Month: February 2019

Personal Loans and Payday Loans Glossary

Young afro-american ?an working with laptop and smartphone outdoor

Accrued Interest This is an accumulated interest you have to pay. It may be fixed or increasing over time. Annual Fees Annual fees are what banks charge on an annual basis for their maintenance. Credit lines. Applied Interest Rate Also known as flat interest rates. And is used by banks to entice customers. When you compare personal loans, look at effective interest rates (EIR) instead, as this rate factors in all fees. Balance Transfer A balance It usually has a grace period for 6 to 12 months. Borrower This financial institution or moneylender. If you take the borrower. Cancellation Fees When you want to cancel your account. This is to credit line loans. Collateral With secured loans, can be approved. In the event that you cannot pay off your debt This is called a collateral. Conversion Conversion is the act of transferring your debt to another bank. Credit Limit Usually applicable to credit lines, the lender can borrow from the bank. Credit Line As one of the most popular personal loans in Thailand You only pay interest on what you’ve borrowed. Credit Rating Your credit is a measure to be a borrower. This app is accessible by banks in your bank account. Credit Report The credit report is a record of the borrower’s entire history. Credit Bureau Thailand issues this to banks whenever they are enquire about a borrower. Default A default is The bank might repossess what you have put up as collateral. Early Redemption Charge With term loans such as personal instalments Effective Interest Rate The effective interest rate (sometimes called EIR) is what you need to know for loans. This is because EIR takes into consideration the compounding interest, processing and handling fees, which comes up to what you actually pay on your loan. Fixed Rate Loan This does not fluctuate throughout the loan tenor. Grace Period Also known as an interest period, this is a 0% interest on your interest. Balance transfer loans are known for their grace periods, which can go up to 12 months. Late Payment Fees The payment date, the lender will charge you a late payment fee. Lender This financial institution, moneylender advancing a loan.

Loan Tenor

Loan Tenor

A loan tenor, or a loan term, is the length of time you agree to pay the loan. It can range from months to years. Minimum Sum This is the minimum. This is more. Monthly Repayments A monthly repayment is the sum you are required to pay the lender each month. This usually includes the interest as well. Personal Instalment A personal instalment is a loan that disburses a fixed amount of time. Revolving Loan Whenever you need money, you can borrow up to When you’ve paid your monthly statement, you can borrow more. This is the opposite of a term loan. Secured Loan A collateral before it can get approved. Because of the secured loans usually offer lower interest rates compared to unsecured loans. Term Loan With a term loan, you have to make a monthly payment This is the opposite of a revolving loan. Total Amount Payable When you add the interest rates, processing and handling fees on the amount tenor, the total amount payable. Unsecured Loan This loan does not require collateral. Some unsecured loans are credit lines and credit cards.

The Right Legal Form for Your Company and What Your Financiers Want To Read About It in the Business Plan

When you make yourself independent, you have to make many decisions. One of them refers to the legal form your company should have. Whether GbR, OHG, GmbH or KG – in principle you have the free choice. Your task is to choose the legal form that best suits your start-up and your individual situation.

In your business plan, you can devote your own chapter to the question of legal form, or you can trade it with other applicable laws that govern your creation.

The choice of legal form does not have the same meaning for every foundation. If you’re self-employed as a freelancer with a sole proprietorship, you certainly do not need to say as many words about it as the founders of a start-up would like to go under the corporations. In any case, you should justify your decision in your business plan. “We start our business as a trading company” is better than nothing, but a bit poor.

That’s how you convince the readers of your business plan

A good example from which other founders can learn is the business plan of Dirk Lankenau, who set up his own business with an engineering office. As a registered user, you can find his business plan alongside over thirty other business plans at Catherine Morland.de and be inspired by them.

Dirk has opted for a one-man limited company and justifies it as follows: “In international business, the GmbH enjoys a high reputation under German law in general. The founding of a GmbH creates a high level of legal security for customers, partners and the founder himself. The limitation of liability also protects the entrepreneur against the loss of his private assets in the event that claims are made to the company that are not covered by the working capital. “

He then explains how exactly his company will be built and the structure of his business, and will indicate when to register in the commercial register. He shows his readers that he has dealt intensively with the various aspects of a GmbH and resolutely and planned proceeds.

Why is the legal form so significant?

The legal form of your company decides on such important issues as the form of organization, the bookkeeping, the liability risk and the tax. Therefore, you should weigh carefully before making a decision. Advice on this topic by a lawyer or a tax consultant can pay off.

A typical mistake of founders is not to worry about the legal form and instead just start. Then, however, the tax office assigns the company a legal form and apply to the founders legal provisions that they may not know.

Desk with hands and contract term

In contracts better two times to look and just ask questions – the signature is!

No decision for life: You can change the legal form

Clear advantage is, who deliberately makes the choice of the legal form and is aware of the consequences. But do not worry too much: Usually you can change your decision later. In certain cases it may even make sense to change the legal form in the course of company development. If your business starts small but is focused on rapid growth, it may be smart to move from a single-company status to a limited liability company to limit personal liability.

This is how our founder Wiebke Abel did it when she started with her temporary employment agency for medical staff. You can also see their business plan when you register at Catherine Morland.de. Wiebke writes in the section “legal form and regulations” that they will start their business as a sole proprietorship for lack of capital, but strive for a “fastest possible conversion into a GmbH”. Amongst other things, she argues that her company is designed for growth from the outset and that she wants to limit liability to company assets.

Another good example of what you can write about legal form is the business plan for a web development company, whose founders decided in favor of the rather unusual form of UG & Co. KG. In a brief overview, they outline the advantages and disadvantages of this legal form, showing their readers that they really know what they are getting into.

A special plus of their business plan, which they also kindly provided us with: They do without standard formulations and terminology, but describe the characteristics of the entrepreneurial society in their own words. For example, it is outlined as “confusing” instead of referring to the accounting obligation – because that’s exactly how it presents itself to many founders due to the accounting obligation.

The legal form decides how a company is structured

And the two founders of a software company have done an exemplary solution in their business plan: they not only devote their own chapter to the topic of legal form, but have also prefaced this with a separate section on the internal organization of their company – both are closely related. In it, they describe in detail how they share the tasks in the company as a shareholder, what methods they apply, when they hire staff and what kind of leadership style they set. A better look into the future company can not give its potential donors actually. Not surprisingly, their business plan – as well as the other two examples given here and any other plans you can find on Catherine Morland.de – has led to successful financing .

Which legal form is the right one?

To put it simply, the legal form of your formation is the sole proprietorship, a partnership or a corporation.

Each legal form has advantages and disadvantages. Before you decide on one of them, you should ask yourself these questions:

  • Am I alone or with others?
  • What will be the economic risk?
  • How much equity can I raise?

Man on swing is in balance

This entrepreneur is finished with her business plan chapter on legal form and therefore extremely happy.

These are the common legal forms for founders in detail

one-man business

The establishment of a sole proprietorship takes place unbureaucratically and quickly and is associated with low costs. You do not need any capital, but you are liable for all of your personal assets if things go wrong. Unless you explicitly opt for a different legal form, your startup will automatically run as a sole proprietorship.

If you want to start alone and small, without capital and with manageable risk, nothing speaks against starting as a sole proprietorship. Depending on the start-up plans, an asset or professional indemnity insurance may already be sufficient here to secure your private assets.

With your financiers, you can earn important benefits if you base your business plan on your choice with the low risk of your project and the low start-up costs of a sole proprietorship.

Civil law

As soon as you get together with one or more other partners, a community of civil law (GbR) arises. GbR is the simplest form of partnership. Special legal forms such as the Open Trade Company (OHG) or the limited partnership (KG) are based on it.

It is advisable to set up a shareholders’ agreement when founding a GbR, which regulates exactly how you divide the profits and losses among each other and who takes which tasks. This will save you from bitter disappointment in the case of a dispute.

The most important points from the contract you should necessarily explain in your business plan, because they are very interesting for your financiers! Before they promise you a financing, they want to know how you want to organize your business and who takes on the responsibility to what extent.

Attention: Even without a contract you are a GbR, as long as you do not specify otherwise. Each one of you is then with his private assets for the debts of the community and may have to pay for the mistakes of others ( here you will find out what pitfalls to observe in the GbR contract )!

Company with limited liability

The GmbH is one of the corporations and is very popular among founders as well as in general business transactions. Their biggest advantage is that liability is limited to the company’s share capital. Your private fortune is secure, usually even in case of bankruptcy.

This advantage, however, has its price. The start-up costs of a GmbH are comparatively high. This is not only due to the deposit, which is at least 12,500 EUR. There are various advisory, notary and court costs added, including for the certification of the articles of association and the entry of the company in the commercial register.

In addition, the accounting and accounting of a GmbH is subject to legal requirements and is associated with a high bureaucracy. Without a competent tax adviser at your side you are probably in the fix.

Anyone who wants to start a GmbH should be able to cite good arguments in his business plan. It is suitable for large and small companies alike, from a one-man business to a growth-oriented start-up. But the effort is especially worthwhile if a larger sum is to be invested anyway, if there are several shareholders and if dynamic growth with high profits and an equally high risk seems probable.

In individual cases, it may make sense to design the entrepreneurial entry as a GbR, only later – if the growth is safe – to change into a limited liability company.

Entrepreneurial company (limited liability)

In order to reduce bureaucratic and financial hurdles for start-up companies, the entrepreneurial company (UG) was introduced in 2008 as a small sister of the GmbH. It is suitable for manageable start-up projects with lower risk. As deposit enough already 1 Euro, because the capital of a “normal” GmbH can gradually be saved. This means that each year some of the profits remain in the company and are not paid until the total is reached. Like every corporation, the entrepreneurial company is accountable.

It can be converted into a GmbH by a shareholder resolution as soon as the accumulated share capital is at least EUR 12,500.

Tips for your business plan

There are many more legal forms with several forms and special forms. Surely you’ve heard of the Gemeinnützige GmbH (gGmbH) or of the GmbH & Co. KG. We do not want to open the big deal here, but show with the most common company forms that there are always arguments for and against a specific legal form.

It’s important that you let readers of your business plan share your thoughts on the subject and not limit yourself to recording the outcome of your consideration. Ideally, you’ll compare the pros and cons of several options to justify your decision.

Since the legal form can have a serious impact on the financing of your foundation, it is advisable to think about it at an early stage and, if necessary, to give advice. At Catherine Morland you can select a legal form under Preferences. Among other things, this affects your calculations on the display of private withdrawals – these are not provided for in corporations. If you are not sure yet, just skip this point and click “I do not know yet”.

As a rule of thumb, the more complex your business structure is and the higher the financial risk, the more detailed your business plan should be.

 

Good luck writing your business plan

Your Dr. Jan Evers

About the author Founding expert dr. Jan Evers is the owner of the consulting firm evers & jung in Hamburg. For ministries, banks and business development organizations, evers & jung GmbH has been developing concepts and solutions for entrepreneurs for more than 15 years that make entrepreneurship easier and more self-reliant.

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The Liquidity Planning In the Business Plan – The 5 Biggest Dangers for Founders

As a founder, you must make sure that you remain liquid. How to do that, I explain to you in this post.

The liquidity planning in your business plan provides an overview of how your balance develops in the first few years after the foundation. She’s putting your deposits in line with your payouts.

The liquidity plan is extremely important for your startup, even more important than profitability. Reason enough to take a closer look at this topic today.

What is liquidity?

 What is liquidity?

Those who are liquid are liquid. So he has enough money to pay all his receivables. It does not matter where this money comes from: Whether it was earned, borrowed or won in a raffle, it does not matter for liquidity planning.

In that it differs from the profitability . The profitability curve in your business plan describes your profits, that is, what’s left over when you deduct your expenses from your earnings. The liquidity curve describes the actual filling level of your wallet or account.

Ideally, both curves are pointing upwards – but in reality this does not have to be the case: a company can be liquid at the same time, but not (yet) profitable, or vice versa profitable, but not liquid.

What is the liquidity planning?

 What is the liquidity planning?

The chapter on liquidity planning in your business plan somehow describes your bank statement of the future. You look ahead to see how much money is in your account in 6, 12 or 24 months at the key date. You could also rename this chapter to “How is our account balance developing?”, Just as the founders of a web application did, whose business plan you, as a user of Catherine Morland, can read and take as a role model.

Screenshot from Catherine Morland, account balance development

Own chapter for liquidity planning in the business plan: How is our account balance developing?

Of course, to predict your balance, you need to know your future cash flows. Payouts include, among other things, purchases of goods and materials, personnel costs, insurance, operating costs, private withdrawals (ie your entrepreneurial salaries), taxes and repayment installments on your loans. Deposits include your sales, but also your equity or loans.

While the payouts can be determined quite well with a little research and planning, it is already difficult for the deposits, especially in terms of your sales . After all, you have no empirical values ‚Äč‚Äčthat you can fall back on. You have no choice but to estimate your future revenues as well as possible by thorough analysis of market, competition and target group. The better you succeed, the better your liquidity planning will be.

If it shows that there is a gap and one day there is low tide in your account, you must try to fill that gap. There are various possibilities for this, such as loans, promotional loans or grants (such as the start-up grant or the start-up allowance).

Why is the liquidity planning so important in starting up?

 Why is the liquidity planning so important in starting up?

Sound liquidity planning is the prerequisite for your business success. Imagine, you suddenly run out of money and you can no longer pay your employees or no new goods to order! Then your company threatens to go out and it will not do you any good that your business is actually starting and your order books are full.

Because we know how difficult many founders are doing with the liquidity plan, we have developed a tool that automatically generates a liquidity preview based on your revenue and expense information. So save yourself the time you need to craft a suitable Excel spreadsheet and get into the content planning of your startup.

If the result should be a steeply sloping curve, stay relaxed: this is normal. Those who are self-employed often have high expenses at first, while sales are still slow in coming.

The same happened to Stefan Schulze Dieckhoff and Stefan Clauss , who wanted to start their own business some years ago with the production of an inflatable tent. Your liquidity planning looked like this at the time:

 

Automatic presentation of liquidity development based on the numbers entered in Catherine Morland.

As you can see, there were two long years before the two founders, in which their financial buffer was almost continuously melted down. The decisive factor was that the zero point was never exceeded and in March 2013 the decline was finally stopped. These two aspects ultimately led to the implementation of the project.

A decision that the intrepid founders have not regretted. Today her company Heimplanet has long been established and is in the black. Incidentally, you will also find her business plan alongside almost 30 other real plans at Catherine Morland as a role model and source of inspiration for your own business plan.

There are dangers for your liquidity here

Why it’s important to keep an eye on your company’s profitability and liquidity planning is explained in a few typical pitfalls that threaten your solvency:

1. Investments

It is also relatively easy for non-professionals to understand that investments are affecting your liquidity reserves. And immediately and 100 percent. Here you recognize again a difference between liquidity and profitability plan. Investments are only piecemeal on the latter because they are written off for tax purposes over a longer period of time, usually over four years. This means that each quarter, one quarter of the investment is deducted from your profit and your tax burden is diminished accordingly. Of course, your money already goes from your account in the first year and in one fell swoop.

2. Orders

I beg your pardon? Orders are a fine thing – why should they be bad for the liquidity plan? Because orders often cause first costs, which are only recorded at a much later date. Depending on the agreement, there may be several weeks or even months between placing the order and receiving the payment.

Let’s go through this with an example: carpenter Müller is commissioned to build a cabinet. He orders the wood and pays a co-worker to make the cupboard – both reduce his balance. The money from the customer but he gets only two weeks after the finished cabinet delivered and the bill was made. Therefore, our carpenter should arrange with his customer a deposit of at least 50 percent when placing the order and write the bill immediately after the order has been completed to prevent him from overpaying. Unfortunately, far too few entrepreneurs go this route because they pay too little attention to their liquidity planning.

3. Growth

Point 2 is followed by point 3: Rapid growth can become a problem for a young company because it reinforces the effect described above: As the number of orders increases, so does the cost. What dramatic consequences this can have for a dynamically growing company is shown in our example plan for online trading . Kai Grimme, the founder of a flourishing deli trade, was unable to capitalize on his opportunities for years and had to delay his company’s growth because his bank financing was not enough to accelerate growth, according to liquidity planning. In his case, that meant he could not meet the growing demand because he had no money to maintain larger warehouses.

The risk of becoming insolvent as a result of rapid growth is particularly high for companies that start self-financing, so they spend their money exclusively on their profits right from the start. Therefore, do not worry too much about financing and ensure that there is sufficient buffer so that financial bottlenecks do not later become a drag on your company’s development.

4. The tax

Many founders fall just then in a liquidity trap when it first goes uphill economically. As soon as they have passed the difficult start-up phase, they often have to pay such a large sum to the tax office in one fell swoop that the situation can literally threaten their existence. This tax effect is particularly dramatic for freelancers and partnerships, as they can later file their tax returns as corporations.

Again, an example helps us to understand the connections better: A graphic artist, let’s call him Thomas, is self-employed as a freelancer. For the first two years, he has little income. Accordingly low is the tax, which he must pay to the tax office. But in the third year, the train is picking up speed: the clients give themselves the handle in the hand, the revenue gush – but the tax officials do not know anything about it. With so much to do, Thomas will not file his tax return for 2017 (the first economically successful year since it was founded) until May 2018. As he holds his tax bill weeks later, he gets a big scare: The Office demands a five-digit sum from him:

  1. The tax arrears for the year 2017, in which his income was significantly higher than in the two years before.
  2. The additional tax payment for the first months of the current year, for which the too low rate was also applied.
  3. A now applicable, adjusted up tax advance payment for the current month (and all subsequent months).

If Thomas has failed to pay the tax due, it may now become very, very close for him – though or just because the hoped-for economic success has finally set in.

5. Wrong priorities

Unfortunately, it often happens that founders set the wrong priorities right from the start. They spend their money on things that are not necessary for the growth of their business – and then realize that they can no longer afford the really important purchases for their business. To make sure that does not happen to you, ask yourself before any investment decision, whether it is essential for the start of operations or just “nice to have”.

At the top of your list should always be the official guidelines, if they exist for your foundation. For example, if the health department requires you to have some equipment or equipment in the premises, you should use your seed capital to meet those requirements – otherwise the bureau may shut you down before you even start.

What follows? Tips for founders

The examples show that it is imperative to plan your liquidity carefully and to provide sufficient buffer, even in the event that your business starts faster than you thought, and you need more money to pre-finance raw materials, goods or services.

You should always make investment decisions with a view to the current company development: What investment is necessary for the start or the growth – and which can be postponed to a later date, if you have more money in the account again? How do you make depreciation most sensible, so when is the best time to activate certain cost items and thereby reduce your tax burden? Questions like these should be clarified best with your tax adviser.

In any case, remember to pay enough money in case tax back payments are expected. Under no circumstances should you spend this money for the summer vacation or the new company car. It’s not yours, even if it’s in your account.

And last but not least, be prepared that the liquidity planning you describe in your business plan is only the beginning. She will accompany you throughout your entrepreneurial life. If you compare and plan your planned and actual payments and deposits on your account every month, your liquidity forecast will become more and more realistic and your company’s foundation more stable.