< Previous East Midlands Business Link www.eastmidlandsbusinesslink.co.uk CORPORATE FINANCE S ome of the key tools used in corporate finance include financial analysis, valuation methods and risk management techniques. These may all involve using financial data to understand the current and future position of the corporation, while valuation methods are used to determine the present value of the corporation and its assets, and are critical in making investment decisions. This all boosts capital, a critical aspect for many a firm with concerns for supporting itself financially. Some of the routes you could take to achieve this may involve issuing stocks, bonds or other securities, as well as obtaining loans from banks or other financial institutions. Corporate finance professionals must have a deep knowledge of the various capital-raising options available, but it’s also an advantage for the business owner to have an understanding of these approaches, as well as the associated risks and costs of each option. The role of corporate finance overall is to ensure that your corporation is able to make sound decisions that maximise its value for shareholders, while also ensuring the long-term sustainability of your financial strategy. There are a number of strategies that may work for you, depending on your business goals. Here’s where we once again return to that all-important matter of capital, which is a key exchange component to the method known as equity financing. This involves selling shares of the corporation to investors in exchange for cash, an advantage being that it does not require the corporation to make regular interest payments or repay the principal. Additionally, the corporation does not have to guarantee any specific return to investors. However, the downside is that equity investors become shareholders in the corporation and are entitled to a portion of the profits, Raising capital, managing risk Understanding the tools and strategies of corporate finance is crucial for any business owner seeking to raise capital and manage financial risk. From equity financing to risk management techniques like hedging and diversification, we explore the various options available and offer guidance on how to make informed decisions that align with your business goals. 22 Á Raising capital, managing risk 20-23.qxp_Layout 1 03/05/2023 09:50 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link CORPORATE FINANCE © stock.adobe.com/Grady R/peopleimages.com 20-23.qxp_Layout 1 03/05/2023 09:50 Page 2 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk CORPORATE FINANCE as well as a say in corporate decisions through voting rights. For those up for more of a risk, preferred stock is a type of equity security that has a higher priority than common stock in terms of dividend payments and liquidation proceeds, and can thus provide a higher return to investors than common stock, without the voting rights and control associated with equity financing. However, the downside is that preferred stock can be more expensive for the corporation than debt financing, and the dividend payments are not tax-deductible. There are a couple of options that turn more control over to your investors, which may bring added benefits from allowing them a share of the power or benefits you hold in your business. Convertible securities allow a conversion of investment into equity shares at a later time, for instance, providing the option for investors to become shareholders at a future date. However, the downside is that the conversion feature can dilute the ownership and control amongst all your existing shareholders as a result, which is where crowdfunding might come in. Particularly where it isn’t necessary to secure more than a small amount from each investor, this web-based alternative can be a cost-effective way to raise capital, and can also provide valuable feedback and exposure. There’s also the possibility to encourage higher investments through the employment of tiered reward options for any backers, offering them a slice of any gains you can offer as a gesture of thanks. However, the downside is that it may not be suitable for larger capital raises, and the investors may not be sophisticated or experienced, this method instead relying on amassing support through strength in numbers. As touched on earlier, corporate finance also deals with managing financial risks that can arise from a variety of sources, such as interest rate fluctuations, currency fluctuations or changes in commodity prices. It can be a comfort to know that there are several risk management techniques which can be used to minimise the impact of these risks on the corporation’s financial position, no matter your business or strategy. Hedging may be the most well- known and recognisable from its connection to the phrase ‘hedging your bets’. This is more or less what it means to use financial instruments, such as futures contracts, options or swaps, to offset the risk associated with a particular investment or financial position. For example, a corporation might use a futures contract to hedge against fluctuations in the price of a commodity it uses in its production process. While hedging can reduce the corporation’s exposure to risk, while also providing some level of protection against adverse market movements, diversification involves spreading out the risk factor by investing across different asset classes or sectors. In reducing the overall risk of your corporation’s portfolio, diversifying potentially lessens the impact of any one investment or market event on its overall financial position, and might involve investing in a mix of stocks, bonds and real estate as a few examples. As a variation on this approach, derivatives can be used through strategies such as currency swaps, to cushion the blow from fluctuations in interest rates or stock market value. Of course, good old-fashioned insurance against concerns such as property damage and liability is always available too, and much lower risk than the expertise and attention to detail required when manipulating stocks and shares. Identifying the best choices for you to make when gathering capital into your organisational coffers, and keeping it there by averting risk factors, will ultimately depend on your goals and how many risks you’re willing to take to achieve them. Paying attention to your strategic direction will help in identifying those potential risks, evaluating their impact on your financial position, and developing mitigation strategies as needed. With the help of corporate finance professionals, knowing your objectives and options will see you well on your way to helping the finance of your business grow and thrive. 20-23.qxp_Layout 1 03/05/2023 09:50 Page 3www.eastmidlandsbusinesslink.co.uk East Midlands Business Link CORPORATE FINANCE © stock.adobe.com/Thapana_Studio 20-23.qxp_Layout 1 03/05/2023 09:50 Page 4 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk TAX Clare Slattery, tax director at Streets Chartered Accountants, considers the most tax efficient salary for directors. F or many years, director shareholders in limited companies have often been advised to take a small salary, at a rate to retain access to state pension credits and other benefits, and then supplement their income using dividends. Looking at the individual and the company together, this is a very tax effective route. As the gap grew between the Personal Allowance for Income Tax and the Primary Threshold, where National Insurance Contributions (NIC) are paid by employees, debate has grown over the most tax efficient level of salary with most directors still taking a salary at a level where they don’t pay any contributions but receive the credits. Many of you will remember the turmoil of the changes to NIC during the 2022/2023 tax year but 6 April 2023 saw new rates coming in and hopefully some stability. The main change going forwards is that the Primary Threshold has been aligned with the Personal Allowance so a salary of £12,570 may now be paid with usually no deductions being made. Depending on the other income of the director, there could be no change to their usual tax liabilities. However, the level of salary at which a company pays employer’s NIC has remained at £9,100 per year and so, if the salary is increased to £12,570, a liability of £478.86 will arise for the employer. Although an additional cost on the face of it, the additional Corporation Tax savings will still result in a net saving assuming the dividend is reduced by the same amount. With a Corporation Tax rate of 19%, the savings can be minimal but with the new rules applying for those from 1 April 2023 increasing the tax rate for some companies to 25% and, in certain circumstances, an effective tax rate of 26.5%, the savings are greater. Furthermore, these additional NIC costs for the company could be covered by the Employment Allowance thus further increasing the savings. If eligible, this allowance covers the first £5,000 of employer’s NIC. In order to claim the allowance, the employer must have at least one employee (not the director) or two directors on the payroll, so any company with only one director on the payroll is not able to claim the allowance. There are other factors to take into consideration, such as other income received by the director, but it is worth considering giving yourself a pay rise! 24-25.qxp_Layout 1 03/05/2023 09:26 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link TAX 24-25.qxp_Layout 1 03/05/2023 09:26 Page 2 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk ONLINE TRAINING O nline training allows learners to access training materials at any time, from anywhere. Sessions can also be recorded and downloaded, so that employees who travel frequently can access materials without an internet connection. This flexibility means that learners can learn at their own pace, fitting their training around their schedule and other commitments. In contrast, in-house training often requires learners to attend a specific location at a set time, which can be disruptive to their work schedule. This is beneficial for both employees and the wider business needs, as training can more easily be postponed if urgent matters arise. Online training often offers self-paced learning opportunities, which can be beneficial for learners who have different learning styles and preferences. With self-paced learning, learners can review material as often as they need to, ensuring that they fully understand the content before moving on to the next topic. In contrast, in-house training often requires learners to keep up with the pace of the class, which can be challenging for those who need more time to absorb the material. This self-paced approach to training is especially necessary for employees with additional learning requirements. This allows all employees to feel comfortable with the role, increasing productivity. Furthermore, businesses are able to recruit employees with a wide range of educational needs, as they have appropriate learning support in place. This is especially prescient as the current dearth of prospective employees means that companies need to be able to appeal to many different groups of people. Online training often offers individualized learning opportunities, which can be beneficial for learners with different levels of knowledge and experience. With online instructor-based training, learners can choose to focus on the areas they need to develop their skills, rather than having to participate in a one-size-fits-all training program. Additionally, learners can access additional resources and support if they need it, which can help them to overcome any barriers they may face. The availability of functions such as online chat means that ad- hoc support can be more accessible, if trainees The rise of online training The pandemic changed the way we fundamentally run a business and one aspect of that which may have changed forever is the rise of online training. 28 Á 26-28.qxp_Layout 1 03/05/2023 09:27 Page 1www.eastmidlandsbusinesslink.co.uk East Midlands Business Link ONLINE TRAINING © stock.adobe.com/Andrey Popov 26-28.qxp_Layout 1 03/05/2023 09:27 Page 2 East Midlands Business Link www.eastmidlandsbusinesslink.co.uk ONLINE TRAINING have questions after the session has ended. The opportunity to ask questions in the moment is vital for successful learning, as trainees may forget to ask if they have to wait too long. The opportunity to ask someone online for help also removes any embarrassment that trainees may feel, meaning that the level of in-depth engagement with training material is often higher than if it were taught in person. Online training is also often more cost- effective than in-house training. With online training, there are no travel expenses or accommodation costs to worry about, as it may be necessary to hire conference rooms if office space is scarce. This means that if certain employees are not available, businesses can more easily schedule additional sessions. Additionally, online training can be easily scaled to accommodate a large or small number of learners without incurring additional costs. Online training can also help to reduce business costs. Many industries are faced with a lack of new talent to recruit, and so are turning to upscaling existing employees rather than taking on new ones. An easy way to do this is through intensive short courses to encourage new skills for employees, to allow them to take on extra responsibilities. By upskilling current staff, the business is saving money in onboarding and salary costs. Some logins for online courses can be purchased and given to multiple employees, further reducing costs. For companies concerned with accessing real time feedback, online instructor led sessions can provide this. This way of learning can be beneficial for learners who want to track their progress and improve their skills. With online training, learners can receive immediate feedback on quizzes and assessments, which can help them to identify areas where they need to focus their attention. In contrast, in-house training often relies on written evaluations, which can take time to receive and may not provide as much detail as online feedback. Online training often offers consistency in content delivery and assessment. With online training, learners receive the same content, regardless of where they are located, ensuring that all learners receive the same quality of training. Additionally, assessments are often standardized, which can help to ensure that learners are evaluated consistently, regardless of who is delivering the training. In-house training can place strain on business resources. Whilst having a dedicated training team may work for large businesses, employing full time trainers can be difficult to justify when training is unlikely to happen daily. This means that employees are often taking on training as additional responsibilities. As developing training programs takes research and preparation, this can divert attention away from employees’ main duties. Online programs help remove these resourcing concerns. © stock.adobe.com/deagreez 26-28.qxp_Layout 1 03/05/2023 09:27 Page 3www.eastmidlandsbusinesslink.co.uk East Midlands Business Link RELOCATION AND INWARD INVESTMENT T he upheaval of moving won’t be a strange concept to anyone who’s ever so much as moved house. Moving an organisation or business is much the same, in having to shift everything of importance and value within it to a new city, or in some cases a new country. Even the reasons for relocation can be very similar, such as to accommodate new working opportunities, or to make business more convenient for the owner’s family life or changes in personal circumstance. Companies may also relocate operations to take advantage of better business opportunities or more favourable economic conditions. But if a full-scale pack up and move effort isn’t viable for any reason, especially on the international level, inward investment is ideal for allowing more opportunity to come to you through investment in the capital or cultural wealth of another area. This strategy most typically involves a company or individual from one country investing in a business or project in another, which can bring significant benefits to the initiator such as job creation, increased economic activity, or access to new technologies and expertise. These can each be boundlessly A compassionate approach to business growth 30 Á © stock.adobe.com/wavebreak3 Inward investment can be an effective way for companies to expand their operations, attract top talent, and gain access to new markets while also contributing to the development of the local economy. With a responsible and compassionate approach, inward investment can be a powerful engine for innovation and growth. 29-31.qxp_Layout 1 03/05/2023 09:28 Page 1Next >