With the help of Excel, most business owners should be able to construct a working weekly cashflow forecast without input from the accountant. To help you focus on what cash your business needs, I’d always recommend keeping a rolling 13 week cashflow forecast. This will give you at least 3 months notice of any problems. For manufacturers this is crucial because of the length of time of the sales and build cycle – this time represents cash tied up in working capital.

A rolling cashflow forecast means you’re going to be updating your cash position at least once a week. Keeping a close eye on your cash position means that you will have the opportunity to sort out any issues in good time. A unexpected crisis position with your cashflow is a sign of poor management.

Overheads should be relatively easy to predict over a three-month time frame. You will know the cost of rent, rates, insurance etc. For most businesses, staff wages are also pretty fixed over this kind of timescale too. A quick tip for capturing all your regular fixed costs is to look back over your bank statements for the last three months. You will also know from your incoming invoices or purchase orders who you owe money to and when it needs to be paid.

Predicting Sales 

Predicting overheads is relatively easy for an existing business. Predicting sales can be less so, although it is easier over a shorter period.

If you’re a  manufacturer, you’ll have a bunch of live quotations out with customers at any one time. You should be able to predict reasonably accurately from past experience what proportion of these will turn into firm orders. You should certainly  known the length of your manufacturing cycle, and what terms you’re selling on. From these pieces of information, you can predict when you’ll be receiving the cash.

For wholesalers or retailers, that sell on a more immediate basis, you need to look back at your historical data at sales in the relevant week last year, and adjust by what you know about major customers, or whatever else is happening in your market now.

Keeping it maintained

Every week you should set aside time in your diary to update the cashflow forecast. Add another week onto the end of it and modify any numbers that you know have changed in the past week – for example, if one of your customers has told you that payment will be delayed for another month. Alter the numbers and have a look at the difference this makes to your cashflow over the coming weeks.

Flexing and Modelling

You can also use your rolling cashflow to answer ‘what if?’ questions. For example, what would happen if I got an unexpected large order, or my key supplier suddenly wanted payment on delivery rather than allowing 30 days credit. You can also model the impact if you changed your payment terms e.g. if you wanted to take less of a deposit upfront.

By getting into the discipline of updating your cashflow each week, you will have a much better grasp on how your business works, and which operational areas drain cash from the business. Targeting these areas will help liquidity and solvency of your business and allow you to sleep better at night.

These five quick tips will give your business a fast sales boost. They are low-cost and easy to implement. The only real investment is your time:

1. REVISIT – Go back through your old quotes, the ones that you didn’t get. These are still prospective customers – in the past they’ve been impressed enough with your business to ask for a quote. Contact them again – these are people who want what you’re supplying. Go back at least 2 years.
2. UPSELL / CROSS-SELL. Talk to your existing customers. Ask them what their plans are – can you quote for a larger share of their business than you have at present? Do you know the full scope of your customers’ activities – what other goods or services can you supply them?
3. RESEARCH (aka STALK) – Identify who you want to supply. There’s a lot of market intelligence for your sector held in your head. Make a list of the main players in your sector, then write down everything you know about them. Using a mind map is a good way of laying this information out. Now using this info, how can you develop a relationship with them? Who makes the decisions in their organisation? What connections have you got in common? Do they attend any networking events at which you can ‘accidently’ bump into them?
4. VISIBILITY – Use low-cost marketing. This means social media, open days, presentations at networking events etc. The exact nature of what will work for you will depend on the nature of your business but as a general rule, if you are more  visible then more potential clients will think of you when they have a need. Visibility means keeping yourself at the front of your customers’ mind - This is not something that can be done once because potential clients will forget you. You have to repeat, repeat, repeat. 
5. PERSISTENCE – follow up your contacts. All the above actions should have led to good conversations with existing and potential customers. Keep records. Set up a database – it doesn’t need to be an expensive CRM system; a simple excel spreadsheet will do. The point is that it’s important to follow all your leads up in a timely fashion. A reputation for professionalism will carry you a long way. Persistence will pay off in the end. If a prospective customer says no, ask them if you can contact them when they next have a need for your product, take some brief details and agree to contact them in a few months.

If you have any tips that you have used to gain a quick sales boost, let me know – post a comment, and I’ll include these (with attribution) in a future post.

Cash is something that needs to be thought about from the beginning – effective management of cash needs to be built into your business model. Consider the cash cycle of an average business:

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £10,000 per annum that equals £1,369. If your sales are £1,000,000, you will need cash of £136,900. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

The cash cycle is a critical part of your business, and your business model should address it directly – this means you need to think about the implications of the example above for your own business, and either modify your business model or ensure an appropriate cushion of finance – either from profits or borrowing.

Using the example above, if you were to insist on all your customers paying cash on delivery, then you would have, on average, 10 days-worth of sales in cash in your bank accounts (0 days + 25 days – 35 days). If your sales were £1,000,000 then you should have a cash balance of around £27K. This is a far easier position to work from, and it means that your suppliers are financing your business. A retail business should in theory always have positive cash balances, because it can sell products quicker than it has to pay suppliers.

To help you focus on what cash your business needs, I’d always recommend keeping a rolling 13 week cashflow forecast. This means you’re going to be updating your cash position at least once a week, and should be able to spot problems before they occur. The worst scenario any business can face is unexpectedly running out of cash. This also reflects badly on the competence of the management.

How many people buy a 99p burger?

When McDonalds introduced a lower priced option on their menus a few years back, they demonstrated a great pricing strategy – to drive business in a downturn, you need to show that you can adapt to customers’ changing expectations.

The basic idea goes like this – if your product starts looking expensive, then you create a lower-cost, stripped-back product that sits below your main lines. Charging less for this new product will inevitably mean some cannibalisation of your existing customer base, but it will also prevent loss of customers to your competition.

So, why not just cut prices on your main product line? Why go to all the trouble of sourcing, costing and promoting a new range? There are a number of good reasons, but chief amongst these is that if you simply cut your prices on your main lines, you will have difficulty putting prices up again. A good secondary reason is that an ‘entry-level’ product range will attract more customers from competitors who do not pursue this strategy.

It’s a fairly straightforward strategy to apply if you’re a large retailer, but what if you’re a smaller B2B business?

Let’s say you’re a distributor of air conditioning equipment to the trade and you have a main, branded supplier that has a reputation for high quality units. Imagine that lately you’ve seen sales decline as a result of customers perceiving your prices to be too high. The knee-jerk reaction would be to lower prices. This means you have to make savings in other areas of your business – sales or admin maybe. The reduction in margin may even mean you make a loss. You will inevitably find it extremely difficult to raise prices later on.

A better strategy would be to find a supplier of an alternative aircon unit that you could sell alongside your main brand – it has a lower price point, but the margin you make on it is the same or even a bit more than you make on your main line.  You may need to do this via a separate company to preserve the integrity of your main line, but at least you’re now only losing price-sensitive customers to your other company rather than to a competitor.

This is an approach that many businesses use – all the main car manufacturers have ‘entry-level’ models; major supermarkets have economy ranges which have become more prevalent through the recession; a walk around B&Q will show you the value ranges in their tools.

And while you’re eating your 99p burger, consider the amount of effort and strategic thinking that’s gone into it…..

Many, many small businesses are run by the founder under autocratic control. But it can be very lonely at the top. Decisions can be made without fully running ‘make sense’ tests or gaining the input of others who may have previous experience. Sometimes this can lead to the wrong decisions being made.

It’s not just large businesses that benefit from having a board. Small businesses can benefit as well from having an advisory board. The idea is to hold the management to scrutiny and critically examine current trading and future plans. This means that you get asked the awkward questions that many small business owners avoid.

Here’s some guidance:

1. Ask people you trust and respect, and who have some distance from the business. This means you will have to explain your underlying assumptions and norms within your industry in greater detail, which means they can be critically examined
2. Board members will be volunteers. You may want to pay them a small amount – say £50 per meeting as a goodwill gesture. Board size should be limited to 4 or 5.
3. Meet once a quarter. Any more, and you’ll be taking too much volunteer time; any less will not be worthwhile.
4. Open yourself and your business up to scrutiny. This may be uncomfortable at first, but the idea is to make the business stronger. Listen to the board’s questions and make sure you follow up.
5. Information is important – the board members need to have full disclosure from you prior to the meetings. This means management accounts at the very least.

The best businesses that I see are those that are open to advice. Be clear though – this does not mean that you cede control of your business. You are still in charge and the final decisions are yours. The purpose of your board is to give you different perspectives and be a critical friend to you and your business.

However, talking to them for an hour or so, it quickly became clear that this approach would not take them where they wanted to go, and could very easily end up being dead money wasted.

The real strength – and the biggest problem – that the directors had was their passion for the product. This had led them to create more than two hundred products and product variations, which left them with a huge pile of stock, and money tied up in tooling. They were undoubtedly excellent at product design and development, but it had run away with them – they were treating it as a hobby rather than a business.

Now, there’s nothing wrong with lifestyle businesses: They can provide a good living for some people to exploit doing what they do best and enjoying it. But the directors here wanted to grow the business to something more.

The basic action plan that we came up with was:

1. Rationalise the product range – focus on maybe a dozen products that will be liked by the widest number of customers, and have a high sales potential. The rest of the products are still there to be used as and when, but the focus in terms of energy and funds should be on a small core.
2.  Realise that for a small business to grow quickly, selling direct to the public will always be a limiting factors unless you’ve got very substantial marketing and distribution facilities at your control. The directors were very good at what they did, but they had no experience in marketing or distribution, so achieve volume, they needed to approach retailers (who are the experts in marketing & distribution) for a wholesale deal.
3.  Realise where your limitations lie and take as much advice as possible. If you need to pay, buy the best advice you can afford. As an absolute minimum, engage a good accountant – one who will do more than just prepare your books at the year end. Make contact with free advice services like Business Link. Interview two or three Business Coaches to find one who you can work with. Yes, it will cost money, but so does increasing stock regardless of sales.
4.  Think of what you are doing as a business; Get your business model right – this is not a hobby. Don’t put money into product or marketing without having a thought-through strategy – poorly planned marketing spend seldom works well. This is where good advice is invaluable.

The story here illustrates some of the problems with growing a business that’s developed out of something that you enjoy doing and have a real skill at – too often there is more focus on the pleasure of doing what you’re good at or enjoy rather than developing the business model.

Reading the latest Bank of England Quarterly Inflation Report, there’s one small fact, mentioned in passing, that stands out – even though commercial property prices are rising slowly they are still 35% below their mid-2007 peak.

For the average commercial property to drop in value by a third means a great deal of pain for small businesses, commercial landlords and the property market in general. It’s tempting to add this fact to the list of general doom and gloom assailing the small business sector.

But it is worth considering the positive implications of this drop in property prices on small businesses.

Firstly, most small business lending is supported by property as security, both Commercial and Residential. Bank lending to small business may be stagnant or decreasing as businesses pay off borrowing, but the rate of insolvencies has not increased in the way that it did in previous recessions. This is because the banks do not want to crystallise their positions at a loss. Special situations managers from all the main banks are busy, and more have been recruited or promoted into these kind of positions to manage ‘problem exposures’. So the drop in property prices has meant that banks are more likely to help nurse small businesses back to health.

Secondly, most small businesses rent their premises. Many commercial landlords are reluctant to sell until prices recover. Rents have been kept low by the contraction of business during the recession – many businesses have terminated their leases and moved to smaller premises. There are more premises standing empty – and an empty property means that the landlord is paying the Non-Domestic Rates on the building. This means that for landlords, keeping tenants in situ is better business than sending in the baliffs.

If prices of commercial properties start to rise significantly, then we may see an increase in insolvencies as landlords and banks exert more pressure on small companies. At the moment there is a definite feeling that major stakeholders are helping to nurse companies through strained cashflow.

The Outlook for Business Investment has been uncertain of late. During the recession, investment by companies has fallen substantially, as one might expect. However, this recession has been characterised by a deeper and faster fall in company investment than in the recessions of the 1980’s and 90’s. By the end of Q210, investment was nearly one-fifth below its pre-recession peak, with huge knock –on effects for machinery and consumables suppliers.

In any recession there is a strong tendency to put investment on hold because of a lack of visibility about the future, and a desire to hoard cash ‘just in case’. We have seen this exacerbated because of the changing policy landscape in 2010 – first the General Election, then the Emergency Budget, and finally the Comprehensive Spending Review.

Bank of England figures suggest that some investment has also been held back by a lack of available credit to companies, particularly small companies that are more dependant on bank financing and have weaker balance sheets due to tax mitigation strategies. At BCRS we have seen this to be the case – most borrowing that we have done over the last twelve months has been for working capital purposes rather than investment in fixed assets.

The outlook for the future, according to survey data, is that more businesses plan to expand investment over the next twelve months compared with the last twelve months. Whilst this is a positive outlook, it probably does not reflect the intentions of smaller companies, who generally borrow to invest, and are still struggling to access borrowing.