Growth? – make hay while the sun shines

With all the uncertainty and market volatility in recent weeks should SMEs still focus on cash so that new opportunities and growth can be funded without over-trading (running out of cash)?

It seems that although many small businesses are reporting increases in orders, they are being cautious about taking risks.

Generally as an economy comes out of recession and orders start to pick up there’s a risk of over-trading, especially where a business has insufficient capital reserves to fund the period between order and payment.

This explains the well-documented rise in insolvencies that characterises the start of an economic recovery. We haven’t seen a rise in insolvencies yet and the feedback from SMEs has been that they are not yet convinced of a stable recovery.

We believe SMEs are taking a realistic view in welcoming increased business, deciding to make hay while the sun shines, but not yet pursuing aggressive growth strategies.

What is your view?

Businesses exporting outside Europe – in this climate?

For some time now small businesses have been encouraged to look outside Europe for markets for their goods and services.

Indeed research by UPS found that UK SMEs have been outperforming those in Europe in developing their exports beyond the EU and increasing their turnover.

While the bulk of UK exports are still to the EU, 54% of UK SMEs had exported to other English speaking countries, such as the USA, Canada, Australia and New Zealand.

One could argue that SMEs should be looking even further afield. But how realistic is all this as a recipe for recovery and growth?

Export growth?

Markets across the world are increasingly jittery. There is doubt about whether the Bank of England will now raise interest rates this side of the forthcoming election for fear of destabilising UK recovery.

The 2008 Great Recession was a massive shock to the global economic system and the fear that it caused is nowhere near abated. There is even talk of another major financial meltdown looming in the next couple of years.

The IMF has been sending out dire warnings about global growth for 2015 because of the Eurozone’s ongoing failure to recover.

It is becoming ever clearer that the global financial system is now so interconnected that what happens in one part of the world has an impact on economies, wherever they are on the planet.

What price increasing exports in this atmosphere?

Has HMRC frightened off tax advisors from giving advice?

When considering capital reorganisation as part of restructuring a business it is normal to inform HMRC that holdings are being changed and request clearance.

No money is changing hands in this situation but even so it seems that the accountants and tax advisors are becoming reluctant to advise companies on their capital reorganisation.

Rightly or wrongly accountants are concerned about their own liability given the perception that HMRC’s stance is to assume the purpose of reorganisation is tax avoidance and that any notification may lead to a demand for tax payments in advance, regardless of whether there is any money being made from the restructure.

This is often complicated by the purchase of debt at a discount as part of a financial restructuring alongside the capital reorganisation.

So as restructuring advisors, we are finding that some accountants we approach for advice on Revenue clearance don’t want to get involved for fear of being sued.

Has anyone else come across this?

The High Street is not dead

Since 2010 there has been a justifiable concern about the demise of the High Street.

This was fuelled by some big chains collapsing due to a reduction in consumer spending, a changing focus towards ‘value for money’ and the growth of shopping online or ‘out of town’.

But it’s not turning out quite like that. It seems we do still like the sociability of the High Street and the opportunity to browse and actually see and touch merchandise.

Amazon has recently announced plans to open its first actual store in New York, expected to be modelled on the lines of Argos, and surviving retailers have become more agile in adapting to what consumers want, so we now have click and collect.

Shopping patterns have changed to limit “brand loyalty” to one supermarket, hence Tesco withdrawing planning applications and selling land it had earmarked for more large stores.

There are also some signs that fewer people are doing a weekly “big shop”. There are noticeably more smaller High Street branches of the big four superstores, but also the rise of the budget stores like Aldi and Lidl because we also like value for money.

Smaller independent retailers are also proliferating according to research from the Local Data Company and the British Retail Consortium. They include e-cigarette shops, barbers, independent cafes and restaurants, clothes, crafts and gift shops.

It looks like the High Street is changing in character but we think it is a long way from being written off yet.

What do you think?

Banks, bad behaviour and relationships

How would you define a relationship?

For most of us, it would most likely include some form of personal interaction and some clear mutual benefits for those involved.

On this basis, it seems that the banks still don’t get it. While they might talk about wanting a relationship with their customers, we’re hearing that it is still a one-way deal.

At the top level, bank CEOs and senior executives appear to have accepted the need for change, but the message does not appear to have filtered down to middle management. There may be more local managers tasked with taking care of SME customers, but when each has a case load in the hundreds and in some cases thousands, how can they hope to build any meaningful understanding of their customers’ needs?

While the marketing language may have changed it seems the behaviour hasn’t. SME customers are still being treated as ‘cannon fodder’ to whom ‘products’ are sold by a computer.

It seems banks still need to embrace the need for change – or are we speaking to the wrong customers?

Brand values are important for SMEs

The perils of being a well-known brand are amply demonstrated as supermarket giant Tesco continues what is turning out to be an “annus horribilis”.

Arguably, however, there could be an element of hubris and complacency that has led to the current situation and even small businesses can benefit from this lesson, as SMEs are normally managing their own brand albeit in a much smaller pond.

Building a reputation for reliability, quality of service, availability and being a good company to deal with can bring significant benefits to any SME. These are all ingredients of a brand.

It helps to build a long term relationship with customers, which relieves the pressure to be constantly searching for new ones and improves the security of the business, and like any strong brand these qualities justify premium prices.

A good example of the benefits of a brand with strong values is the pain relief medication Ibuprofen. Sold under its generic name, a pack of 16 or so Ibuprofen tablets retails for around 30p, but sold as the brand Nurofen the same package fetches over £2.

This logic can apply to a wide range of goods and services but crucially only if it is backed up by an offering that does the job along with all brand values that small businesses often do much better than a larger ones.

“The King is in the all together”

John Lewis boss Andy Street’s comments on France may have offended French sensibilities, provoked the ire of its Prime Minister Manuel Valls, and extracted an apology, but the episode raises serious questions.

No, not about the state of the French economy which is plainly in some difficulty, but there is a wider issue here.

Nobody would condone many of the examples of offensive language and opinions to be found on social media, for example.

But if distaste for such extremes on social media were to shift the general consensus so that people become less tolerant, will public figures become fearful of expressing opinions with any force or honesty?

We already see this among politicians, who rarely these days say anything meaningful or definitive in public and invariably have to resign if private remarks become public. Arguably that has led to disenchantment with all mainstream politicians and the rise of extreme parties less afraid to express themselves.

But if this concern starts to infect all society’s leading figures, isn’t there a risk that we may lose sight of reality, we may be ignoring the elephant in the room?

Fear becomes the driver of collective dishonesty where no one is prepared to speak out, let alone address unpalatable truths.

In such an environment who will deal with our economic, social and business problems?

How can we have a meaningful exchange of ideas or constructive debate without genuine, honest and fearless dialogue?

Who is going to tell the King his suit isn’t made of cloth?

Inequality stifling growth?

With an election due soon and party conference season in the UK almost completed, it is no surprise that there has been some focus on the widening inequality between society’s poorest and richest.

However it seems it is not only on the politicians’ minds.

Income inequality is on the agenda for annual meetings of the IMF and the World Bank, and it has also been the subject of a discussion on BBC’s Radio 4 between economics editor Robert Peston and two US economists, Amir Sufi and Prof Atif Mian, whose book House of Debt explores the issues of widening inequality making us all poorer.

Why?  Because there is a theory developing that there is a link between the debts of the poorest in the economy and recession, which argues that because the poor have little or no spare disposable income and when there is a slump, and debts outweigh the value of property this group spends much less.

When millions do this, as consumers did following the 2008 Crash, the result is recession.

Could there also be a link between this and the anaemic wage growth that has hit most working people since then? And could this be an argument for boosting their spending power to stimulate economic growth, – either through wage increases at least in line with inflation or by reducing taxation?

Of course SME employers will argue that wage increases are unaffordable given global competition and narrowing margins – so what can be done to break the deadlock?

My own view is that we need to stimulate investment in productivity so that in turn employers can share the gains. What’s yours?

Getting the price right is all about quality and a personal service

Price and fee setting are thorny issues for SMEs.

Who has not been advised to “stick to your guns” when a client or customer tries to negotiate a lower quote and been assured that they will not lose the customer?

Who has not been told by some guru to “put your prices up” as an indicator that you’re offering a superior service in which you have faith?

Then there are those customers who ask for free or heavily discounted work on the “promise” of further contracts or the loss leader that’s supposed to hook the customer into buying more.

It is easy for the consultant to give advice but how often do they amend it to suit prevailing conditions?

And right now, in most sectors there is an oversupply of most businesses and services and not all the existing businesses will survive.

Those that do will be those businesses that have been wise enough to understand and employ an astute mix of marketing and pricing models that may well include discounting, loss leaders or a range of services at different price points from basic to premium to keep the orders flowing in and the customers happy.

But more than that they will only survive if they can demonstrate quality and a personal service that is the hallmark of many SMEs by comparison with the bigger fish.

The delusional fund raising pitch

We continue to hear that banks aren’t lending, but there may be a good reason for this.

There is a lot in the press about SMEs and Startups seeking to raise finance directly from alternative sources such as peer to peer and crowd funding platforms.

Furthermore private investors are often receiving pitches of the blue.

All too often the fund raising pitch doesn’t provide the information needed to make a decision, or worse it is simply delusional.

Sometimes we come across statements like “we have no competition”, “we only need to capture 2% of the market”, or even “everyone needs our product”.

The (printable) responses to these are likely to be “are you are so *** brilliant that no one has ever thought of this idea?” or “could that be because no-one actually needs what you’re offering?” to the first.

The response to the other two is likely to be a raised eyebrow and a request to see what research has been done.

It seems that businesses pitching for finance often fail to understand that the only thing that really interests funders is whether they will get an adequate return. The pitch needs to be backed by solid figures and research evidence, details of who the target customer is, why the product solves their need when others can’t, why you can deliver on this promise and how this is a good market opportunity.

Have you come across any delusional pitches?