Post truth, fake news and business integrity

The Weekly Fake News Newspaper Convincing potential customers and clients that your business is both trustworthy and ethical, delivering what they want, and what you promise, has never been easy.

But it has become much harder in the “post truth” and fake news world, where cynicism has become the default position on any statement.

It is all too easy for politicians to dismiss any news report they dislike or see as critical as “fake” as seems to have been the default position in both the pre-Brexit referendum in the UK and in the recent US Presidential election.

Unfortunately, the repercussions have been far wider than those particular issues not least because there have also been a number of scandals in the business world, such as the behaviour of VW over the true level of CO2 emissions from various car models.

Not surprisingly any public pronouncement by anyone in politics or business is now often viewed with scepticism and cynicism.

There is a second factor that is making life more difficult for SMEs.

The age of Twitter, texting, instant messaging and social media in general have arguably resulted in shorter attention spans so that people, especially but not only the younger element, have neither the time nor the willingness to either read anything in depth or longer than a few lines.

Add to this the impatience for instant returns on any investment by shareholders and investors and it is clear that the challenges facing business are mounting up.

Yet businesses still need to survive and grow regardless of the above and of the uncertain climate that will prevail once the Government triggers the process of leaving the EU later this month and for the two years at least that the negotiations will take.

So what can SMEs do?

The most obvious approach is to keep calm and carry on. Continue with the marketing but perhaps shift the emphasis a little in ways that demonstrate that the staff and the business can be trusted, which is helped by not making exaggerated claims.

The genuine, ethical business, especially the smaller and well-known local SMEs, should counter scepticism by emphasising their history of good service with recommendations from actual customers and clients, even of their suppliers if appropriate.

Try blogging or providing downloadable fact sheets or examples to provide additional insights and information without expectation of reward in ways that reinforce integrity. Consider collaborating, even with competitors, but remember people tend to be measured by the company they keep. Many small initiatives can add up to a powerful message and be surprisingly productive for all involved.

Being open and honest about products and services, and providing a high quality and level of support helps build and maintain a reputation for integrity that takes years to establish and can be damaged quickly if standards slip without promptly addressing the problem.

While it may be fashionable to believe nothing anyone says, actions speak louder than words, but more importantly words and actions go hand in hand and should reinforce each other.

Why do the self-employed in SMEs earn less than their employed counterparts?

K2 Blog March 14 2017 self employed small businessmanOne of the main reasons why there was so much opposition to the proposal in last week’s Spring Budget to raise National Insurance (NI) payments for the self-employed was that they generally earn less than their counterparts in direct employment.

Not only that, but accepting that the primary purpose of NI is to contribute to the costs of unemployment benefits, sickness pay, holiday and maternity/paternity leave, those in self-employment are entitled to none of these. Therefore, the argument that the measure was aimed at introducing more fairness into NI contributions between the two groups was seen as disingenuous.

According to research from the Resolution Foundation published in October last year, the self-employed earn less than they did in 1994-95. At the same time, they now make up almost 5 million of the workforce and their numbers have risen by 45% since 2001-02.

The research also found that the proportion of self-employed business owners with their own staff had fallen.

Who are the self-employed?

To bring greater clarity to the discussion it is important to define the different types of self-employment.

Firstly, as businesses have sought to reduce their overheads on payroll they have seized the opportunities offered by zero-hours contracts and outsourcing work, which has relieved them of their responsibility for contributing to employees’ NI, leave entitlements and pensions.

Consequently, many of the self-employed are workers who cannot be distinguished from employees such as delivery drivers, taxi drivers, cleaners, builders and IT support workers, who might previously have been directly employed.

There is a second group of self-employed, those who have started their own businesses, whether as sole traders, running micro-businesses or larger and these belong to the category of SMEs. They can provide a range of goods and services from plumbing and heating to house renovation to website development to business consultancy. Some, but not all, may be budding entrepreneurs.

In some ways, it is irrelevant whether their employment status has come about by choice or compulsion as businesses have sought to reduce their payroll costs and obligations.

The main trigger, according to the Resolution Foundation, was the 2008 Financial Crash.  It led to an increase in the numbers of the self-employed, introducing more competition in the demand for their goods or services, leading to a decline in both hourly rates and the working hours available to them.

So, competition and the need to cover the costs that would otherwise be borne by employers may account for a proportion of the lower pay of the self-employed, but another consideration is that many are also responsible for the purchase, running and upkeep of any vehicles and equipment needed for their work. Not all of this may qualify as a tax-deductible business expense.  Not only this but they must cover the costs of administering their business such as maintaining accounts, filing tax returns and business insurance as well as covering professional, compliance and training costs.

Closing the NIC gap is not so fair after all.

Budget aftermath: will 2017 become a perfect retail storm?

purse decorated with UK flagThe growth of online retail and the rise of the “budget” food stores, like Aldi and Lidl, have been pressures on both large retail chains and smaller independent retailers for some years now.

But, clearly, a series of announcements from the larger chains in the first quarter of 2017 suggests that the pressure has turned up a notch or two.

This week, Budgens stores announced the closure of 34 branches with the loss of 800-plus jobs and, earlier in March, Sainsbury announced a restructure of staff jobs and hours, with the potential loss of 400 jobs.

In February, a shake-up in home estimation and fittings services as well as restaurant food preparation announced at John Lewis could lead to 400-plus redundancies with another 386 staff being re-deployed elsewhere. Waitrose also announced six store closures with 700 jobs at risk.

In January, it was Tesco that opened the New Year large retailer shake-ups with changes to its logistics and 1,000 redundancies.

So what are the additional pressures facing retail in general?

The British Retail Consortium has just published new figures showing a slowdown of 0.2% in sales, between December 2016 and February 2017, particularly in non-food sectors.

This should be set in the context of rising inflation as imports of food and raw materials become costlier due to the fall in the value of £Sterling after the EU Referendum. These are beginning to feed through into prices.

Consumer confidence is also reportedly lower and there is some speculation that many people purchased “big ticket” items such as white goods and cars in 2016 to keep ahead of anticipated price rises.

It may also be that the larger retailers with a massive acreage of physical buildings are also restructuring to take account of likely hefty increases in their business rate liabilities following the rate revaluation that comes into force this April.

What of the smaller retailers?

It has always been more difficult for the smaller independent retailers to compete on price so inflation may hit them hard.

Some will have benefited from exemption to paying business rates due to the rise in the level to £15,000 before payment kicks in and from revaluations reducing their rates, as has happened for some of the luckier ones.

Others, however, will have to find considerably more money to pay their rates before they even begin to make a profit.

There was some relief in yesterday’s budget, after intensive lobbying from various business organisations on the new business rates, in the form of £300m to local councils to use for a discretionary hardship fund for small businesses worst affected by the revaluation and a pledge that any business losing existing relief will not pay more than £50 a month.

But it is questionable how much difference this will make given the additional costs facing small retailers employing staff, who will in April face increases to the minimum/living wage, with the additional obligations of pension auto-enrolment.

With e-commerce operations paying considerably less in tax it looks like the inexorable march towards online retail operations and away from small independents on the High Street could continue.

Will the business wish list for tomorrow’s Spring Budget be fulfilled?

purse decorated with UK flag

There will be two budgets this year, one tomorrow and a second in the Autumn, after which there will only be Autumn budgets.

The signs are that the Chancellor, Philip Hammond, will be cautious. He has already said publicly that he wants to reserve some funds for the Government to use as a fall back to protect the economy after the completion of Brexit negotiations.

Leaving aside the pressing financial concerns about the future of the NHS, social care, education and welfare support, all of which are likely to be disappointed if hoping for extra cash, the Chancellor has already also indicated that there will be no easing of the austerity measures intended to reduce the Budget deficit.

Given all this the question is whether there will be any relief or even help for hard-pressed businesses, particularly SMEs, navigating uncertain times while they try to keep their companies surviving and thriving?

What would businesses like to see in the Spring Budget?

The issue raising the most concern has been the revision of business rates, due to come into force in April. Virtually every national body representing business has commented on this.

In some parts of the country small businesses will have benefited from the higher threshold for exemption but in difficult trading conditions, especially for small retailers, those whose rates have been increased will want to see some help beyond the phasing-in period that currently exists.

Following its annual conference on February 28th, reform of business rates is top of the British Chambers of Commerce (BCC) wish list. It would like to see the switch in how rates are adjusted for inflation from RPI (Retail Price Index) to CPI (Consumer Price Index) brought forward from 2020 to April 2017 and plant and machinery removed from property valuation.

The FSB (Federation of Small Business), too, has highlighted the business rates issue. Called by its national chairman, Mike Cherry, “The broken Business Rates system ..” he wants the Government to recognise the need for a “sensible, fair system for the 21st Century”.

In addition to a rethink on business rates, the Institute of Directors (IoD) wants to see all types of businesses recognised and a more level playing field created to allow for fair treatment of High Street and online business as well as a loosening of restrictions on the rules for various enterprise schemes from which SMEs can source investment funds.

For EEF, the manufacturers’ organisation, measures to boost productivity and pressing ahead with promised infrastructure improvements are high priorities. Enabling higher investment in R & D, skills development and manufacturing investment are a must, although it too mentions the need for reform of business rates.

For the CBI (Confederation of British Industry) it is all about ensuring stability for businesses during the process of exiting the EU. Its pre-budget letter urged the Government to ensure that it does not add to the “mounting burden of costs facing firms for just doing business”.

We shall report on the outcome and its impact on business shortly after the budget.

Patience is wearing thin as business starts to confront reality

signposts which way to confront reality

Business activity has effectively been just ticking over with investment at a low ebb since the outcome of the June 2016 referendum to leave the EU.Business dislikes uncertainty and tends to retreat into its shell when faced with no clear way forward, but sooner or later maintaining the status quo risks a slide into genteel decline, as we have mentioned before in previous blogs.

While the Government repeats its determination that by the end of March it will trigger Article 50 to start of the process of leaving the EU, the bill to approve it is still grinding its way through the houses of Parliament.

Planning ahead means confronting reality now rather than putting it off

Meanwhile, with still no clear idea of what the “red line” terms for negotiating trade agreements will be, business seems to be running out of patience.

In the last two weeks, there have been a number of indications of the way things are moving.

Brexit Secretary David Davis admitted that it was unlikely that there would be a noticeable reduction in immigration figures for several years after leaving the EU, openly acknowledging how much the UK economy depends on European and other nationals to work in certain sectors, noticeably farming, construction, engineering and the caring professions.

At the same time the Prime Minister’s continued prevarication about EU nationals’ residence rights has apparently been too much for some, and, according to a report in the Independent, some 100,000 EU citizens had left the UK in the three months post-referendum, while more recent figures showed that 40,000 fewer people had come here to work.

This has prompted restaurant owners to delay or abandon plans to open new restaurants, particularly in London, reports the British Hospitality Association, but also recruitment difficulties are being reported by farmers across East Anglia, Kent and the Midlands.

It is not only in hospitality and farming that patience is wearing thin. This week it has been reported that BMW is planning to produce the Electric Mini away from the UK, probably in Europe, and that an exodus of some businesses from one of the country’s most vibrant and pioneering company sectors, “fintech” or financial technology, was on the point of getting underway.

The CEO of PRRO Group, one of the fastest-growing fintech companies, Simon Black, pointed out that moving this kind of business and getting through all the required compliance and licensing processes was a complex six-month process.

Waiting until the outcomes of Brexit trade negotiations were known, a minimum of two years hence, before starting the move was therefore not a realistic option.

It is a safe bet that once some businesses start thinking this way, momentum will build up and others will join the exodus as they confront the reality of what they might lose by waiting.

While planning for UK to leave the EU is planning for the inevitable, planning for the future of the EU is another matter that should also be considered.

Is debt your master or your slave?

Debt mastery

Since the 2008 Great Financial Crash, and perhaps even before, we have had a peculiar attitude to debt.Most of the Western, developed economies have relied on debt to keep developing and growing, but that is hardly a sustainable way to carry on.If you think about it the whole notion of usury debt is unacceptable. Despite lenders being open and telling borrowers how much they are charging, whether 10% or 1,000% interest, does that make it acceptable?

And what about the fees: assessment fee, valuation fee, arrangement fee, introduction fee, securitisation fee, documentation fee, monitoring fee, review fee, default fee, termination fee, early termination fee.

Again, even if transparent, are they reasonable?Debt has been crucial to the survival of the current economic model. Central banks make $trillions from debt using zero interest rate policies and purchasing corporate debt, as the European Central Bank (ECB) has been doing in order to keep the post-crash economic show on the road.

Are we living in a Through the Looking Glass post-capitalist world?

Is all this just adding more fuel to the fire? Is keeping inflation artificially low for so long merely extending a creeping market in zombie companies, even zombie countries?

Originally, zero rate policies were seen as a temporary measure post 2008 to stave off a global recession but was the objective really saving jobs or saving the banks?

At the time the argument was that the banks were “too big to fail” and if not helped the consequences for all of us would be dire.

Eight years on and nothing much seems to have changed. Governments are still buying bank debts and how does this relate to the bonuses paid to professional executives and bankers?

There have been few prosecutions over the speculation and risks that were taken and there is not much evidence that the culture of institutional fraud does not still prevail.

While some debt is deemed acceptable, a lot of debt is not. The appetite for investment in the businesses that we need to support to sustain our economy is not there due to the distortions of the market that have arisen from flawed policies aimed at preserving bankrupt countries, banks and businesses. The stock market too is being driven by the whole issue of where to go to put money in a safe place.

So businesses remain starved of investment funds for their medium and longer term growth, productivity remains below what it should be and the public goods, such as education, remain starved of funds to produce the skilled workforce that will be needed for the future.

But the banks, the rent seekers and the professional executives protect their interests and stay safe.

Feel free to disagree.

Is Creative Destruction being stifled by risk aversion?

Breaking the wall K2 Partners Business Blog

In his 1942 work, Capitalism, Socialism and Democracy, the economist Joseph Schumpeter introduced the idea of Creative Destruction as an essential ingredient for sustaining long-term economic growth.

In a nutshell, it is the entrepreneur and his or her innovation that acts as a brake on, or actually destroys, established companies, thus protecting an economy’s health by allowing new companies and ideas to rise.

Schumpeter’s thesis was that while healthy capitalism is about constant change, inevitably the drive for maximum productive performance, if successful, will tend to kill competition and thus the system contains the seeds of its own destruction. Therefore, the entrepreneur and innovation are essential to capitalism’s healthy survival.

Managing capitalism in a global marketplace

Over time, ever since the Great Depression of the 1930s both political action and economic theory, have been evolving, prompted in part by the distressing consequences to many individuals when things “go wrong” in countries’ economies.

So, for example, Keynes’ solution to the Depression was that governments should step in with deficit financing, stimulating projects that could be started quickly to provide people with work and pay, which would stimulate economic activity and be paid off by increased tax payments. Equally governments, such as in the US, moved to regulate excessive risk-taking and speculation in the financial sectors to prevent a recurrence.

Gradually Governments took more responsibility for people’s welfare, in health, education and for stimulating employment. This has contributed to a shift in the balance of power from the employer to the worker.

A failure to manage the resulting imbalances and the consequences for national economies eventually led to disenchantment with the mixed economy and a return to completely unregulated free market capitalism, aka Neoliberalism, as promoted by Margaret Thatcher in the UK and by Ronald Reagan in the US.

After the 2008 Financial crash and the difficulty countries have had in recovering the question in the mature economies of the 21st Century, therefore, is what place capitalism has in our current and future society, especially in a now-global marketplace.

The businessman is no longer an entrepreneur or hero

Businesses constantly complain about the time absorbed and constraints imposed by “Government red tape”.  But we would argue regulation has moved further from things like Health and Safety regulation and employment protection into trying to regulate in a way that prevents risk.

Consequently, businesses are focusing on dealing with red tape and bureaucracy rather than on doing things, or getting out and selling. Dealing with red tape is disproportionately expensive in time and money for the SME compared with the larger companies and therefore inhibits their capacity for growth. Even in the larger companies there has been a rise in the professional manager whose chief aim is to look for safe returns and short term decision-making that protects her/his bonus and job. There is a lot of dysfunctional activity going on but not the kind that encourages risk taking.

Is state legislation helping businesses or compounding this problem?

It is only human to want to prevent further toxic economic shocks to people’s economic stability and wellbeing but if Schumpeter is right unless the correct balance is stuck it could well lead to the demise of capitalism.

It might be an unpalatable fact but knowledge is best gained by experimenting and learning from failure. The quicker and more failure, the quicker and greater success.

BCC Annual Conference 2017 to ponder the future for UK business

Breaking the wall K2 Partners Business Blog

The pre-Brexit challenges facing UK SMEs, which predominantly focused on uncertainty about their future, have been compounded by further uncertainty about their future once the country has left the EU.

No business is happy with uncertainty when it needs to make decisions about investment, growth and employment. But that, unfortunately, is the current situation and likely to remain so for some time yet.

Businesses face the challenge of making decisions about where their future markets are likely to be and whether they should invest in growth or not. Another worry is not knowing what the terms of any deals might be in the future and how this might affect arrangements already made.

So, at the moment, many UK businesses are stuck in a spiral of genteel decline; they are making profits but not investing in their future, neither in people nor in equipment, new markets nor product development.

Already, employers are struggling to recruit the people they need, according to a survey of 1000 employers, released last week by the Chartered Institute of Personnel Development and the Adecco Group. The numbers of EU nationals coming into the country to work has been slowing and employers fear that some existing EU employees are considering returning to their home countries or working elsewhere.  Manufacturing, healthcare, retail and hospitality have been among the worst hit, the survey found.

Without investment in the latest technology and in research and development the danger is that UK businesses will lose their competitive edge in fields where they are currently leading.

What businesses will want to hear

The British Chambers of Commerce (BCC) annual conference is at the QEII Conference Centre in Westminster on February 28 and there are three topics for debate. These are:

  • Growing Business in the Regions and Nations
  • Brexit: Turning Uncertainty into Opportunity
  • Keeping the UK Competitive – vision 2030

While businesses from SMEs to larger corporates will be keen to hear more on the priorities in the Brexit negotiations, given that the deadline for triggering Article 50 is not until the end of March there is unlikely to be much information on this.

The chronic and long-standing imbalance between London and the rest of the country is also likely to be a significant concern to the BCC membership, who are present in every county throughout the country, and they will want reassurance from BCC National that their concerns will be represented and their voices heard.

Skills shortages, training, and perhaps what will happen about business’ ability to recruit from within the EU and elsewhere may well be high on the wish list as part of the discussion in the final debate of the afternoon on UK competitiveness.

Disaster recovery – does your SME have a business continuity plan?

Disaster Recovery K2 Partners Business Blog

Very often when a small business is bidding for new business with a larger client it will be faced with answering a long list of compliance related questions before the SME can become an approved supplier.

Answering all these questions is usually a condition of the SME being eligible to bid for the work, even though many of the provisions covered may not be legally required. Sometimes, also, the compliance list forms part of the larger contractor’s Corporate Social Responsibility (CSR) strategy.

Much of this is about offloading responsibility and liability when something goes wrong but it is also perfectly reasonable for companies to want to preserve their own business continuity and this is, or should be, as important to the SME as to a larger company.

It is important to consider what you would do if…..

So much of business now relies on technology in one form or another that it makes sense to have a fall-back position to cover a variety of IT-related issues.

There are plenty of advisory services and example templates available to help with compiling a proper Disaster Recovery Plan (DCR) or Business Continuity Plan (BCP) but many of them are either expensive or needlessly complicated.

The origin of such plans relates to situations where there is either a loss of communication, such as emails or voice, or a loss or the corruption of critical information, such as data. The aim of such plans is to ensure there are provisions in place that minimise disruption and ensure operations can continue until a problem has been resolved or data recovered.

So, the essential elements to cover are to define all the situations that can potentially break down, define a clear set of actions for resolving them, to identify the relevant people to be contacted and who is responsible for overseeing the actions, as well as the people who will be responsible for fixing the problem, and to set a time frame within which the situation should be resolved. Contingency fall-backs for each situation are also crucial.

So, for example, if access to data is unavailable for any reason, the fall-back provisions would include a back-up file, such as an external hard drive, cloud storage, or even physical, paper records that have been kept up to date.

If there has been damage to the business’ physical premises and perhaps IT hardware, the plan should include a key person to inform clients, suppliers and employees of the alternative arrangements in place, such as employees working from home and relevant contact details.  Contingencies or fall-backs for such a situation would also be having laptops available already set up for company use with the information that employees would need to be able to carry on with their work from another location.

Having business continuity or disaster recovery plans in place is not only about complying with “tick box” conditions when a SME is bidding for a contract, they are a sensible precaution that enables the SME to carry on operating whatever happens as well as providing a useful training exercise so that employees are informed and understand their roles and responsibilities in the overall structure of the business.

What are the threats to UK farming in a post-Brexit world?

tractor and seed drill on field at sunsetThe UK farming industry uses 70% of the land in the UK and its efforts make the country 76% self-sufficient in home grown food.

It employs an estimated 400,000 people and the total income from farming in 2015 (the most recent figures available) was £3,769 million, contributing around £10.7 billion to the UK economy.

As a business farming cannot be short term and many decisions are made looking five years ahead.

But farming as a business is not now and never has been easy because of the many pressures farmers face, both natural and man-made. It is weather-dependent, with seasonal peaks and troughs and at the same time subject to well-known pricing pressures from the food producers and the large food retailers further up the supply chain.

There is no doubt that the UK’s decision to leave the EU is likely to have a significant impact on farming as a business.

Firstly, UK farmers have been used to a subsidy under the Common Agricultural Policy (CAP) that contributes an estimated 55% of farmers’ incomes, a total of £3 billion in 2015, according to data published in the Financial Times in late 2016.

While the Chancellor has said that the Treasury would replace any shortfall in EU funding to farmers that might arise between now and the end of the decade, there has been no word on what would happen after 2020.

This leads to a second threat, which is the pressures that farming faces from competitors both in and outside the EU after Brexit. There has been press commentary on a US trade deal that will expose UK to the lower standards for US farm products that allow hormone-treated animals and GM crops while European farming will presumably remain heavily subsidised giving it a competitive advantage over the UK.

Thirdly, many farming sectors rely heavily on seasonal labour for harvesting fruit and vegetables and in the Eastern Region, for example, labour from the EU has been crucial for the crop picking and packing period. Given that one of the primary issues on the minds of both those who voted to leave the EU and on the Government has been numbers of immigrants in the UK and in the absence of sufficient numbers of UK workers, the prospects of losing access to those workers is a major concern for farmers.

A final pressure that has been a well-rehearsed bone of contention for a number of years but has been given added impact by the devaluation of £Sterling since the referendum. With large retailers already passing on higher prices to shoppers from imported foods, the likelihood is that they will use their buying power to continue to squeeze farmers in order to keep their prices as low as possible.

Given all these pressures the challenges to the viability of UK farming are considerable.