Tag: accounting & finances

How to decide whether to outsource or keep everything in-house - New Frontiers

How to decide whether to outsource or keep everything in-house

How to decide whether to outsource or keep everything in-house - New Frontiers

Growing your business beyond the startup phase means making some big changes with regard to how your company operates. In a startup, it’s an all-hands-on-deck situation for the close-knit team; communication is a breeze because the company isn’t a sprawling organisation yet and at any given moment you, the founder, can be found jumping between roles, keeping tight control over everything.

However, as you scale up, it quickly becomes apparent that the advantages that made you a startup success could now be the very things that are holding you back. The small team needs to grow so you can keep up with demand and remain competitive, it’s no longer efficient for you to be the last one to sign off on everything and each department in your company needs to start regulating themselves.

As you figure out how to navigate this evolution of your business, there will be a big question that you’ll have to answer early on, and that is “Should we outsource, or should we keep everything in-house?” We’ve narrowed down the primary determinants when considering this question to 1) Expertise, 2) Cost, 3) Time, and 4) Control. In this blog, we’re going to look at the pros and cons concerning each to help you decide which is the best solution for you.

The pros and cons of outsourcing vs keeping it in-house

Expertise

Your business has a core skillset that allows you to offer certain products and services in the marketplace, so it makes sense to keep these types of skills in-house. However, when it comes to other areas – such as marketing, IT, accounting, or recruitment – you may find your team is lacking. You can hire individuals with these skills, but how many people will you need and at what level of experience? Do you have the right knowledge to be able to recruit the correct individuals for the role?

One of the main advantages of outsourcing is that you get immediate access to a team of specialists highly skilled in their area. Rather than hiring someone who knows just a thing or two about IT, for example, outsourcing provides you with technology experts dedicated to getting you results. On the other hand, you may prefer growing your expertise from the inside so you can ensure you have your own stamp on every project while also learning from experiences.

Cost

Outsourcing is by far the more cost-effective solution when compared to an in-house option. The outsourced agency doesn’t require benefits, training, space, tools, holiday pay, or a Christmas bonus. You don’t have to waste resources on a recruitment process, and instead of paying a salary, you only pay for hours worked or input received. Some will say that this doesn’t matter if there is a loss in quality, which can happen when you give an outside source control over an aspect of your business. However, this is simply a matter of doing your due diligence before choosing which outsourced agency or consultant to partner with.

Time

One of the primary motivations for outsourcing is because it gives you more time to focus on your business. Many hours can be eaten up trying to get to grips with financial budgets, marketing analytics, or troubleshooting technical difficulties if these are not your areas of expertise. However, you will only save time by outsourcing if you have good communication channels available.

There are four main reasons why working with an outsourced company can prove problematic if communication is a problem:

  1. Projects slide because you’re not used to working with people remotely.
  2. Project briefs are not clear enough, therefore resulting in inaccuracies and multiple revisions.
  3. You haven’t built up a proper level of trust with your outsourced agency and end up spending a lot of time micromanaging their work.
  4. You and your outsourced agency are working in different time zones.

However, it is worth noting that most of these problems can occur with bad in-house time management as well. Employees working from home can become isolated from their team, vague briefs can result in mistakes, micromanaging employees can take up a lot of time and, if you have expanded internationally, you may find your team is working across different time zones. The lesson here is to find a way to improve those communication channels early on in your business’s progression, whether you choose to outsource or not.

Control

Working with an outside firm is often viewed as a partnership rather than an employment situation. Therefore, instead of having ultimate control over employee work processes, determining how you prefer things to be done from start to finish, you have a situation in which you hand over a project to a team of experts in another company and they get you results their way. Of course, you will be able to specify certain details, such as how many leads you want, the budget, the expected outcome, etc., but the core impulse behind outsourcing is that you recognise the agency to be more experienced than you in a certain area and that is why you are willing to hand over control to them. You have to decide whether this is something you are happy to do when deciding to outsource a service or keep it in-house.

Scaling up? Enterprise Ireland provides funding for established SMEs in areas such as developing your management team, market research and internationalisation, developing your management team, productivity and business process improvement, as well as company expansion. Find out more on their Established SME funding page.

About the author

scarlet-merrill

Scarlet Merrill

Scarlet Merrill is Editor of the New Frontiers website and founder of her own startup, Engage Content Marketing. She is an expert in designing and executing content strategies and passionate about helping businesses to develop a quality online presence… [Read Scarlet’s profile]

Other articles from the New Frontiers blog

The food business: when is a trend not a trend?

Four of the Mid West’s most promising New Frontiers startups

A strong employer brand is essential for attracting top talent

Magda Rzepkowska (WallPee) is the ‘one to watch’ in 2019

Financing: alternatives to business bank loans

bank loan alternativees Ireland startups

The latest figures from the Central Statistics Office examining access to credit for small and medium sized businesses reveal how reliant Irish firms are on bank lending. It is by far the most popular form of financing for SMEs around the country. Bank loans are not an option for every business, however. One in five Irish SMEs are finding their applications for loans rejected by banks, with no reason given.

Alternatives to bank loans for business finance do exist, however, and are growing in popularity. Here is a run through of some alternatives you might like to try if your startup has been turned down for a bank loan.

Peer-to-peer business loans

Peer-to-peer business lending involves an online marketplace which allows businesses seeking loans to connect with investors who wish to lend money. Although the market in Ireland for peer-to-peer business loans is still quite small, some options are available.

Grid Finance is one company offering the service. Any business registered in the Republic of Ireland, whether it be a sole trader or limited company, can apply for a loan. However, the loan must be for a specific project. Both secured and unsecured options are offered, with the maximum unsecured loan available being €75,000, and the maximum secured loan being €150,000. Loan terms of between 3 and 36 months are available. Your interest rate will be determined by a weighted average of the interest rates those wishing to lend you money are willing to offer. You have 28 days to raise the funds on the site, but if you reach your funding target sooner you can have your loan within 24 hours.

LinkedFinance is another option for peer-to-peer business loans. It has so far lent to 400 businesses in Ireland and it offers similar loan amounts to Grid. The minimum loan amount is €5,000, the maximum is €100,000, and terms are fixed at 36 months. The interest rate you pay will be determined by an online auction, with the cheapest interest rates offered by lenders being prioritised.

Other non-bank lending

Aside from peer-to-peer lending there, are other lending options available which don’t involve banks. Microfinance Ireland, for example, is a non-profit lender working in partnership with the Local Enterprise Offices, and can offer unsecured loans up to €25,000. All business sectors are eligible to apply. The loans are, however, only available to firms with fewer than ten employees and less than €2million in turnover.

Merchant cash advances

A merchant cash advance is another borrowing alternative to an unsecured loan and is available to business who take credit and debit card payments. It is an unsecured cash advance, up to 100% of your average monthly card turnover. It is repaid through an agreed percentage from future card takings. Liquid Finance and Payment Plus are two companies offering this service in Ireland right now. Benefits of using a merchant cash advance are that access to funding can be fast and that it doesn’t require you to draw up a business plan or proposal.

Invoice trading

Another option to raise money from funds you expect to receive is invoice trading. This essentially involves selling the uncollected invoices you have at a discount, if you need cash straight away. Invoice Fair offers this service in Ireland.

Crowdfunding

Outside of loans, crowdfunding offers one of the most popular and effective ways of raising cash for your business. Kickstarter, perhaps the most well-known crowdfunding website, launched in Ireland in 2014 – although Irish businesses have been using the platform for some time. Crowdfunding differs to peer-to-peer lending in that it is not a loan and neither are you generally offering equity in your company. You offer those who pledge you money something else in return for their backing; this is known as reward-based crowdfunding. If you are funding the design of a new product, for example, one of the things on offer for backers could be the product itself once it has been produced. Aside from Kickstarter, there are other similar crowdfunding options in Ireland, such as iCrowdfund and Fundit. All the sites operate on a similar basis, and they take a small share of the total you raise. Equity-based crowdfunding is not currently regulated in Ireland, though the Central Bank is looking at the situation.

Angel investors

Venture capital and angel investment will be covered in greater depth in a future article. However, if you are looking for an option that allows you to offer equity in exchange for funding, you could seek out angel investors. These investors tend to be experienced entrepreneurs, and can offer more than just financial assistance – such as offering advice on business management and strategy. The Irish Investment Network will connect you with angel investors from around the world. It is not crowdfunding and just facilitates contact between you and the angel investor, meaning the details (including payment) are worked out between the investor and the business.

Though the banks still dominate when it comes to business finance in Ireland, alternative finance options are clearly starting to look a lot better. And as the European Commission has stated its intention to encourage alternatives to bank lending, this trend looks set to continue.

About the author

scarlet-merrill

Scarlet Merrill

Scarlet Merrill is Editor of the New Frontiers website and founder of her own startup, Engage. She is an expert in designing and executing content strategies and passionate about helping businesses to develop a quality online presence… [Read Scarlet’s profile]

Other articles from the New Frontiers blog

The food business: when is a trend not a trend?

Four of the Mid West’s most promising New Frontiers startups

A strong employer brand is essential for attracting top talent

Magda Rzepkowska (WallPee) is the ‘one to watch’ in 2019

Getting paid on time: advice and guidelines

new-frontiers-sme-startups-get-paid-on-time

Getting paid on time is a never-ending concern for small businesses. An SFA surveys show that, on average, it takes 62 days to get paid, even though the majority of payment terms are 30 days. This causes serious cash flow problems, requires firms to extend overdraft facilities, and consumes a great deal of management time. The European Payment Report 2015 found that half of Irish companies say that late payments threaten their survival. So, what can you do to get paid on time?

How can you protect your company against the scourge of late payers and bad debts? Dealing with late payments is a question of the policies and practices of individual businesses, but also of the broader payments culture in Ireland.

Should I offer my customers credit?

Firstly, if credit is not required, don’t give it.

If you do extend credit to customers, make sure you do your homework. Assess the risk by gathering information from the company itself as well as from external and independent sources. These could include trade references, bank references and even credit agency reports. Remember, in the management of credit, information is power.

Categorise new customers according to risk. Vary the credit limit and payment terms accordingly. Be wary of letting the purchaser impose their own terms and conditions of trade.

Ideally, put contracts in writing and ensure they contain a fair payment period that both sides can live with, details of interest to be paid and a mechanism to deal with disputes.

Don’t forget to monitor and review existing customer limits. Consider their payment performance, the value of the trading relationship and its profitability. On this basis you may decide to offer them exclusive terms as a valued customer, maintain the existing relationship or put them on a stop list.

How should I manage that credit?

Proper credit management practices are a must in all businesses. Know who owes you what and when they should pay by continuously tracking the type, amount and due date of invoices.

Statements, regular telephone calls, emails and reminder letters should be used routinely in the collection process, even before the account is considered to be overdue.

When phoning, always try to speak to the person responsible for payments. Find out their payment system (e.g. the frequency of online payment or cheque runs). Take a note of the conversation and the commitments made and put a note in your calendar to follow up.

If a final reminder is required, it should be addressed to a senior official, such as the Finance Director, notifying them that if the debt is not paid by a certain date, it will be passed to a solicitor or collection agent.

Can I charge interest on late payments?

Interest can be applied to late payments – although almost three quarters of Irish firms decide not to do so. This can be from fear of losing business, gaining a reputation as a difficult supplier or because the customer is perceived as too big to challenge.

Remember, if they are allowed, others will use you as their cheapest source of credit. Decide your policy on late payment interest and stick to it.

Interest can be charged automatically if the supplier has not been paid within 30 days (if there is no written contract) under the Late Payment in Commercial Transactions Regulations 2012. The rate is set for six months based on the European Central Bank interest rate on 1st January/July, plus 8%. The current late payment interest rate is 8.05% until the end of 2015. Penalty interest should be calculated on a daily basis and equates to a current daily rate of 0.022%.

Aren’t late payments just part of Irish culture?

The European Payment Report 2015 shows that Irish companies suffer more late payments and bad debts than their European counterparts. Irish companies write off an average of 7% of their yearly revenue, compared to a European average of 3%. So, getting paid on time also depends on the prevailing payment culture.

An important new initiative was launched by Government this month, supported by the Small Firms Association, which aims to drive Ireland towards a culture of paying bills on time – the Prompt Payment Code.

By signing up to the code, companies agree to pay on time and give clear guidance to suppliers on payment procedures. The ultimate aim is that companies will choose who to do business with on the basis of whether or not they have signed up to the code.

Mostly, when small businesses fail, they don’t run out of ideas, customers or products – they simply run out of money. Managing cash flow and credit is a challenge for any small business; but by putting in place clear policies and adhering to them, you can put your company at the top of your debtors’ payment lists. And by signing up to the Prompt Payment Code and checking if your customers have signed up, you can steer Ireland towards a payment culture based on certainty for all parties.

About the author

Linda Barry New FrontiersLinda Barry

Linda Barry is Assistant Director of the Small Firms Association, a national organisation that exclusively represents the needs of small enterprises in Ireland. The SFA works with government and key decision-makers at all levels to ensure that the economic environment is conducive to small business establishment and development… [Read Linda’s profile]

Other articles from the New Frontiers blog

The food business: when is a trend not a trend?

Four of the Mid West’s most promising New Frontiers startups

A strong employer brand is essential for attracting top talent

Magda Rzepkowska (WallPee) is the ‘one to watch’ in 2019

Goals & milestones for growth-focused businesses

milestones-business-new-frontiers

I recently delivered a one day workshop as part of IT Tralee’s New Frontiers Phase 2 programme entitled, ‘Goals & Milestones for Growth-Focused Businesses’. The aim of the session was to discuss goals for each of the participant business and to help them identify milestones to be prioritized among the many competing demands for their time and attention. Sessions such as this assist participants to communicate both their progress to date and the potential of their business to Enterprise Ireland and other potential investors. These are some of the key points we covered.

Starting point: hitting milestones is extremely important for early-stage investors

The calibre of the team driving a new business is very important in determining an investment decision. This is evaluated both in terms of career to date and track record with the current business of the collective team. Progress to date can be judged by viewing milestones achieved and quality and credibility of the plan going forward: has the business achieved market traction?

Enterprise Ireland gives 10% of the marks during the first phase of the evaluation of Competitive Start Fund (CSF) applications towards the ability to deliver key commercial and technical milestones; as they define it:

Looking for a well-defined strategy and roadmap with very clear achievable and measurable technical and commercial milestones.

With the growing popularity of tranched funding (financing agreement in which the agreed upon sum is advanced in stages depending on achieving specified targets or milestones), setting ambitious yet realistic and deliverable milestones is a hugely important issue for startup promoters at every stage of their development.

So what is traction?

According to Gabriel Weinberg and Justin Mares, (Market) Traction is quantitative evidence of customer demand. The book defines it as:

A sign that something is working – if you charge for your product, it means customers. If your product is free, it’s a growing userbase.

The book Traction: A Startup Guide to Getting Customers talks about the power of setting Traction Goal(s) – this could be 1,000 paying customers, 100 new daily users, or 10% of your market.

What is a milestone?

A milestone is a significant achievement toward a major goal by which project progress can be measured, in this case business success. Generally they build – later milestones are dependent on earlier milestones, representing something of value being completed. So any discussion of milestones requires an understanding of the stage of development of your Startup.

new-frontiers-lean-startup-modelsAsh Maurya’s Three Stages of a Startup

The 3 Stages of a Startup is a perfect framework to set milestones in context.

The following milestones are implied by Lean Startup:

To use fast, iterative development practices to:

  1. Validate core hypotheses (customer problem-solution).
  2. Develop the Minimum Viable Product (MVP)
  3. Achieve Product-Market fit
  4. Produce a development and marketing roadmap for scaling

Product-market fit

Accordingly, advocates of Lean Startup describe Product-Market Fit as a critical milestone. This is defined as being when a product shows strong demand by passionate users representing a sizeable market.

Achieving Product-Market fit requires at least 40% of users saying they would be “very disappointed” without your product… Sean Ellis, Lean Startup Marketing

Startup Pyramid

The Startup Pyramid sees the achievement of Product-Market Fit as a prerequisite before significant resources is invested in marketing and sales to scale the business.

10x product launch-new-frontiersAsh Maurya’s 10x Product Launch

Ash Maurya sets a challenge for very early-stage businesses to get 10 Customers, and then to get 10 times or 100 customers, and so on.

 

 

 

 

The Business Model Canvas

Appropriate commercial and technical milestones should emerge from the startup Business Planning activity.

The ideal tool to list and test your business assumptions is the Business Model Canvas, which identifies 9 building blocks to a business.

business canvas new frontiers

An evolving business  

While your traction goal, stage of development and business model will determine appropriate milestones, it is also very important to understand that your business model will evolve over time. Paul Graham advises businesses to do things that don’t scale.

Pulling it all together: The Milestone Mix

Every startup business founder and team – where ultimate responsibility lies – must focus on a small number of stage appropriate priorities to bring their business to the next level. SMART goals are called for – goals must be Specific, Measurable, Attainable, Realistic and Timebound.

startup milestone mix donncha huguesA balanced set of goals is also required. I suggest that the balance of any startup business can be evaluated in terms of balance across four areas: Product, Marketing, Finance and Team – which I refer to as the Startup Milestone Mix.

I suggest that startup promoters should set high-level goals in each of these areas. It should also be part of their job description to ensure that the business is developing in a balanced fashion – using this as a high level framework allows a business to judge if sufficient attention is being given to all critical areas of the business.

For New Frontiers and Enterprise Ireland, the critical milestones to exhibit traction relate to: intellectual property, early reference customers, route to market, internationalisation, engagement with investors, and building a core and non-traditional team – as appropriate to the stage of development of your business.

My conclusion and Call to Action

As Lean Startup says: Life’s too short to build something that nobody wants. Your job, with the support of your New Frontiers network, is to build a business, not just a product. It is all about gaining market traction.

Set goals and prioritise milestones that work for your business; that excite you and act as a calls to action for investors, potential employees and other stakeholders. I hope that you find this article of value as you set about this task!

[Some related articles by Donncha (external sites):
What Enterprise Ireland is looking for in a CSF application
How To Write Your ‘Job Description’ As A Startup Promoter
My favourite Startup Marketing Books for Fast Growth Businesses

You might also enjoy our article by startup founder, David Craig:
Building your brand is about sharing your vision]

About the author

Donncha Hughes profileDonncha Hughes

Donncha Hughes is a former incubation centre manager and has worked with startups for almost ten years. A big advocate of Lean Startup, his areas of expertise include: marketing, sales, business models, supports for business, business plans and financial projections. An EI mentor and member of the CSF Evaluation Panel, Donncha specialises in working with early stage startups… [Read Donncha’s profile]

Other articles from the New Frontiers blog

The food business: when is a trend not a trend?

Four of the Mid West’s most promising New Frontiers startups

A strong employer brand is essential for attracting top talent

Magda Rzepkowska (WallPee) is the ‘one to watch’ in 2019

Bootstrapping too far: the dangers of overtrading

bootstrapping-overtrading-new-frontiers

As entrepreneurs, it can be tempting to take every piece of work or contract we are offered. It’s exciting to see sales growing and growing each month, or week; but sometimes this can be a bad thing. Often, companies that are experiencing rapid growth can be at risk of overtrading.

Before I started my own company, I spent five years dealing with businesses in financial difficulty. There were a few successful turnarounds, but more often than not I saw promising business in the position of having taken on far too much work that they just couldn’t handle. In spite everyone’s best efforts, they usually ended up in liquidation.

Overtrading means carrying out too large a volume of trading in relation to the amount of long-term reserves in the business. A business that is overtrading doesn’t have enough capital for the amount of trading it’s carrying out.

How do you know if you’re overtrading?

  • High rate of sales growth
  • Low profitability – Are you reducing your gross profit margin to increase your sales? Are your expenses getting too high (e.g. administration costs) in relation to the increase in sales.
  • Insufficient reserves – Are retained profits low?
  • Large increase in inventory and trade receivables – Systems that worked well to control inventory and receivables may not work efficiently with a larger business. Inventory takes longer to clear and collections take longer.
  • Financing the company using current liabilities – Are you taking much longer to pay suppliers, or is your overdraft increasing significantly?

Why is overtrading a problem?

In a word, insolvency. If your sales keep growing, and your company cannot finance that growth from its own resources, your bank may refuse credit and suppliers may refuse to deal with you. Also, suppliers that provide you with goods on credit may get frustrated and stop supplying you with the key products you need to continue trading.

If your company can’t pay its bills and invoices as they fall due, you may be insolvent. All of this could be because your company has inadequate liquidity due to insufficient long-term capital funding and reserves.

How to fix overtrading

There are two key ways to reduce the risk of insolvency by overtrading, namely:

  1. Increase your capital: Take on additional investment or long-term borrowings.
  2. Reduce the volume of business you’re conducting: Although this sounds counter-intuitive, if your business can’t support the level of business you’re currently getting, it’s a good idea to slow things down a little. Focus on more profitable contracts or pieces of work. This will allow your company to increase its reserves in a timely manner, and go for the bigger jobs when it has the resources to take them on comfortably. Use this time to plan out how you will cope with larger quantities of work, so that your costs don’t dramatically increase with additional sales.

Whatever method you do take, make sure you keep your bankers and suppliers on side at all times. Because no remedial action will be enough if they decide to pull the plug.

About the author

DCEB, Photo Clive Wasson.Pete Friel

Pete is a chartered accountant with expertise in Financial Reporting, Management Accounting, Corporate Restructuring, Liquidations & Examinerships. With four years’ experience working for international professional services giant, Ernst & Young, Pete decided to found his own company at the beginning of 2014. This venture has already earned him the titles of ‘Best New Start Up’ and the ‘Overall Best’ in the Donegal round of the Best Young Entrepreneur competition… [Read Pete’s profile]

Managing your cashflow: funding your startup after the programme

new-frontiers-startup-cashflow

Startups need cash to keep going – it’s a simple case of having money so that you can make money. Most entrepreneurs get preoccupied with finding sources for large scale funding, rather than concentrating on how to make the money they have go as far as possible. By accurately identifying how your money can best be utilised, you can plan how much funding you actually need and improve your chances of raising capital.

Money is the lifeblood of any bootstrapping entrepreneur and usually the thing in shortest supply when starting up. In fact, many startup failures can be attributed to poor cashflow, so getting your financial planning and management right is crucial to success.

Thinking ahead is the way to success

Participating on the New Frontiers programme provides entrepreneurs a six-month financial lifeline. But too many startup entrepreneurs focus on getting the BIG investment and forget about the day-to-day costs that can’t be put on hold. Investors always take longer than you think; they don’t just drop the money in your bank account.

So, while you’ve spent the last six months developing a compelling business plan and investor pitch, you’ve also spent all your cash getting to this point. For the best chance of survival, you need to have a game plan for what happens next, at least three months before the end of any support/cash.

Starting a business always takes more time than people imagine and things don’t always go according to plan, so you should work on a strategy for paying the bills (both business & personal) for at least another six to 12 months (as it can take that long for investment to materialise).

To make a compelling case, you need accurate forecasts that are backed up with sound reasoning:

What for?

You need to be clear as to what you will use any funds for – further product development, testing or trialling, customer prospecting, equipment, office facilities, inventory/stock, staff. Make a wish list, with a timeline (at least monthly) beside each item, just as you would for your business roll-out plan.

How much?

Beside each item on your wish list, give an accurate cost and identify if it is a one-off or ongoing expenditure. Add these together and you get a total – which is probably way too high!
Now go back and review every item on the list.
Ask yourself the following questions:

  1. Do you really need it?
  2. What benefit will it be to your business now?
  3. Could you defer buying it until later?

Prune your wish list as necessary and revisit that total amount, with a strong justification or business case for each line.

I’ve included a template you can use to plan for your short-term funding needs. (Word document).

Make a balanced case for your funding needs

With this work done, you have a better chance of identifying who could support that kind of expenditure for a startup. That is, what mix of sources will you now approach in order to keep going, while at the same time setting up bigger investment channels for the long-term future of your enterprise?

The main thing to bear in mind when looking for money is preparation. If you leave it to the last minute to ask for money, it’s the easiest thing in the world for someone to say ‘No’. You want to give them more reasons to say ‘Yes’. Then you can keep going, in the short-term, while planning for a bigger, brighter future – which is the next part of your journey from startup to scaling business. The New Frontiers programme provides just the set up to enable you to do that successfully.

About the author

Colm ÓMaolmhuireColm Ó Maolmhuire

Colm is the New Frontiers Programme Manager at IT Tallaght. He has nearly 20 years’ experience operating as an independent, professional management trainer, mentor and consultant. His main areas of expertise are in finance, business planning/analysis and management skills… [Read Colm’s profile]

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