Monthly Archives: June 2010

A checklist for Business Angels

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business_angelBusiness Angels are often thought to be tough and worldly-wise and it’s true that they are people who have made a success of their business life, but even a Business Angel needs to remember to use their head rather than just their heart when making investment choices.

There are a number of new business angel investors entering the market, because of falling interest rates and limited opportunities for investing elsewhere, so it’s worth repeating a few essential guidelines for sound business investment:

  1. Invest in areas that you understand and have experience of, your knowledge & contacts will be worth more to the business and you will understand the risks better
  2. Be interested in the business area, get enjoyment from the activity, you’ll then be happy to put the time and effort into the business
  3. Do due-diligence
    - check that the people you are talking to are who they say they are
    - credit checks are easy now days to obtain
    - check thoroughly yourself the financials of the business, or use an accountant
    - examine all claims (market size, patents, etc) to ensure they are correct
  4. Choose entrepreneurs who are realistic, know their market/business well and with who you feel you can have an open working relationship
  5. Do your own investigation of the market potential, look at competitors
  6. Weigh up how much time you will have to spend in the business – does it fit your time available?
  7. It can take longer for a business to be a success (average 6 years) than to fail (less than 3 years), so plan accordingly
  8. Make sure that your overall aims for the business and use of the investment are in sync with the entrepreneur
  9. Agree the respective roles and responsibilities of yourself and the entrepreneur (would you be a working Director, or non-Exec) – agree who would do what.

    10.  

    Clearly there are many more issues that a Business Angel would want to cover before making the investment, including negotiating around equity/debt, agreed exit strategy and sorting out partnership / legal documentation, but by doing the basics right you’ll be in a better position to judge a sound and workable investment.

     

Little known advantages of owning a business.

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Small business tax refliefYesterday’s budget reminded me that there are still considerable tax benefits to owning your own business, beyond the normal personal tax choices of taking salary, or dividends.

The Chancellor has for a start not only continued with the Entrepreneur Relief Rate of 10% but expanded it up to a value of £5M. Now many entrepreneurs busy beavering away on growing their business, may not even know about this advantage. But if your hard work and persistence results in a successful business, you may want to sell it, or even just retire from it at some point.

When you do sell it, instead of paying the current Capital Gains Tax rate, you can just pay 10%. That’s a fantastic benefit and most people are not aware of it. There are of course certain requirements you must meet, such as at least owning 5% of voting shares in the company for longer than a year, so check with your accountant.

Interestingly it also includes selling just a share of the business, business property (not letting properties though) and your own property that may have been used for a business, so lots for an accountant to have fun with.

There’s more… how about not paying any Inheritance Tax (IHT) on a major asset left to your children, partner or beneficiary of your will? That is exactly the case with a business. If you leave your business to someone when you die (sorry to be morbid, but it’s important), the beneficiaries pay no tax on it.

Given you’ve worked hard to build the business up, it’s comforting to know that if the worst happens, your family or dependants could inherit that business without giving the taxman part of it. Not the case with most other assets.

There’s just a couple more reasons for being an entrepreneur and for a change hard work does get it’s rewards.