Are you ready for investment?
During the blip in leadership, Kwasi Karteng as Chancellor of the Exchequer delivered a mini-budget, most of which was reversed shortly after, but one thing wasn't reversed and that was the changes to the Seed Enterprise Investment Scheme (SEIS).
Small businesses need capital to grow and ambitious entrepreneurs are often unwilling to wait and grow organically. That takes time – often a long time. If you want to grow your business faster you need funding and the SEIS offers a way to make investment an attractive option for both the company and potential investors.
Until 6th April 2023 qualifying companies, could source up to £150K in equity funding through the SEIS – and investors could claim tax relief on up to £100K of any individual investment they made under the scheme. These figures have now increased so qualifying companies can source up to £250K and investors can claim tax relief on up to £200K.
Another change is to the qualifications of the company seeking the SEIS funding, originally SEIS could only be applied for by companies which had no more than £200K in assets. That figure has now risen to £350K in assets. Also, the maximum trading period to qualify for SEIS has increased from 2 years to 3 years.
Plan for investment
If you're planning to scale up your business and intend to offer equity in exchange for investment, you'll need to consider how your accounts are presented and also have a robust and comprehensive business plan.
To get equity investment you'll need to issue shares and have structured your company to allow for that. It's important to be clear about how much of your business you're prepared to give away. Also, you'll need to demonstrate the value of your company for potential investors to be willing to put their money into your venture.
Valuation of a company isn't a figure you pull out of the air. It's dependent on your projections and also the current value of your business. In reality you will need to get professional support from an accountant to ensure everything adds up.
If you watch Dragon's Den you'll probably have watched dragons demand 'How did you arrive at that value for your company?' – and any investor who is interested in your business will be asking the same kind of questions.
SEIS is an attractive draw for potential investors both because of the 50% tax relief and because it's exempt from Capital Gains Tax (CGT), so it's a very good scheme and encourages wealthy individuals to invest in small business development. However there are lots of caps and restrictions about who can invest and when, so it's sensible to discuss your plans with your accountant before jumping in the deep end.