Source: Finance Derivative
When looking at the investment market if you want to broadly categorise investors in young businesses, in my experience there are two types:
- The ‘emotionals’ – who are generally friends and family, angel investors and some high net worth’s and can get very excited by investment opportunities.
- The ‘rationals’ – who are experienced high net worth’s and institutional investors in the Private Equity and Venture Capital sectors and approach an investment deal in a very business-like fashion.
In the early stages of raising investment most young businesses look to friends and family or the angel investment community. This fundraising has come about through a personal relationship where levels of trust are already baked in. For the most part, it is easy to keep the trust in place during the fundraising process and after the deal is complete.
I have seen, both close up and at arm’s length, a lot of very successful investor/founder relationships that have worked well for all parties. I spend a lot of time with companies helping them to prepare for the investment process. With these experiences I have seen how maintaining trust with founders can often lead to significantly enhanced returns on an investment. I have also seen how mistrust can lead to friction and a breakdown in the relationship.
The biggest area of trust contention is around the investors’ money. Institutional investors are judged on their financial performance alone. Therefore, everyone should understand that there is only one thing that investors care about – their money, and how much their money needs to make.
If everyone understands this, then it shouldn’t get in the way of the trust relationship.
With that understood what else can an institutional investor do to build and maintain trust with founders?
- When first looking at the business remember that it is the founder’s baby. Starting a new business is hard. The founders will have put a lot of blood sweat and tears into the business. Pay them some respect.
- Founders can be a bit dismissive of investors that have not ‘been there and done it’ and worry that you don’t understand. If you haven’t founded a business let them know what experiences you can bring to help them.
- Founders do not want you to run the business for them. If things are not going well, they should expect an intervention but if they are going well trust them to keep driving the business. Nothing builds trust like trusting someone.
- The due diligence process is always brutal and makes most founders feel like fraudulent criminals, even when they clearly are not. Point out the good you have come across as well as the areas where there is room for improvement, what difference that improvement will make and how that improvement might happen.
- It’s odd but I very rarely see investors telling founders and their senior teams how good they are and how much they value them in the business. Do it.
- Let the founders know what sort of investor you want to be. Are you bringing money and looking after it or are you an investor who wants to help build your investment by helping the business grow? Involved or arm’s length, get that clear early on.
- Be open about all the clauses in the various agreements and explain why you need some clauses that seem not to be needed or are particularly harsh on the founders. Never try and sneak in unflagged clauses at the eleventh hour. You might get them through, but it will kill any trust.
- Be clear on your ambition for your money and the time frame you want to be involved for. Things can change but exits need to be part of a plan for any business.
- Just as investors don’t want nasty surprises nor do founders. Make sure that all news travels at the same speed, both good and bad.
- Some investor board representatives seem to take delight in trying to trip up founders, particularly in board meetings. All this does is ensure that board meetings are low on information and even lower on trust. Ask the hard questions not the trick questions.
Founders constantly tell me that investors ‘don’t do empathy’. In most cases they probably shouldn’t as they have invested a lot of money in a business that may or may not succeed and they want to drive the founders to succeed on the investor’s behalf. But there are occasions when a quick call or an unsolicited offer of help can pay real dividends with relationship building.
Some investors do not care about their relationships or trust levels with founders. That is their choice. But there is a trend in the market that isn’t going away. Founders of good businesses are being more discerning in which investors they choose to partner with and doing a lot more due diligence on prospective investors. The good businesses are less risky and that’s where the money will be made. If investors want to get the very best companies into their deal flow, I suspect that building a trusting relationship will be an increasingly important factor in founder choice.
Digital Banking – a hedge against uncertainty?
Source: Finance Derivative
Ankit Shah, Head of Digital Banking, Apex Group
The story of the 2020’s thus far is one of crisis. First the world was plunged into a global pandemic which saw the locking down of people and economies across the world. Now we deal with the inevitable economic consequences as currencies devalue and inflation bites. This has been compounded by Russia’s invasion of Ukraine and subsequent energy politics.
And the outlook remains uncertain. Tensions continue to build between China and Taiwan and inflationary conditions are forecast to continue well into 2023. This uncertainty is impacting everyone, and every sector. And finance is no exception with effects being felt everywhere from commodity and FX markets to global supply chains.
But it’s not all doom and gloom. Rollercoaster markets and an ever-evolving geopolitical situation have made 2022 a tricky year far, but, despite the challenges, digital banking has proven resilient. In fact, the adoption of digital banking services has continued to grow over the last few years, and is predicted to continue.
So, what are the forces driving this resilience?
In an increasingly digital world and economy, digital banking comes with some advantages baked in, which have seen the sector continue to succeed despite the tumult in the wider world. In fact, the crises which have shaped the decade so far may even have been to the advantage of digital banking. Just as during the pandemic, technologies which could facilitate remote working saw a huge uptick in users, so to digital banking is well suited to a world where both people, and institutions demand the convenience that online banking services offer.
And while uptake of digital banking services is widespread amongst retail consumers, a trend likely to continue as digital first generations like Gen Z become an ever-greater proportion of the consumer market, uptake amongst corporate and institutional customers has been slower. This is largely down to a lack of fintech businesses serving the more complex needs of the institutional market, but, in a post-Covid world of hybrid working business, corporate clients are looking for the same ease of use and geographic freedom in their banking that is enjoyed by retail consumers.
This is not just a pipe dream – with the recent roll out of Apex Group’s Digital Banking services, institutions can enjoy the kind of multi-currency, cloud-based banking solutions, with 24/7 account access that many of us take for granted when it comes to our personal banking.
One significant difference between retail and business accounts however, for banking service providers, is the relative levels of compliance which are needed. While compliance is crucial in the delivery of all financial services, running compliance on multi-million pound transactions between international businesses brings with it a level of complexity that an individual buying goods and services online doesn’t.
For digital banking services providers, this situation is further compounded by guidance earlier this year from HM Treasury – against the backdrop of the Russia-Ukraine conflict- requiring enhanced levels of compliance and due diligence when it comes to doing business with “a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country or with a sanctioned individual.”
So, can digital banks meet these standards while also providing institutions with the kind of easily accessible, mobile service which retail customers enjoy?
The answer is yes and again, once initial hurdles are overcome, digital banking brings with it features which give it the edge over traditional banking services. Paperless processes, for example, mean greater transparency and allow for better and more efficient use of data. This means AI can be employed to search documents, as well as provide verification. It also means compliance processes, often notoriously complicated, become easier to track. Indeed, digitising time intensive manual process means the risk of human error in the compliance process is reduced.
Digital banking can also better integrate transaction monitoring tools, helping businesses identify fraud and irregularity more quickly. This can be hugely important, especially in the times of heightened risk we find ourselves in, where falling foul of a sanctions regime could have significant legal, financial and reputational consequences.
Our world is increasingly globalised, and so is business. For corporate and institutional banking customers, being able to operate seamlessly across borders is key to the operation of their business.
This brings with it challenges, which are again compounded by difficult geopolitical and economic circumstances. In recent weeks for example, we’ve seen significant flux on FX markets which can have real consequences for businesses or institutional investors who are buying and selling assets in multiple currencies and jurisdictions. The ability to move quickly then, and transact in a currency of choice, is vital. Advanced digital banking platforms can help – offering automated money market fund sweeps in multiple core currencies to help their clients optimise their investment returns and effectively manage liquidity.
Control admin uncertainty
In times of uncertainty, digital banking can provide additional comfort via customisable multi-level payment approvals to enhance control of what is being paid out of business accounts, with custom limits available for different users or members of a team. Transparency and accountability are also essential, with corporate clients requiring fully integrated digital reporting and statements and instant visibility with transaction cost and balances updated in real-time.
For some, the perception remains that digital banking is the upstart industry trying to offer the services that the traditional banking industry has built itself upon. Increasingly however, the reality is that the pressure is on traditional banks to try and stake a claim to some of the territory being taken by digital first financial services.
With a whole range of features built in which make them well suited to business in a digital world, digital banking is on a growth trajectory. Until now, much of the focus has been upon the roll-out of services to retail consumers, but with features such as automated compliance, effortless international transactions and powerful AI coming as standard for many digital banks, the digital offering to the corporate world looks increasingly attractive.
Anyone Can Become an R&D Tax Expert with the Right Foundations
Source: Finance Derivative
Ian Cashin is a Customer Success Manager at Fintech company and R&D tax software provider WhisperClaims
For accounting firms, R&D tax credits offer a substantial opportunity to boost revenue and strengthen client relationships. According to Ian Cashin, Customer Success Manager at WhisperClaims, perceived complexities can be overcome with the right approach and support. Indeed, by embracing a few simple practices, any company can become an expert in R&D tax.
Growing revenue through new business is far more challenging than unlocking revenue from an existing client base. However, a significant number of accounting firms are losing out on value-added opportunities as a result of their lack of confidence or knowledge in R&D tax relief.
Yet, advisors who follow best practice are now in an ideal position to use their extensive client knowledge to mitigate their clients’ risk of and potential exposure to interrogation over fraudulent claims, ahead of HMRC’s introduction of more stringent R&D tax processes in April 2023.
So why are firms reluctant? There is no doubt that the R&D tax credit procedure is different. Compared to other areas of tax regulation, it leaves greater room for interpretation. But it is readily understandable by a qualified accountant – even an unqualified trainee. Understanding what HMRC considers to fall under the scope of research and development is key. Astrophysicists and Formula 1 manufacturers are not the only people who employ science and technology to overcome business challenges. Every day, UK firms of all sizes engage in R&D activities, from civil engineers to food manufacturers, yet far too many have not yet filed claims, losing out on critical cash.
The most important thing to keep in mind is that, as an accountant, you already have a far deeper relationship with your client compared to any other service provider. Once you have raised your level of understanding, you are in the perfect position to optimise this.
Accountants already have a unique understanding of their clients’ operations – insight which, as professional advisors, will help to highlight companies most likely to qualify for an R&D tax rebate. Furthermore, with access to tools like R&D tax claim preparation technology, developed by R&D tax professionals, they are able to significantly speed up the process. This technology enables accountants to easily determine the top targets within their client base, indicating where to focus the efforts of their emerging R&D tax service.
Using this priority list in conjunction with their understanding of the criteria HMRC stipulates, an accountant can leverage their client knowledge and relationship to engage in a conversation regarding daily R&D activities and unlock potential tax relief opportunities.
Moreover, facilitated by a specialist R&D tax claims preparation platform, accountants can be assured of a structured process that prompts the right questions to ask clients during these conversations, and highlights answers that are either in sync with, or fall outside of, the HMRC parameters. For instance, ca restaurant owner adding vegan alternatives to the menu is not on the same level as a food producer starting the development and manufacturing of a fully plant-based product line. The latter will undoubtedly be eligible for R&D tax assistance, but not the former. Accountants should use their position as “professional advisors” in this situation to push back against clients, especially those who may have previously been unwittingly misled.
For the last twenty years, since the introduction of R&D tax rebates in 2001, best practice has been the provision of a detailed report, complementary to the CT600 form, to mitigate the chance of HMRC asking supplementary questions. The technical purpose of the claim as well as the business context must be covered in this report, e.g. the challenges faced; how science and technology were used to overcome these; and the professionals employed who overcame them. Simply put, if the challenges weren’t difficult to solve, it wasn’t R&D.
It’s also critical to keep in mind that R&D claims cannot simply be copied and pasted from year to year. R&D is not necessarily a constant; demand for it changes in line with the evolution of the business’ activity or stage of development. as businesses change and go to the next stage of development.
The accountant’s already solid client relationship and interpersonal abilities come into their own in such situations. Particularly if the appropriate course of action is to suggest that the client should not submit an R&D claim, an accountant must feel comfortable advising the client accordingly. The claim belongs to the client; if it is contested, the client will be the one facing an HMRC investigation. An advisor must be self-assured enough to refuse to input erroneous claims without endangering the client relationship.
Recent years have seen accountancy firms strengthen their position as dependable, trusted business advisors. Discussions regarding a business owner’s long-term objectives, succession and exit plans, as well as pensions and investments, have become commonplace. It should be natural to include R&D tax into these conversations . Asking a customer about their investment in R&D should be a common practice – business as usual – just as it is to inquire about investment in infrastructure or buildings.
The only thing preventing accountants from successfully adding R&D tax to their suite of services is a lack of confidence. Yet, any reservations can be addressed with a straightforward ‘back to basics’ R&D training course, as well as using technology to gain access to a completely new revenue stream with their current clientele. Now that HMRC is openly calling for a much more rigorous, trusted, and evidence-based approach to R&D tax from 2023, accountants hold all the cards they need to gain confidence and give clients the trusted service they desire.
Redefining the human touch with digital transformation
Source: Finance Derivative
Simon Kearsley, CEO of bluQube
It may not be a new phrase, but digital transformation is still inducing anxiety amongst 80% of employees. Reigniting the conversation around the future role of the human workforce, the COVID-19 pandemic caused 47% of business leaders to implement new technologies, and a further 29% to develop plans to do so in the near future.
Creating increased efficiencies, cost savings, and improved customer service, several new technologies are becoming ingrained within core business operations. For example, the capabilities of cloud computing have enhanced the customer experience, and many companies are also using this to digitise their supply chain. Likewise, the combination of artificial intelligence and big data can also be used to automate nearly 80% of physical work, and 70% of data-processing.
In the digital era with so many new channels for communication, the ability to receive valuable insights from customers has in practice never been greater, which can in turn be used to inform future planning. Leveraged properly, this means that technology can drive benefits and growth for not just businesses, but also their customers and even their workforce. As technology empowers staff to transition their roles from more onerous, repetitive tasks towards impactful decisions within their organisation, this encourages the workforce to better realise the value of their contributions.
A data-driven workforce
When businesses embrace data-driven digital technologies, process optimisation across various sectors of the organisation occurs. For example, digitally-led automation, such as the use of OCR software, has been able to take over many time-consuming manual tasks, including data-entry, re-keying, and core administration roles. Although tasks of this nature may have formed a large part of some employees’ roles, this doesn’t mean that anxieties around the purpose of their job must increase.
Optimisation across the business isn’t limited to processes and costs, it also extends throughout the workforce. Less monotonous roles mean that employees are free to take on strategic roles that form a more rewarding career. In practice, this access to enhanced data empowers employees to expand beyond the limited resources they have for decision-making, instead leveraging the insight collected by analytics to make more informed decisions.
By replacing repetitive tasks, staff are becoming increasingly involved in the ideation process for new products and how to improve the company’s existing services. Besides the clear benefits this has to daily productivity and efficiency, staff are equipped with the tools to more clearly demonstrate their contribution to the business and, in turn, provide greater scope for progression.
As investment in data-led solutions continues and traditional roles are reshaped around its impact, employees’ digital skillsets will act as a key driver within the talent market and generate career progression that staff may have previously felt was unattainable. However, this outcome for staff will only be achieved if managers and senior members of the company are open to change and flexible enough to evolve alongside digital transformation. Technology adaptations are inevitable, and as its organisational applications continue to expand, managers would be wise to support new digital initiatives to remain ahead of the competition.
The business value provided by enhanced insights into customer preferences and behaviours cannot be overstated. With a clear overview of key behaviours, business leaders can accurately determine which areas of their processes need to be streamlined, where to focus their efforts, and how to attain the greatest possible value. On this basis, employees’ contributions will be vital for driving fundamental changes across the business, including roles in strategy development and operational management. Likewise, employees will be free to develop new product ideas and ways to improve the current service offering to benefit the business on a wider scale.
Amidst ongoing economic constraints, it has arguably never been more important for businesses to implement sustainable technologies that support their ability to respond to changing circumstances. Indeed, the insights discerned from employees’ data analysis and increased team collaboration are essential for reducing the risk of costly errors for the business.
In the coming years, AI-backed automation will become a key driver for technological change. As AI systems learn how to fit into the organisation and are programmed to improve over time, this encourages a greater focus on people on the long term. Not only should this reassure employees of their value, but it should also reassure managers that their investment was worthwhile.
Further reinforcing the value of a data-led workforce is the customer preference for real, human customer service – the value of which remains remarkably high. This is recognised by the vast majority (90%) of business leaders, who believe that the human touch of customer service has become even more important amidst advancing technology, with 40% describing the continued human touch in customer service as a ‘100% mission critical focus.’
Experienced across virtually every industry, many companies may have temporarily seen customer service levels slip during the COVID-19 pandemic. However, technology is able to reverse this trend, supporting the human element of customer service with high-value data and insight. This enables teams to make decisions based on what they have learnt from evolving customer data and feedback, which can then be leveraged to improve the customer experience on an ongoing basis.
An additional benefit of digital transformation for customer service teams is that technology streamlining businesses’ operations in turn frees up organisations to provide the other crucial strand of the human touch, with dedicated customer service teams to personally connect with customers.
The bottom line
Simply enough, data-led technology significantly benefits business leaders, employees and customers alike. Achieving just base-level insights increases job satisfaction and security, encourages client retention, and instils confidence in customers that they are receiving a high-value service. For the four out of five workers that remain anxious about the implementation of digital technologies, it must be remembered that these advancements create an exciting opportunity for the human touch to grow alongside them.