Why should businesses regularly reinvent themselves?

Businesses often assume their business model will survive for ever.

But the salutary story of the troubles of one of the UK’s four largest grocery chains, Morrisons, demonstrates the drawbacks of a failure to reinvent themselves. The company’s profits halved in 2014.

Chairman Andrew Higginson this week admitted in an interview that the company that started as a market stall more than 100 years ago had lost its way. They were certainly later than the other main supermarkets with their online shopping initiatives.

“Morrisons doesn’t know what it wants to be……one minute it’s trying to be Waitrose, the next minute a discounter. You’ve got to stick with your core principles……” said the company’s former property director, Roger Owen, who retired in 2009.

The lessons, however, apply to many businesses and organisations, not only those in the admittedly challenging grocery sector.

The UK’s libraries have also been in decline, partly as a result of austerity cuts to public sector budgets but also because of the changing requirements of users. Technological innovations like the internet have made it easier to access information online as well as firms like Amazon making it easy to browse for books to buy second hand. Some have reinvented themselves and continued to thrive by adopting a different operating model. New initiatives include: providing access to the internet; courses; paid-for research; organising events; hosting clubs, even book clubs.

There is a lesson here for business. The older you are the easier it is to get set in your ways and to miss the threats of the new young “upstarts” snapping at your heels.

The answer? Yes, keep a close eye on developments in your sector and on the competition, and regularly review your core values, structure and business plan.

But more important, much more important, is to keep an eye on your customers and what they want.

What’s the next business communication great leap forward?

Approximately 150 years ago the railway was the equivalent of today’s internet as a means of communication.

Then came the telephone and then electricity. Some companies even had a director of electricity to try and work out the impact that electricity would have on their business.

The internet is probably the most recent technical revolution in business communication although mobile networks linking phones and devices to it is a contender. The fact is they are connected.

However, as Google Chairman Eric Schmidt has said, we now take all these developments for granted. But in their time they transformed the way businesses operated and in turn this impacted on the organisation and structure of the wider society.

It doesn’t take long before what once seemed revolutionary becomes the “normal” way of doing business.

The question is “what development will be the next game changer?” Google glasses? Robotics? Smart Apps? The Apple Watch? Arguably all of these are just incremental product developments following on from the cellphone and the tablet as portable technology.

Perhaps the next real breakthrough will come from advances in biosciences or biotechnology? What do you think?

Sometimes the traditional marketing methods still work best

Businesses are constantly beset with advice and guidance about using the latest technological innovations for their marketing.

Sometimes, however, those traditional marketing methods, such as printed leaflets, letters or brochures may work just as well.

We learned of an interesting short promotion that produced spectacular results. A business looking to set up initial meetings with prospective clients sent out a personalised letter to its targets containing half of a £10 note.

If they made an appointment and kept it, they would get the other half of the note to keep. The take-up was excellent. It was a great idea for a very specific and targeted initiative.

Another example was the photocopied, somewhat crude leaflet dropped through our door that offered to shampoo the carpet of one room for fixed fee of £15. We took up the offer to do one room. They were so courteous and considerate with our furniture putting a protective insert under each chair and table leg that we asked them to clean all the other carpets. The final bill was over £200.

If the offer appeals, whether you provide a voucher or another incentive, or if your services will be needed in the future, it’s often much easier to keep printed material where it will be easy to find later. Even the fridge magnet or useful sticker can work.

What traditional campaigns have worked for you?

Do you know how to deal with enforcement officers?

When a business has a judgement debt due to its creditors, or is overdue paying taxes to HMRC, or its landlord for rent arrears or to the local authority for rates, enforcement officers may arrive at its premises to seize property.

Enforcement officers may be bailiffs appointed by the County Court following granting of a County Court Judgement (CCJ) or by Sheriffs if there is a High Court writ. They can also represent HMRC, the landlord or local authority without judgement.

They can seize assets but only if they have lawful entry to the property and the assets are unencumbered. They do not have to physically remove anything from the premises but the seized assets may not be removed or sold without consent.

Unencumbered assets are those owned wholly by the business.  This means any items on the premises that have been supplied under a seller agreement where they no longer belong to the seller. It may be that many goods on the premises are not actually owned by the business and therefore cannot be seized.

This often applies to company vehicles on a lease or hire purchase basis, as may plant & machinery, photocopiers and IT equipment.

Less obvious are those goods bought for resale which are subject to an agreement that they only become the property of the business once they have been paid for, known as Subject to Reservation of Title.

However, the onus is on the business to prove to the bailiffs that this is the case.

It is therefore imperative that the business keeps proper records of all paperwork such as finance agreements, invoices and purchase agreements to prove any supplies that may be Subject to Reservation of Title.

Quite apart from the reason above, all businesses need to keep proper, up to date records, including sale and purchase invoices, purchase orders and contract related documents regardless of whether they are in difficulty or running profitably.  How good is your record keeping?

How can SMEs benefit from membership of a local business groups?

Online business forums regularly feature debate on the costs versus the benefits of membership of local business groups, such as the Chambers of Commerce, the Institute of Directors or the Federation of Small Businesses, all of which have local branches linked to their national bodies.

In some, members can access cheaper, or free, business banking as well as legal advice and better insurance deals.

Others offer a wider range of benefits that include the ability to network and make connections with other local businesses that may be potential clients or customers, and access to support services, trade missions and information on trading overseas.

Access to local information and marketing intelligence can make all the difference between growth and stagnation.

Many SMEs use local business groups to enhance their own sales team. They collaborate to share contacts and this approach works particularly well when members promote each others’ business and solicit leads on behalf of each other.

Owning a small business can be a very lonely experience so the opportunity to link with others cannot be over-estimated. To some extent what you get from membership will depend on how active you are within the organisation.

Do you belong to a local business organisation? Have you found it valuable to your business and do you have any tips for others considering joining one?

Can SMEs afford to recover debts?

From this week SMEs wanting to pursue recovery of a debt of £20,000 or more through the civil courts will have to pay an advanced fee of £1,000 or more.

The fees for civil courts have been increased by an estimated 600%, on a sliding scale calculated at 5% of the value of the amount claimed.

The payment has been increased by more than the actual cost of court action and is therefore called an “enhanced” fee.

The worry is that debtors will have even less incentive to pay what they owe if they suspect their creditor cannot afford the court fees to recover debts.

SMEs would be well advised to take even greater care to protect themselves when taking on new customers. For B to B services it is always advisable to check the credit history of a potential business client and be very clear on the wording of any contract.

Businesses should also check the small print of any credit insurance they might have. They need to know the cost of making a claim in addition to that for the credit insurance as claims normally require proof of default such as getting a court judgement and enforcing this before being able to make a claim.

This also may justify factoring where the finance provider normally collects the debts, although beware any recourse clause that allows them to transfer uncollected debts back to the company.

For both B to B and B to C businesses it is also advisable to review credit risk and terms such as deposits, significant early payment discounts and security including personal guarantees should be considered. Why wouldn’t a personal guarantee be provided if the client’s intention is to pay the debt?

A supplier of goods to Viper Guard, my vehicle parts company, offers a 30% discount for payment within 30 days. They always get paid on time.

While final approval was passed in the House of Lords last week, it is expected that the Law Society and other lawyers’ representative bodies will seek a judicial review of the legality of the new charges.

Pre-election honeymoon period for businesses?

With an election looming it is unlikely that there will be any controversial legislation between now and May that will upset SME voters.

There may, on the other hand, be promises made in party manifestos, though we’re not commenting on whether they will be kept!

The pre-election honeymoon period is, however, a good time for businesses to get their finances and their operations in order.

Personal tax returns should have already been submitted (by 31 January) and firms ought to be ahead of the curve with their RTI (Real Time Information) systems in place (the deadline for SMEs is 6 March). It is also time for SMEs to make sure they have a planning time frame for pensions auto-enrolment as the various deadlines are looming (depending on the number of employees and whether an application for deferral has been agreed).

So this period provides a small breathing space for businesses to do some housekeeping and make sure their affairs are in order before the next onslaught of initiatives from a new government, which may be one that philosophically doesn’t like businesses.

A close look at the monthly management accounts may identify adjustments that can be made to operations that improve efficiency, cut costs or reduce risk. It may also identify scope for reducing debt or building up a war chest for investment. It may identify finance facilities that are due for renewal in the near future that might better be renewed early.

It could also be a good time to assess how well the marketing has been performing and tweak it if necessary.

How will you use this time to create a sharper, more efficient and more competitive business for the next financial year and be ready for whatever the election brings?

Is short term investment damaging future business prosperity?

For many years, the UK economy has depended heavily on consumer spending and on property speculation.

This may have led investors, even pension funds that require steady returns over many years, to focus too heavily on short term investment and gain and, therefore, on quarterly or annual reports and results thus undermining their willingness to wait for future returns.

However, the creative infrastructure that led to such inventions as the steam engine depended not only on “lightbulb” moments but also on people who were educated, skilled and above all had the time to think slowly and in depth.

Recently the Bank of England’s Chief Economist, Andy Haldane, has been worrying that the development of the internet has also undermined the ability to think slowly and in depth and thus the patience needed for business innovation and progress.

If UK businesses, from SMEs to large corporations, are to remain at the forefront of innovation they will need continued investment in the best brains, in research and development and in a decent infrastructure and that means investors willing to be patient for the long haul.

Is it time that more emphasis was put on education, training, employee development and perhaps even public investment in longer term projects to emphasise the importance of sustained effort and patience?

Why would any business pay more tax than it needs to?

The subject of tax payment cannot avoid being a political football, especially as an election approaches.

But if there is to be a genuine debate, and genuine clarity about what each political party actually stands for on tax and businesses then there needs also to be clarity about what is and is not legal.

Tax evasion is illegal, tax avoidance is not.

Given that all benefit from the “public goods” such as education and transport infrastructure, and these have to be paid for, no business or indeed no one I know would quarrel with paying a fair amount of tax.

But beyond that it could be argued that a company’s directors have a duty to minimise their business tax bill in order to maximise profits, in other words to avoid paying taxes they don’t have to. That is why people use accountants and other financial advisors.

It is fair enough for politicians to want to close loopholes that allow large corporations to “game” the system and avoid paying their fair share.

However do we really want a tax regime that rests on politicians telling us how much income we are permitted to have, as the Labour Party seems to want to when attacking tax avoidance? Surely that is perilously close to communism?

The press isn’t immune as turnover is often cited instead of profits when referring to tax.

What we would all like to see is a taxation system that prevents tax avoidance by corporations using offshore accounts to keep more than their fair share of profits while still benefiting from the public goods that allow them to operate profitably in the UK.

SMEs have an opportunity to outshine big business

There is a lot of scepticism and distrust among SMEs and consumers about the values and ethics of big corporations at the moment.

One of its most well known manifestations is the support for the Shop Local initiative that has been growing over the last few years.

This is the perfect time for SMEs to stand out and enhance their reputations by demonstrating what they give back to the community and outshine big business.

Often, people in SMEs just “get on with it”, whether by adopting a charity, improving work conditions in some small way, or even something as simple as giving up a couple of hours to help a young person to plan their route into work, or find out about an industry or profession that they think might appeal to them.

A new, nationwide initiative called Trading for Good has been set up to help them to publicise this. It is a non profit organisation and free to join. It offers SMEs the opportunity to register and document their good deeds. There are annual awards for five such good deeds in a year that can earn companies a badge and a certificate to display on their marketing literature.

For SMEs looking for new ways to promote themselves as more ethical and committed to their communities than some of the bigger businesses this is an initiative to consider adding to the marketing mix.