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Finances for a new business

Finances for a new business

Planning finances

Discuss with your accountant or BCIS BMS business advisor:

  • start-up costs, including fixtures and fittings;
  • funds you will need for the acquisition of stock and equipment;
  • sources of finance;
  • suitability of various finance options etc.

Sources of funds

Finances can be obtained from:

  • banks;
  • finance companies;
  • merchant banks;
  • insurance companies;
  • friendly societies;
  • solicitors' trust funds;
  • trustee companies etc.

What to ask

Make sure the financial institution tells you:

  • what additional costs are attached to any loans/overdrafts etc (other than interest);
  • what is the interest rate;
  • is the interest rate variable or fixed, and what are the advantages/disadvantages of either;
  • what security is required for the loan; and
  • are personal guarantees required for the loan.

Borrowing funds

The financial institution will want to know:

  • the purpose for the loan, e.g. for fixtures and equipment, ongoing funds for working capital;
  • how much money you need, e.g. an overdraft of $50,000 for the first twelve months;
  • the amount of funds contributed by the business owners/shareholders;
  • how the loans will be repaid;
  • the security that will be offered to support the loan;
  • the intended market for the product, and the market research to support the business plan;
  • the intended business structure;
  • experience of the owners/managers;
  • your financial history, or the financial history of the business;
  • the assets and liabilities of the business;
  • on-going measurements of the business performance;
  • any arrangements that have been made with other financial institutions etc.

Banks

You will probably want to enter into a long term relationship with a trading bank. Banks can:

  • provide cheque accounts for paying bills;
  • allow the business an overdraft facility;
  • sometimes provide ongoing business advice etc.

Cheques

A cheque tells the bank to pay the person or business named on the cheque. Some relevant issues are:

  • who is the proper person to pay. A cheque that is crossed with two parallel lines is "not negotiable" (make sure you write these words), and usually must be paid into a bank account rather than paid over the counter;
  • if the cheque is uncrossed it is "open", and can be paid to the named payee or anyone who presents it if it includes the words "or bearer" (this is often printed on the cheque and must otherwise be crossed out). An open cheque is not secure. It is also possible for the payee to authorise the bank to pay a third person if it is properly endorsed;
  • the bank will usually "clear" the cheque, at which time the money is paid to the account of the payee;
  • the bank will not pay out on a "stopped" cheque. The payer instructs the bank not to clear the cheque. Usually the instructions to the bank have to be in writing. A co-signatory of a joint account can stop a cheque;
  • there must be sufficient funds in the payer's account to cover the amount of the cheque. If the cheque "bounces", it will be sent back to the payee, who will, of course, want the payer to explain why it bounced. Of course, the payer may have an overdraft facility which allows the account to be "overdrawn" to a certain amount.

Complaints against banks

If you have a complaint, you have a number of options.

The Australian Banking Association has introduced a Code of Banking Practice which sets out a minimum standard of practice that is binding on banks. The complaint process is initiated by a written complaint to the bank, which must then begin an internal investigation.

If you are unhappy with the response of the bank, the Code requires an impartial third party to be used to settle the dispute.

The third party is often the Banking Ombudsman. This is a free service but it does not apply to companies, only personal accounts. If your account is in the name of the company, you may need legal advice if your complaint about the bank has resulted in a loss to the business.

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