Archive for January, 2020

Credit 101 – What Is It And How Does It Work?

Posted by Sam Binstead

According to surveys, two thirds of Brits have no idea what their credit score is. More worryingly, more than half don’t actually know how much they owe on credit cards and loans. There are a lot of reasons for this, but poor financial education in schools has been one of the more common explanations. This has led to a lot of people not really understanding what credit is, how it works, or how it affects their lives. But since it is such an important part of your life, and can influence a lot of things, we wanted to go back to basics, and go through credit 101.

What Is Credit

Let’s start at the beginning – credit is an agreement you have with a lender to obtain goods or services that you pay for at a later date, under agreed terms. For example, if you get a loan, the lender will give you the money you request, and you will have to repay that loan over a pre-set period of time, along with interest and possibly other fees. Credit cards, mortgages, vehicle finance and even standard loans are all forms of credit.

In order to work out if they should lend money to you, lenders will look at your credit report and your credit score.

How Does Credit Scoring Work?

Your credit score is a number, and it can have a huge impact on your life. Your credit score will affect any application you make for credit – from loans and mortgages to credit cards and car finance, so it’s important to understand it.

Your credit score isn’t worked out by one person plugging numbers into a computer. Instead it’s complied by separate credit reference agencies, who then inform your lender about your previous history with credit For example, how quickly you’ve paid back what you borrowed, whether you have any outstanding debt, whether you’ve made late payments and so on. The lender will then assess how suitable a borrower you are for whichever product you have applied for.

Credit scoring means that whenever an application for credit is made, data is pulled together on your past credit behaviour in order to help the lender work out what kind of borrower you are, and how much of a risk you pose. This means if you have good credit, you will likely be approved, and if you have bad credit you may be denied.

What Is A Credit Report?

A credit report might sound similar to credit scoring, but there are some subtle differences – not least the way you interact with it. Your credit report contains a history of your dealings with credit, and most people will have four – one for each of the national credit reporting agencies in the UK (Experian, Equifax, Crediva and TransUnion). Your credit report contains a detailed list of all accounts you’ve opened and closed in the recent past, along with how you’ve managed each. In this, you will be able to see every missed payment, any account that has been sent to collections, and how that impacts your credit. It will also list other relevant records, like bankruptcies, foreclosures, repossessions and other information that could be a red flag to lenders.

But it’s not all doom and gloom – it also shows all of your on-time payments and longstanding responsible credit use, which works in your favour. And finally, your credit report lists your basic information – name, aliases, misspellings reported by creditors, current and past addresses, National Insurance number and any recent credit checks that have been run on you.

What Is Good And Bad Credit?

Generally, you will fall into one of three camps – good credit, bad credit, or somewhere in between. This will depend entirely on your credit score, and a good one can open up a lot of opportunities when it comes to getting credit (and better deals on credit). There are 2 scoring systems for credit, with slightly different ranges. They look like this:

FICO Score

  • Exceptional: 800 to 850
  • Very good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 300 to 579

VantageScore

  • Excellent: 781 to 850
  • Good: 661 to 780
  • Fair: 601 to 660
  • Poor: 500 to 600
  • Very poor: 300 to 499

When you check your credit score using one of the services we’ve listed above, you will see a number score, along with what that means. If you see it’s not quite in the good range or above, you should consider taking some steps to improve it.

How Do You Build Credit?

The good news in all of this? You have complete control over your credit score, and there are some things you can do to improve it. Establishing a solid, positive credit history can take time, effort and a lot of patience, but it’s worth it in the long run. A few ways you can build good credit include:

  • Use credit regularly
  • Establish a positive payment history
  • Keep your credit card balances low
  • Borrow wisely
  • Keep track of your credit score and reports, and fix any issues as soon as you see them

It’s never too late to work on building your credit, and the longer you have before you need good credit, the simpler it will be. Regardless of how many negative items you have on your credit report, their impact can and will diminish over time as you add new, positive information. It’s a long game, but an incredibly important one to play if you want to achieve financial security in the future. For more information about credit, how it could impact you and what to do now, just get in touch with our team today.

Business Financial Planning For 2020

Posted by Sam Binstead

With the new year now underway, you should hopefully be getting back into the swing of things at work. But it is still early days, and if you haven’t already, you should be thinking about what you want the year to look like, what your goals are and what you can do to achieve them. Part of that will be planning out your finances for the year, and understanding what those numbers mean – not to mention what to do with them once you’ve got them. This is called business financial planning, and it’s something not enough business owners engage in. So today we have 6 steps for you to follow that will help you create a financial plan for 2020, and ultimately help you achieve your goals.

Review Your Strategic Plan

The financial planning process should start with your company’s strategic plan. This means thinking about what you want to accomplish in the next 12 months and asking yourself a series of questions:

  • Do I need to expand?
  • Do I need more equipment?
  • Do I need to hire more staff?
  • Do I need other new resources?
  • How will my plan affect my cash flow?
  • Will I need financing? If yes, how much?

The answers to these questions will help you understand what the financial impact of the next 12 months will be on your business, including identifying any spending on major projects that need to be done.

Develop Financial Projections

Once you know roughly what your plans look like, you should start creating monthly financial projections. You do this by recording your anticipated income based on your sales forecasts and your expected expenses for labour, supplies and overheads. If your cash flow is quite tight, then you might want to do this weekly, rather than monthly. Once you have the basics, you can plug in the costs of the projects above. There are lots of ways you can do this, from spreadsheets to sophisticated software, so you can make sure it works for you.

This gives you the basics of a financial projection, and allows you to see what your business will look like in the months to come. If you’re not great with numbers, run them by your accountant or a financial adviser to double check.

Arrange Financing

During this exercise you may have found some areas you need support in. Periods where cash flow could be an issue, or you have a hole in the accounts that needs some larger-scale financing. By working all of this out in advance, you will be able to approach your financial partners ahead of time to discuss your options and plan any project financing. Not to mention that well-prepared projections will help reassure bankers that your financial management is solid and you aren’t a risky investment.

Plan for Contingencies

On top of your day-to-day spending, you should also be sure to have a contingency in place. What would you do if your finances suddenly deteriorated, you were hacked, or there was a large expense you needed to pay? In these situations, it’s important to have an emergency source of money before you need them. There are a lot of possibilities for this, including maintaining a cash reserve, or keeping lots of room on your lines of credit. Review your finances and your plans now, and work out what your contingency plan is, just in case something does go wrong.

Monitor

The key to good financial planning is to maintain it. A plan is no good if it’s looked at once and then shoved into a drawer, never to see the light of day. Throughout the year, compare actual results with your projections to see if you’re on target, or if you need to adjust things. Monitoring your financial plans helps you spot problems before they get out of hand.

Get Help

If all of this sounds a bit much, and you aren’t sure where to start, we recommend you don’t try it alone. There are plenty of financial advisers out there (including us) who can help you understand your business goals, and work with you to create a financial plan that suits you and will help you achieve your business goals.

At Chilvester Financial, we aim to provide just the financial advice you need, when you need it. We don’t use jargon, and because we are chartered, we are completely unbiased, which means you only get advice that is right for you. What’s more, you’ll find us on the high-street, so you can easily come in and chat things through with us. If you would like to know more about financial planning for your business, just get in touch today and book your consultation with one of our advisers.

5 Challenges Facing Modern Business Owners

Posted by Sam Binstead

Life as a business owner is tough. There are dozens of plates you need to keep spinning at any one time, and often a lot of them are kept going by you single-handedly. Even if you hire staff to help you manage everything, there are a variety of tasks where the buck stops with you. If that sounds familiar, then so will a few of the things on this list! As the business world changes, the challenges modern business owners face change too, and here are just a few of the things that are causing problems for people just like you.

Uncertainty

Predictability is one of the most important things in the business world. Being able to understand what’s coming in terms of customer trends, market trends and the economic climate can help businesses prepare for the future, and develop resilient plans with it. But not every CEO is a fortune teller. The problem is that where we previously had strong data, trends and a general idea of what would be happening next, the world right now is in a state of permanent uncertainty. We’ve talked a lot about Brexit and the instability it’s caused in the political and business climate, but there are other factors as well, from financial insecurity to worries about another recession.

Monitoring Performance

Tracking and monitoring the performance of your business is an important part of management. Being able to understand how your business is performing, especially in financial terms, is essential for growth, but developing KPIs and keeping track of them is not a simple thing. There are some major pitfalls involved in deciding what to track and when, not to mention how to actually do the tracking and what to do with the information when you have it. Because of this, most businesses end up relying on overly simple financial indicators that do nothing more than clog up reporting flow, and don’t actually give you any meaningful information. Finding the right financial metrics to track, and having systems in place to track and learn from them, is an important part of running a business, yet it is an area most businesses struggle with.

Regulation and Compliance

As markets and technologies shift, so do rules and regulations. Depending on the industry you’re in, staying on top of these changing regulations and ensuring your compliance becomes more and more difficult. In most cases, business owners could benefit from bringing in a consultant to help with these areas, and guide them on how to stay compliant (and avoid hefty fines).

Technology

As technologies change at practically the speed of light, it’s important for companies to innovate or be left in the dust. Since there is so much change, a lot of business owners started out before these new technologies came into play. And by the time they have been adopted, even newer technologies are developing to take their place! Staying on top of technology is a consistent challenge, and one that probably won’t be going anywhere anytime soon. The problem is, if you continually invest in every new technology that comes along, you will struggle to justify the cost, and eventually run out of money. So it becomes a case of choosing the right technologies for your business to invest in in order to grow.

Financial Management

A lot of CEOs and business owners are ideas people. That means they’re great at the big picture, disruptive thinking and coming up with new, innovative ideas, and not so much of the things like cash flow, profit margins, reducing costs, financing etc. Financial management for businesses has become more complex over the years, and with so many different tools available and things to track it can be confusing just to stay on top of everything. In this scenario, using an external financial adviser can be a huge help in understanding your business finances, keeping on track with your goals and making wiser investment decisions.

At Chilvester Financial, we are a team of specialised financial advisers, and we are always happy to answer any questions, talk through your options or give you a helpful hint here and there to improve your business. If you would like to know more, or have any questions, just get in touch with the team today and book your free, no-obligation consultation.

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