Find Your Finance Cornerstone

(This article is reproduced with kind permission of Mike Southon, international business speaker, weekly columnist for the Financial Times, entrepreneur mentor and co-author with Chris West of “The Beermat Entrepreneur” series of books).

Mike Southon says:  This is my column that will feature in Saturday’s Financial Times, which can be found in the entrepreneurship pages of the Money section. You can also find my columns on the FT web site here )

One of the symptoms of a credit crunch moving seamlessly into a recession is the unfortunate chore of the entrepreneur spending more time with their bank manager.

This might well be to obtain more credit to cope with a short-term cash-flow problem, or to explain the restructuring required to take best advantage of unpredictable market conditions. Whatever the desired outcome, this is unlikely to be a meeting which either party regards with keen anticipation.

The challenge is that the entrepreneur and the bank manager speak two completely different languages. The entrepreneur likes to talk about new ideas and opportunities, about changing the world and making a difference and being recognised in the street. The bank manager is probably under strict instructions from above to reduce the risk in their portfolio of accounts, and can only express this in the language of the spreadsheet and the bottom line.

Meetings between entrepreneurs and banks managers can be tense and sometimes even characterised by strong language. Many years ago in my first start-up our CEO went to open a bank account. He was back very quickly and in a bad mood, so we realised the meeting had not gone well.

In his view, the bank manager was an idiot; he had not understood how clever our CEO was, how we clearly had an unbeatable business proposition and how much money we all were all going to make, including the bank.

Our CEO was ultimately right about this. We did indeed sell the company for a lot of money only five years later. But back on day one we had a small problem; we did not even have a bank account yet.

Understanding finance is one of the toughest challenges for an entrepreneur, especially if they come from a sales or technical background. It is a very large topic with constantly changing rules, and it was a real challenge for Chris West to summarise this into simple terms in Finance on a Beermat.

West worked with finance experts Stephen King and Jeff Macklin, and while there are indeed chapters on double-entry bookkeeping and tax, the book starts with simple and straightforward advice: before you do anything, you should find yourself a Finance Cornerstone.

This is very unlikely to be a full-time employee from day one; most people have a ‘virtual’ Finance Cornerstone, someone who comes perhaps one day a month and puts some order to your receipts and invoices in preparation for submitting your accounts.

But we make an important distinction between an accountant and a Finance Cornerstone.

An accountant is essentially reactive; they will do your books and then tell you that you have gone broke. A Finance Cornerstone is pro-active; they tell you in advance that unless you do certain things, you will go broke at some time in the future.

Even if they only come in one day a month, they understand your business and can advise on how to scale up your business when times are good, and how to scale down your business when they are not.

Most importantly, they speak the language of the bank manager, and should always accompany you to any such meetings. The entrepreneur should make some introductory remarks, and then leave the running of the meeting to the Finance Cornerstone. In particular, any promises made about the provision of security or repayment of loans should be made by someone who not only understands the mindset of the bank manager, but who is also more likely to be trusted to keep those promises.

And if circumstances change and repayment terms need to be negotiated, this is best done by a professional, who will present a case that is based on facts rather than emotions. After all, the bank is in the business of lending money with interest, so as long as they think you will not let them down, they are more likely to be sympathetic to your cause.

In my first start-up we were lucky that another of our shareholders, the CEO’s brother, was a vice-president of Goldman Sachs, and thus able to smooth things over with the bank. If you are not in this happy situation, then I recommend one of the organisations that provide virtual Finance Cornerstones, such as King and Macklin’s company FDUK.

Alternatively, you can even ask your bank manager to recommend someone. I am sure they will be delighted to help.

Finance on a Beermat by Chris West, Stephen King and Jeff Macklin is published by Random House Business Books.

Finance on a Beermat (Second edition):
http://tinyurl.com/6jlpxj

Inside Track Seminars Kerput!

In the wake of the news that the Inside Track Seminar company (not apparently the property arm) has gone into recievership (something Andy Shaw predicted would happen months ago) and the news that mortgages are getting harder and harder to find unless you have a GREAT track record.  However, with 30,000 new rental homes being needed every year for the next 10 years, the market is growing and this is a short term blip according to pundits. 

Tighten your belts, for the next 12 months, watch Andy and Greg’s free videos and EDUCATE yourself about what makes a great buy to let.

Here’s some excellent tips from the superb This Is Money website:

1. Do the figures stack up?

The traditional criteria with buy-to-let was to save a deposit of at least 15% and ensure that rental income would cover monthly mortgage repayments by 125%. As it got harder to meet these restrictions, many lenders eased them. This has shifted buy-to-let from a business based on steady rental income, to one where potential landlords gambling on house prices rising to deliver capital growth.

But the restrictions existed for a reason – to make sure landlords could cover gaps between tenancies, income exceeded bills and give room for rate rises.

Read more..

Buy To Let Booms!

The Lettings market has seen annual growth rising to 2.5 million tenants in the last 10 years, and government statistics point to the need for a further 30,000 units PER YEAR for rental, for the next decade reports wwwPropertyToday.co.uk .

That means there are three hundred thousand – 300,000 – new rental properties needed in the UK in the next decade.

Could your property portfolio contribute to this rental housing crisis?  What should you buy?  How can you get started?  What pitfalls should you avoid?

It’s all here in this amazing series of three short videos about getting started in property investing.

In these videos Andy & Greg cover everything you see on this screen (just click to read) and much much more, like how property is essentially free (even your own where there is NO tenant paying for it) 

http://viralurl.com/moneygym/passivedvd

Get Property For Free

Did you get chance to check out the video “interrogation” video of the 2 UK Multi-millionaires – my mates Greg and Andy – who I mentioned in my previous email?

http://viralurl.com/moneygym/passivedvdmg

I have seen them present their business many times, and I was amazed when, watching this again (coz I love some of the stories and jokes!) I realised something completely NEW because it was described in a different way again.

Sometimes we need to hear something many times in a different way, before we get it, or before it moves from the place where we say “Oh! I know that….” to the place where we can say “Oh my gosh, I really GET that now!”

For me, this time, it was – in Section 2 or 3, I can’t remember which one now, where Andy was talking about how property is essentially free, and I thought great, he’s going to explain how, if you put some money into a property then you are able to pull it out again, then that makes it free.

O no!  He went on to say something I have heard him say before BUT IN A TOTALLY DIFFERENT WAY and I really got it this time.

It’s about how, if you buy a house for say £200,000, and you have an 85% mortgage of say 6% (interest only), and you are paying £10,200, or £850 a month, and you live in it (so there is no tenant paying your mortgage), then your property is still totally free.

The interviewer, Rob says, but how CAN it be?

And Andy replies “how long have you had your house Rob?” and Rob says 15 years.

Andy asked (and I’m remembering the figures here so may have them slightly off but not much – watch for yourself!!)

What did you buy it for (£46,000)

And what is is worth now? (£170,000 or thereabouts)

And what have you paid in mortgage?  Rob says £300 a month.

So Andy says…..

Read more..

Genius Property Investing

A great example of the stirling support Silver and Gold members of the Money Gym Club enjoy was shown on a recent exchange between members of our private Money Gym google group.

One of our Money Gym (Gold) members was pondering whether to sell her existing house or let it out, having found her dream cottage in the country.  She realised that selling and buying more 1 bedroom flats would be financially better in the long run, but the effortlessness of letting her existing house, and buying the new one with money pulled out of the existing one, which would then be paid by the new tenant, was very appealing.

She laid it out thusly to the group:

Hi everyone

I have a situation on which I would most welcome any comments, advice or insights. I have decided to move house and have found a property. I have to decide whether to sell my house or alternatively keep it, obtain a buy-to-let mortgage and rent it out. I currently have a mortgage with a draw down facility. This mortgage is portable so I could move this to the new property (unless they were unhappy about me keeping existing property with BTL re-mortgage???)

The advantages and disadvantages I see are:

Read more..