You’re a start-up that has succeeded in stabilising your business model and maximising your offering. You’ve proven your viability, and you’re ready for the next phase – becoming a scale-up.
But, what pillars should your business have in place ahead of undertaking an aggressive growth strategy?
As a scale-up you will be a high-growth company, achieving ≥ 20% growth in either full-time equivalent (FTE) or turnover for the last two fiscal years. This phase is fierce and typically brings with it significant obstacles that will challenge businesses to optimise their operations, mitigate risk, and prepare for funding.
In preparation for funding
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) can be excellent ways of attracting investors and subsequent funding. The schemes are designed to encourage investment in small or medium-sized businesses by offering great tax reliefs to investors.
Both the company and investor must be eligible under the EIS/SEIS investment scheme.
The two schemes are similar, but have some important differences:
- SEIS is focused on early-stage companies and allows investors to invest up to £100,000 per tax year. In return, investors will benefit from a 50% tax break. The investor will also benefit from Capital Gains Tax (CGT) exemption on any profits that arise from the sale of shares after three years.
- EIS focuses on medium-sized start-ups. The scheme allows an individual to invest up to £1 million per tax year. In return, investors receive a 30% tax break. As with SEIS, the investor will also pay no CGT on any profit arising from the sale of shares after three years.
Risk is an unavoidable part of business. Often thought of as only hazards, they do however, present possibilities for businesses to develop options and actions to enhance their opportunities.
Managing the risk of being tax compliant, accurate, and aware is crucial for enterprising scale-ups. Part of this is being aware of what tax reliefs and allowances your prospective scale-up company can maximise on.
- Loss relief
With economic uncertainty still pertinent, the Chancellor has announced a temporary extension to the carry back period of losses from one to three years. This applies to trading tax losses of up to £2 million arising in tax years 2020-2021 and 2021-2022, offering a cash flow benefit of up to £760,000 for companies.
- R&D tax relief review
R&D tax relief is a lifeline for many UK start-ups and the Government has announced a review of the two R&D tax reliefs. They will consider bringing data and cloud computing costs into the scope of the relief, alongside a number of other policy options which may impact many growing businesses in an increasingly technological world.
From 1 April 2021 until 31 March 2023, businesses investing in qualifying new plant and machinery assets (such as IT infrastructure costs) will benefit from a 130% first-year capital allowance.
Growing companies should consider the interaction between the Super-deduction and Annual Investment Allowance in order to maximise tax relief.
Attracting and retaining talent
Highly skilled employees will be at the core of your scale-up, and with increased costs majorly impacting businesses (and people), high-growth companies should be implementing incentives to reward and retain their employees, in order to motivate them more in the next high-pressure phase. You can read more about effective, and tax-free ways to do this in our article Incentives to reward and retain your employees.
Aligning personal and business objectives
One of the most consistent attributes of a successful company is owners and employees that are passionate about business. Being passionate about the business is far more likely to occur when the business is aligned with – and serves – one’s personal goals and ideals. It is particularly important to be transparent about these goals in a multiple owner business to avoid complications further down the line.
Successfully aligning these two factors will enable remuneration strategies to be adapted to suit lifestyle needs by utilising tax advantages and highlighting and potential cash flow issues.
Consider having an outsourced finance function
Outsourcing your finance function has increased in popularity over recent years for many reasons. It can enable your accountant to spot inefficiencies in your business systems and work with you to implement streamlined and cost-saving processes.
The costs of outsourcing are often cheaper than if your business were to perform their financial operations themselves, as you only pay for the services you require as opposed to a salary and benefits, equipment, software, training, and potential staff idle time. When outsourcing, you will also have access to a wealth of specialist knowledge from various departments within one place.
Outsourcing will also allow you to view data in real-time. This is the process of turning raw data into insights as soon as its collected is extremely beneficial for companies growing quickly and aggressively. For example, cash flow management may be improved as a result of this, which is important for a growing company with increased operating expenses, and will also aid with decision making.
As a scale-up, you will want to be putting most of your skills and knowledge into continued development and market expansion, and outsourcing your financial function will better allow you to do this.
This article was written by Rebecca Jones, a Senior Manager in the Business team. At Price Bailey, our Business team has long-standing experience supporting and advising scale-ups. If you would like advice or support on anything mentioned in this article, please contact Rebecca using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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