Will the grocery code adjudicator be able to help SME suppliers?

Many supermarkets are now stocking local food products from SME suppliers.

This can be both a blessing and a curse to SMEs, especially if an SME becomes dependent upon one large customer where UK supermarkets have a reputation for holding SME suppliers to ransom resulting in many SMEs being left insolvent due to harsh treatment by a supermarket.

The terms, conditions and costs including promotion related fees imposed on suppliers by supermarkets have often been regarded as unfair to suppliers, which has resulted in the introduction of the Grocery Code.

It has taken more than a decade from the Code’s introduction in 2001 to the appointment of an adjudicator in 2013 and then a few more years to early this month, April 2015, to give her the powers to impose a financial penalty on offenders.

The Code only applies to the “big 10” supermarkets (Tesco, Co-op, Sainsbury’s, Marks and Spencer, Asda, Lidl, Morrisons, Aldi, Waitrose and Iceland).

It only covers the demands on suppliers to fund promotion related fees predominantly, over-ordering at promotional price, forcing suppliers to make unjustified payments to a retailer for consumer complaints, ensuring that stores only de-list suppliers for purely genuine commercial reasons, and that they give reasonable notice of and opportunity to discuss delisting with their Code Compliance Officer.

This leaves plenty of scope for more games by supermarkets and raises the question as to whether the Code’s principles can be applied in practice.

In an interview with trade magazine Supply Management in March, Christine Tacon, the grocery code adjudicator, said: “I need reasonable suspicion of a breach. Lots of anecdotes aren’t enough for me to say “I have reasonable suspicion”, and I can be taken to a judicial review if I launch an investigation without sufficient evidence.”

The Code’s tiny department will only be able to conduct up to four investigations a year and the maximum fine of 1% of annual profit will be a last resort.

It looks as though suppliers will need to collaborate with each other if complaints against a supermarket are ever to be investigated and it is likely to be a long time before any examples are made that will force a change of behaviour by supermarkets towards their suppliers.

SMEs should continue to be wary.

What’s the point of a business plan?

Business gurus will insist that a SME has no credibility or chance of success without a proper business plan.

There’s no prospect of raising finance without one, even, these days via crowd funding.

But many small business owners struggle with the concept of setting targets for revenue, growth or increased turnover in one, three or even five years time, especially given the volatility of local, national and export markets since 2008.

It can feel like crystal ball gazing or fantasy. Who knows what may happen next?

But what most forget is that a plan isn’t set in stone. It needs to be re-visited regularly and should be adjusted as conditions change.

Most business advisers would advise flexibility and regular reviews of performance so that goals and decisions about spending can be adjusted accordingly.

As part of a flexible business plan, nowadays an essential ingredient is the cash flow forecast.

This can then be used to spend more or less depending on the availability of cash and the return on it being invested such as on growth and marketing initiatives, or on efficiency and cost reduction measures.

For businesses to successfully survive the economic uncertainties that look as though they may be with us for some more years they will need to plan for multiple outcomes regardless of what is planned.

So yes, a business plan is still an essential map through uncharted waters as long as it is looked at regularly and adjusted when necessary.

Labour’s promise on zero hours contracts may result in a rise in unemployment

The run-up to an election can be relied on to generate ambiguously-worded promises that may or may not be delivered by the eventual winner.

One such is the promise in Labour’s manifesto to “ban exploitative zero hours contracts so that if you work regular hours you get a regular contract”.

This pledge has been truncated in some media to “ban exploitative zero hours contracts”.

Either way the pledge could be read in more than one way. Is it a complete ban on all zero hours contracts or is the key word here “exploitative”?

The fact is that a zero hours contract can be very useful, particularly for SMEs to justify employing staff. In a volatile market it gives a company flexibility and allows it to keep overheads as low as possible by tailoring the workforce to demand. Orders cannot be guaranteed and businesses will behave rationally. If they cannot use zero hours contracts then they have other alternatives such as overtime for existing employees, to simply not take on the work, to outsource it to low-wage or more flexible countries, or they can use agency-supplied workers.

There is one aspect of “exploitation” that does need to be addressed which is when an employer makes the contract exclusive to them thus preventing the employee from taking any other work to fill in the gaps.

It is acknowledged that there is an issue for employees due to the lack of a guarantee of a minimum level of hours. There is however a market for jobs whereby employees will weight up the wages and security offered by some employers against those of others and behave rationally. It is also why the market for jobs needs to be underpinned by an effective unemployment benefits system.

So what is Labour really proposing? To close the loopholes that allow exploitation by allowing workers to have more than one zero hours contract? To get rid of zero hours contracts all together, and replace them, with what? To limit them somehow, whether a maximum period of work, or by size of employer?

Absent all other factors, any major reduction in the use of zero hours contracts will result in a rise of unemployment. This may however be the real objective of Labour’s paymasters as it is believed that very few employees on zero hours contracts are members of unions.

How do we improve productivity?

Output per worker, ie productivity, in the UK has been stagnant for some years since the 2008 economic crisis.

It shows no signs of recovery, in fact in the last three months of 2014 output per hour actually fell in manufacturing by 1.3%.

The causes have been: a lack of innovation, a shortage of skilled people and a failure to invest in plant and machinery.

It would seem that businesses are focused on maximising their profits in the short-term to either repay banks and other creditors or pay dividends. Despite the low interest rates and poor returns for lenders and investors, there seems to be very little interest in improving productivity through investment.

It is assumed that this is either cultural or a rational fear of losing money due to market uncertainty.

In the last couple of years there has been some attention paid to the skills shortage, with a focus on increasing the numbers of apprenticeships, but investment in businesses is still declining, despite various initiatives by Government and banks to encourage more lending.

Regretfully bank loans and in particular Government backed loan schemes all require directors and shareholders to provide personal guarantees. The effect of this has been to deter SME businesses from seeking funds to grow.

Productivity matters because over time we become less competitive making it harder for UK companies to compete in a global market.

The political rhetoric doesn’t help as the focus on soliciting votes results in a focus on minimum wages rather than one on the productivity which is necessary to justify any increase.

Growth will continue to be sluggish while there continues to be a lack of investment in productivity.

What can we do to justify investment in productivity rather than simply talk about improving it?

Self employment – desperation or entrepreneurship?

In the UK 40% of the new jobs created in the last four years have been in self employment, an average of one in seven workers, putting the country well above the European average.

According to a report by the Institute of Public Policy Research (IPPR), quoted in an article in the New Statesman in January this year, only 17% of the UK’s self employed are likely to have employees, compared to 44% of them in Germany, statistics that we find frankly lacking in credibility.

The same article quotes IPPR research as having found that a typical self-employed worker in the UK earns just over half the amount a typical employee earns, compared with 2007 when the figure for self employed earnings was two thirds of typical employee earnings.

This has led some “experts” to argue that the new self employment is in fact disguised unemployment and the result of a weak jobs market.

Others, however, including the Bank of England (BoE) argue it is a sign of healthy entrepreneurship and a more flexible economy.

According to the BoE the self employment rate in the over-65s is at 39% while it is just 10.5% for those aged 25-34.

It is likely that at least some of these people have registered themselves as self employed as a result of the economic downturn with its resultant culling of jobs, particularly in the white collar professions.

It is also likely that a proportion of the older cohort, particularly, have either realised there is little hope as mature workers of finding another position or have had to turn to supplementing their income in what would have been retirement because early redundancy has prevented the maturity of occupational pensions, leaving them with insufficient pension income to live on.

But is that the whole story? As people are living longer and healthier lives is it possible that what was once a dream – of setting up one’s own business – is now a more realistic option? What do you think?

Do your employees need to be certified by professional trade associations?

Many small businesses offer services and skills that require individuals to be certified by professional trade associations.

In some sectors membership is a legal requirement, such as the Gas Safe register for Gas Engineers or Part P registered with NICEIC or NAPIT for domestic electricians. In others the professional status can be blurred as neither qualifications nor membership is always necessary, such as corporate finance, estate agency, valuation and accountancy services. Despite this some aspects of these activities are regulated hence the minefield of professional status.

The benefit to small businesses of their individuals having such membership is considerable. It means they can offer reassurance to clients about a level of expertise. Trade bodies also provide support for members such as providing advice, offering continuous professional development (CPD) and regular updates on developments within their specific industry. It can also make recruitment and employee reviews that much easier by reference to the qualification, the qualifying body and maintenance of CPD records.

Where membership is not compulsory a business may find a problem with insuring its activities such that the lack of qualification can result in expensive or useless insurance.

Increasingly sophisticated clients ask for insurance although this is not necessary for those who are regulated as indemnity insurance is a condition of such regulation and underwritten by the professional trade body.

The holding of tenant deposits by letting agents or client money by lawyers are two such areas where clients ought to check they are dealing with a regulated firm.

Please let us have your thoughts on professional trade bodies.

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?