Staff costs, efficiency and productivity

business core valuesIn this month, when our blog theme is about monitoring and measuring performance and putting appropriate systems in place, today’s blog topic is about applying this to employees, efficiency and productivity.

Of course, all businesses want to maximise profits and minimise overheads and one of the biggest overheads can be employment costs.

However, as the recent employment tribunal ruling against Uber’s conditions of employment and now potential action by people working for Deliveroo suggest, a ruthless strategy of keeping employment costs to a minimum above all else can backfire.

Staff productivity is achieved by investing in people and job security

As the above examples illustrate classifying people as self-employed or issuing zero hours contracts may minimise the wage bill, but it may also be myopic if a business wants to protect both its longevity and its growth.

Clearly, people want job security and at least a fair return for their efforts, but many studies have shown that offering additional cash incentives for improving efficiency or productivity is not effective.

What works better is for employees to feel valued, included, respected, listened to and engaged in any changes being contemplated.

This starts from the moment a new member of staff joins a company, when employment contracts, terms and conditions should be clearly stated and fair.

They should be settled in with an induction programme that makes them feel valued and welcome, one that introduces the culture and values as well as training them to use equipment and the company’s procedures.

It may seem like a revolutionary idea but when change is being considered, consult those people “at the sharp end” who will be doing the job.  Indeed, they often have ideas that management have not considered and a much better idea of what will work and what will not.

While setting targets and goals that can be measured is essential for productivity and growth, recent research by the Centre for Business Research in Cambridge and the Global Development Institute in Manchester has shown that employees’ productivity is directly related to their personal development and security of employment.

Investment in employees as well as equipment is more likely to ensure long term prosperity for a business than keeping them living with the fear of job and financial insecurity.

Keeping the costs of business legal services under control

legal business documentsEmploying lawyers can be costly, but no business can operate safely without at least some basic and well-drafted legal documents.

These should include the Terms and Conditions under which the business operates with both suppliers and customers and good quality employment contracts.

This way, a business and its suppliers and customers will have clearly-stated, written details to support any transactions and to minimise disputes.

How to get the best legal deal

Small businesses cannot normally afford to buy bespoke documents but a lot of free legal help is available to businesses such as to those who are members of the FSB (Federation of Small Businesses) or the Institute of Directors (IoD).

But it is foolish to operate without any legal protection so if cost is an issue, it is worth trying to agree a fixed price deal with a lawyer, at least to review your current documents.

Lawyers generally charge for consultations by units of time. Their standard unit is just six minutes long so it can become very expensive to have a meeting where a lot of time is spent on irrelevant conversation, some of which may not be pertinent to the documents being discussed.

It is far more efficient and cost effective to arrive for a meeting having given requirements some real thought and done some research to find a template that can be used as the basis of the contract the business needs.  There are plenty of template forms online to give a business a start. The template can be used to produce a draft covering all the relevant points the business wants to include.

Businesses should beware using a template without amendment and without ensuring that it covers precisely the conditions relevant their specific circumstances. As a result, legal input is often necessary.

Doing the research, defining clearly what any contract needs to cover and producing a draft will greatly reduce the amount of time spent in discussion and will enable the lawyer to produce a final document much more quickly, and therefore affordably for the client.

Measures to take when social media marketing isn’t working

Ready for Tomorrow?Social media marketing campaigns should be aimed at engagement with a target market, whether interaction, reaction or a call to action.

Human beings are by no means consistent in their behaviour and may be affected by events or influences entirely outside the scope of a campaign, so it would be foolish to expect l00% guaranteed success from any campaign even if all the basics have been done well.

However, too many campaigns fail to achieve even moderate success which should be defined at the outset in terms of a measurable level of engagement.

Improving the odds of success

Assuming your research has confirmed that there is a market and a demand for your product or service and you have a clear picture of your ideal client’s profile, or even created an avatar, what can you do to weight the odds of campaign success in your favour?

Firstly, there must be a clear and measurable goal for the campaign. This might be the number of people requesting more information, downloading Apps, follow up calls or meetings set up, or orders placed.

Secondly, it is crucial to understand the language from the keywords or phrases your target audience is likely to use when searching for your product and use the language and vocabulary that will resonate with them in your social media messages.

However, once interest has been aroused and desired response achieved, a campaign can still fail if the desired engagement does not follow.

Campaign success will be improved by having a clear, user-friendly landing page for a prospect to visit if you have invited them to find out more or to book an appointment or place an order. Here, too, language is important as well as visual appeal. The next steps you want people to take need to be as few and straightforward as possible. Do the messages reassure them that you can solve their problem or cater to their interests?

All of this needs to be integrated into an effective sales funnel that takes a potential client through a series of clear steps to the point of purchase.

Measurement is a continuous process

Monitoring a social media campaign, like any other form of marketing, means keeping track of how it is performing, so producing data is a must. Some social media platforms, such as Facebook, Twitter and LinkedIn, provide statistics on size of audience and interactions directly on their sites.

In addition to the social media monitoring data, it is necessary also to measure and monitor what happens after the successful engagement such as the outcome of a sales call or meeting. In this way, the sales funnel can be reviewed to compare the cost, effort and success of different marketing campaigns, whether social media or other.

Two advantages of social media marketing are that it is relatively straightforward to measure while it is running and it is also easy to change if it isn’t working.

Current post Brexit insolvency statistics are no guide to the future

solvent or insolventThe latest corporate insolvency statistics released by the Insolvency Service for Q3 (July to September) show 3,201 liquidations slightly increasing by 2.2% from the previous quarter while 75 CVAs show a significant decline by 30.6% from Q2. The number of liquidations is broadly at the lowest level over the last 30 years since the previous peaks of 5,110 liquidations in Q1 of 2009 and 6,332 in Q1 of 1992.

Despite the above statistics which might suggest businesses are doing well, research carried out in mid-October by Pinsent Masons among Insolvency Practitioners (IPs) and published in Insolvency Today found that two thirds of the insolvency profession believe Brexit will contribute to an increase in the number of business failures in the UK over the next 12 months.

Uncertainty about the future is not the only pressure looming over businesses.

Arguably, loose monetary policy and low interest rates maintained by the Bank of England post the 2008 Great Recession may have preserved the life of many zombie companies. But given the increase in inflation revealed last month, and the forecasts of more to come, it may be that there will be no further room for interest rate reductions. Indeed, interest rates look likely to start rising, which might benefit savers but not businesses. Indeed, rising inflation combined with declining profits that many businesses are reporting raise the spectre of stagflation. Insolvencies can’t be far behind.

What other factors may affect business insolvencies?

Recent criticism of Mark Carney, the Governor of the Bank of England, by some members of the Government has led to concern about their relationship which leads to further uncertainty. While the Governor has announced that he will stay on for an extra year beyond his 2018 term it isn’t the full three years option that would have reassured the money markets.

Business confidence is key for the economy since it is a prerequisite for medium and long term investment. Investment in turn improves productivity which in turn justifies higher wages which leads to a higher standard of living. The focus on employment has overlooked the quality of jobs and prospects for employees to share in the spoils of improved productivity.

It remains to be seen how the forthcoming Christmas trading period will unfold and whether this, combined with new business rates which come into effect from April 2017 will expose the retail and hospitality sectors and their dependence on people having a level of disposable income.

In our view the signs are not looking good for those UK businesses with high overheads and low margins and those that have hung on since 2008 but still have high levels of debt to service.

Who are the winners from post EU Referendum £Sterling drop?

currency exchange boardWhile the future of UK business remains uncertain following June’s EU referendum the resulting plunge in the value of £Sterling is already showing dividends for some.

Among K2’s clients is a metal fabricator, which has been very busy supplying clients in both the UK and in Europe with specialised products from its factory. Fortunately, they have benefited from holding a large stock of steel bought pre-referendum.

In the UK, there are signs also that businesses selling high end goods have been benefiting from the increasing numbers of overseas tourists who have been taking advantage of the favourable exchange rate to indulge in some retail therapy. Equally, the car dealerships appear to have been holding up well despite the uncertainty.

The lower value of £Sterling clearly benefits companies selling not only into Europe but also exporting elsewhere as well as those businesses, such as retail and tourism, who are attracting overseas visitors.

… and the losers?

Some businesses, however, are already having to increase their prices because they need to buy parts or raw materials from abroad.

We know of one small specialist in repairing Apple computer hardware who has had to raise prices because of an increase in the cost of buying certified Apple replacement parts.

In addition to the devaluation of £Sterling on the currency markets, which clearly benefits exporters, there are also signs that commodity prices have started to stabilise and are coming out of their long recent slump, so, for example, fuel prices have started to increase at UK petrol pumps, perhaps helped by the recent OPEC decision to limit oil production and exports. Indeed, the impact of exchange rates and increase in the $USD cost of fuel will be painful for many where reports are of a likely 50% increase in £Sterling price of fuel.

This is likely to put added pressure on costs for any UK business that needs to use vehicles, whether it is for deliveries or for transport to on-site working as is the case for many small suppliers of domestic services such as electricians, plumbers, gas engineers and the like.

The increase has also shown in the latest Consumer Price Index (CPI) rise in inflation, published by the Office for National Statistics (ONS). It revealed that inflation had risen to 1% between September 2015 and 2016, the highest 12-month rate since November 2014. The ONS cited increased fuel, hotel and restaurant prices as the main influences.

Business premises – lease, licence or buy?

business premisesWhich is more important for your business: security, stability or flexibility?

This is an important question to answer when a business is considering the commercial premises it needs for its operations and under what type of agreement.

Basically, there are three options and these are ownership, a lease or a licence and each has its advantages and disadvantages.

Buying a commercial property

Realistically, a business would need to have existed for some time and be reasonably confident of its future to consider owning its premises.

However, the building is a tangible asset and provided it is kept well-maintained and in an established business location it can be an insurance for the future. Owning business premises is a long-term option and for an owner-occupier it can be used as part of a pension scheme.

But, it also ties up business capital and it does mean that the owner is responsible for maintenance & repairs, for safe access, insurance and health & safety which need to be factored into any cost of ownership. As will the cost of selling or vacancy if the premises is no longer suitable for the business.

Generally ownership should be regarded as a form of investment by the owners of a business who value assets and security more than growth where they prefer to tie up capital rather than invest in growth.

Leasing commercial property

Formal leases are governed by the Landlord and Tenant Act 1954 although a lot of landlords provide lease agreements that require tenants to contract out of the Act in a way that benefits the landlord.

Leasing tends to provide for longer-term security of occupation although, according to some commercial letting agents, the average term of the lease has been reducing from approximately 25 years to between five and eight. Nevertheless, if a business needs the security of longer term occupation a lease is likely to be the best option where the lease term and its renewal can be covered in the lease agreement.

Under a leasing arrangement both landlord and tenant have legal obligations and these should be clearly outlined in the leasing agreement.

By law, tenants must take care of health and safety within the premises, including fire and electrical safety and gas safety if applicable.  The tenant is normally required to take care of internal maintenance and repairs and there is usually a clause in the lease about paying for repairs at the end of the lease such as returning the property to the state it was in when you first rented it.

While leases can be quite long, flexibility can also be included in the contract by having a break clause that gives the landlord and the tenant an option to give notice during the fixed term of tenancy.

Generally, a lease provides stability by giving the tenant a legal right of occupation and renewal at the end of the tenancy.

Licensing

For a start-up or a small business expecting to grow rapidly, it may not be possible to forecast sales and in particular staffing or premises capacity requirements. This is where flexibility becomes the primary consideration and licensed occupancy provides for the right to vacate with minimal notice.

In addition a lot of licensed premises include additional services such as power, servicing, web access, even access to copying and printing.

There are a large number of business hubs that supply communal support services which for start-ups and many SMEs may be the best option. Equally it may be that a business like an online retailer wants to trial a fixed site retail proposition by renting one as a pop-up shop for a short-term opportunity like Christmas or to test the market for its products or services.

The licence is the most flexible of the three options, but it gives no right of renewal at the end of the rental period and it tends to be more expensive.

How is the Recruitment Industry faring post-Brexit?

job vacanciesThis week’s employment figures published by the Office for National Statistics (ONS) showed that the unemployment rate held reasonably steady at a near 11-year low of 4.9% in the three months to August with a small rise of 10,000 to 1.66 million.

That will be broadly welcomed, especially by those politicians who have been arguing that the vote to leave the EU has so far had little impact on the economy.

But the question is for how long and what are the longer term implications for the jobs market given the question marks over what will happen to those from other countries currently working in the UK and the ongoing skills shortages which many employers are still highlighting as a significant issue.

The Recruitment and Employment Confederation (REC), of which many Recruitment Agencies are members, takes a monthly in-depth look at the state of both the recruitment industry and the sentiments of employers.

In its latest Markit/REC monthly survey on jobs published on October 7 the key findings were a moderate increase in permanent placements and vacancies and a slightly slower decline in candidate availability.

However, the results of another monthly REC survey published in late September, this time among employers, found that a third of those surveyed stating that they had no spare capacity to take on more work without hiring more staff while 25% expected to take on more staff in the medium term.

Confidence is also a factor and most likely the reason for a lack of investment in both productivity and growth since 2007. Related to this is the uncertainty about Brexit. While a decline in the value of sterling may justify investment in UK plc by foreign companies, if it remains at the current low levels, the lack of investment will result in low value jobs.

Confidence, too, has weakened each month since the referendum with a third of those surveyed reporting that economic conditions were worsening.

This prompted REC Chief Executive Kevin Green to say: “there are question marks around the sustainability of positive trends we have seen since the referendum. Skills shortages are a major problem in many sectors, one that will only get worse if the supply of skilled EU workers is in any way curtailed. Employer confidence has fallen significantly, suggesting that while businesses continue to perform well, there is much anxiety about what the future holds.”

The sectors where it is most difficult to find suitable candidates are in engineering, tech, construction, health and social care.

The implications for the recruitment industry

Uncertainty is likely to affect the recruitment industry, as for any other business, for the foreseeable future.

But, depending as it does, on being able to source and supply suitably qualified and skilled candidates the recruitment industry is going to be affected not only by confidence among employers but also by its ability to find the right candidates.

In addition, there is a question mark not only on post-EU immigration policy as it will affect the ability to recruit the best people, but also on the potential for a raft of additional legislation about checking on candidates’ eligibility to work.  That may add to the industry’s responsibilities and make its job even more difficult.

There may also be a distortion in the employment stats with the number of self-employed workers increasing by 273,000 to 4.79 million – 15% of all people in work.

Have you got the basics of your social media marketing right?

Ready for Tomorrow?Social media marketing is an increasingly important element of business promotion and therefore should be on the list for review when a business is preparing to implement strategies for fundamental change.

As all businesses change and develop over time, so must its core support tools, which means everything including production, marketing, management and reporting.

So it is worth revisiting the key questions that should have been addressed when a social media campaign was first launched.

Questioning the social media marketing fundamentals

No marketing is likely to work if it is trying to sell the wrong product to the wrong people, worse still if a business has not researched whether there is actually a demand for whatever it is planning to offer.

No matter whether a product or service was well received when it was launched, it may be that it has outlived its usefulness or that there are now more competitors in the market.

It is worthwhile, therefore, to revisit the question of whether it is something people want before making any adjustments to the marketing plan.  The best way to find out is to actually ask real people what they want or need. Getting to know them as people is crucial.

The answers may not only give a business clues as to how better to refine its offering but will also give a more accurate picture of its target audience and where best to find them.

Armed with this information a business can make changes if necessary to its product or service so as to provide a solution to what its customers need NOW, not that they needed when it was first launched.

Providing the right products and services is key to growing a business. Marketing them is basically all about making sure customers know about them, where to buy them and making it easy and friendly for customers to deal with your business rather than a competitor. Social media can be used by itself or be integrated into a strategy that uses many different ways of communicating with customers.

Of course, developing and implementing a social media marketing plan may include creating message templates, ensuring any written content is to the point, sparkling and engaging to that specific market, and that images support the message. Testing alternative messages and posts is also necessary determine which works best.

Get it right and a business can use social media to support its growth plans, get it wrong and the best social media marketing plan will be a waste of time.

Early exit from CVAs can work for the business and its creditors

business recovery signpostA Company Voluntary Arrangement (CVA) is a mechanism for an insolvent business to continue trading by paying off its debts out of future profits over a period of time providing it has the consent of 75% of creditors.

Many CVAs are structured to run for a five-year period with monthly payments throughout that time.

Generally, they cannot be varied during the first 12 months, mainly due to a standard modification that is a condition for approval by HMRC’s Voluntary Arrangement Service (VAS).

However, there is scope for varying the original terms of a CVA by making a subsequent proposal to creditors for early termination after the initial 12 months. Like the original CVA this requires 75% approval of creditors but it can involve offering revised terms, such as less money now rather than that offered over 5 years.

If such a variation is likely to be approved by creditors the business and its shareholders will need to be in a position to raise a lump sum either by borrowing or by attracting further investors.

The benefits of an early exit from a CVA to the company 

The business will benefit from paying less money as a proportion of its debt with more being written off. The effect of this will have the additional benefit of a stronger balance sheet post CVA.

Early termination will also free the company from its monthly obligation and as a result improve its cash flow.

Once clear of the CVA it will be in a better position to pursue more aggressive fund-raising and growth strategies and will be able to resume paying dividends to shareholders.

The benefits of an early exit from a CVA to creditors are mainly that they will receive cash sooner, rather than waiting for a longer period and receiving their money in small increments. They also avoid the risk that the CVA might fail.

The question is why more businesses do not take advantage of the option for an early CVA exit. One possible explanation is that the Insolvency Practitioner (IP), who may have been an adviser prior to the CVA, becomes a supervisor representing creditors and therefore is no longer an adviser. Another may be that early termination stops the supervisor earning their fees.

We believe that IPs who take formal appointments such as acting as nominee and supervisor of a CVA should be independent throughout and therefore should not act as advisers to the company since they are required to represent the creditors. Furthermore, they should insist companies have independent advisers who are best placed to assist on matters such as considering options for the early termination of CVAs. In this way IPs can avoid a conflict of interest.

How does the recent business rate revaluation affect you?

business rate revaluation up or down?It has been a long time since business rates were last revalued, but finally the Government’s Valuation Office published draft new rates on September 30, 2016.

They will come into effect from April 2017, leaving a window for businesses to challenge or appeal their new assessment.

In some cases, it was anticipated that small businesses would see a reduction in their charges because they have been based on 2008 valuations and in some cases businesses will be eligible for transitional relief.

Changes announced in March 2016 mean that small businesses with a rateable value (RV) of below £12,000 will be exempt from payment.

Check your business rate revaluation

Businesses can check their new draft business rates online, but the following are some examples:

In Ipswich, a street close to the town centre containing a mix of restaurants and small, independent retailers, one small retail unit of 100 square metres was RV £5,100 (2005), £7,200 (2010) and the draft RV for 2017 is £9,600.

In a small retail mall in Harwood Road, Fulham, London a small retail unit of 54.6 square metres was RV £16,750 (2005), £17,500 (2010) and has remained unchanged in the latest valuation.

By contrast, a large retail unit of 12,754 square metres in Oxford Street, Westminster, London, has jumped from RV £3,630,000 (2010) to draft RV £5,850,000 in 2017.

There is some suggestion that the valuations have been adjusted to allow for a fairer system for smaller businesses taking into account some years of over payment since 2008.

The chairman of the Federation of Small Businesses (FSB) Mike Cherry last week welcomed the review, especially the possibility of relief for some small businesses, but has also called for more frequent revaluations because there will have been a “big jump between the old valuation and the new one”.

The Local Government Minister, Marcus Jones, said “as we make the system fairer up and down the country, nearly three quarters of companies will see no change, or even a fall in their bills, including 600,000 who from next April will have their bills cut altogether”.

We would urge all businesses to check their new valuation online and to share your views on the impact it will have on your business.