Jake Pearlman, senior manager at haysmacintyre looks at how proptechs can manage cashflow in 2021.
As the property industry and working culture of the UK continue to adapt to the pandemic, the demand for PropTech is expected to further increase, in line with the new importance such as maintaining buildings remotely, conducting viewings virtually and processing sales online.
In the short term, focus is often on managing cashflow for a new business, but it is also important to plan for the longer term – especially how to finance intended growth and disruption of the market. Still considered the ‘younger sibling’ to the traditional property sector, the PropTech industry needs to maintain a proactive stance in adapting to a changing economic climate in 2021.
A PropTech company seeking external investment would do well to ensure that the business is ‘investment ready’, with consideration given to a vendor due diligence process and a detailed business plan in place to increase the chances of raising finance. Being able to draw on an experienced external investor’s expertise, as well as required cashflow, can often be a deciding factor.
According to Michael Murad, head of finance at Pi Labs, Europe’s most active PropTech VC, “When considering external investment, it is important to make sure you understand two key things. First is the core understanding of yourself and your business, which will in turn help you identify the type of investor you require. Second is to understand your investor (whether a VC/angel investor/strategic investor) and what they are looking for in the short and long term.”
“It is important to keep in mind that you will be entering a partnership for the foreseeable future, so you will want to make sure you can work well together.”
Making use of tax benefits
There are also significant tax benefits to consider to aid cashflow that PropTech companies can continue to pursue in 2021. R&D tax credits, whereby the company can reclaim a percentage of any spend made on R&D, can often be a substantial amount, so savvy PropTechs should investigate their eligibility early.
Enterprise Management Incentive (EMI) share option schemes have also risen in popularity during the pandemic, in lieu of salary increases, allowing shares to be granted to key staff at today’s value. As the company grows, the growth in value is immune from employment taxes and is instead taxed at the Capital Gains Tax rate of 20% (or 10% if Business Asset Disposal Relief, previously known as Entrepreneurs' Relief, is applicable), substantially lower than the effective rate of employment tax.
Not only does this aid in incentivising staff, it also provides a method to reduce cash outflows in staff salaries.
The Government schemes arising from COVID-19 have been comprehensively documented in recent months and many readers will already be familiar with the initiatives that can best benefit them in 2021. In a cashflow crisis, PropTechs could consider Business Interruption Loans, access to the Future Fund, and supporting employees through the Coronavirus Job Retention Scheme and Statutory Sick Pay regime for SMEs.
Despite the recent positive news around vaccines, the economic effects of the pandemic will be felt well into 2021. PropTech companies will be buffeted by the storm, but there are options available to help them reach the shore safely.