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Accounting & Bookkeeping General Rescue, Restructuring & Recovery Turnaround

How many suppliers does your business really need?

In the course of our work in helping SMEs to become more efficient and targeted, we often come across businesses that have a large number of suppliers.
Keeping track of ordering, invoicing and payment across many suppliers can be a needless burden on the administrative system. Especially when reconciling your statements with theirs.
It also makes it more difficult for the business to understand and manage the risks that may be hidden in its supply chain.
A typical example of a business with too many suppliers is the building company that goes to a number of different builders’ merchants for the same materials. It may be that at some point they have either found a supplier that was cheaper or that they had used another supplier to source materials not available with their usual one.
Over time, the list of suppliers grows and grows while the original reason for using them no longer applies.
While it is important for all businesses to keep their costs down and therefore to shop around for the best deal, the time spent ‘shopping round’ is a hidden cost that contributes to inefficiency by adding to the administrative burden.
If on the other hand a periodic review of prices is carried out and an approved supplier list is used, then the hidden cost of ‘shopping round’ and the administrative burden of managing lots of purchase ledger accounts can be significantly reduced.
It may of course be that there is an advantage to having back up suppliers but great deals can be achieved with a discount on price and high levels of service where the supplier has the “loyalty value” of your regular, longer term custom.

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

When should you pivot your business model?

The term “pivot” was first applied by Eric Ries, creator of the Lean Start-up method, to describe how a new business can shift its activity in a new direction in response to customers’ behaviour.
It is a tactic used by many entrepreneurs when it becomes clear that the original business offer is not attracting the predicted level of business.
One example of a pivot was a company that was set up to sell online marketing products such as website design and found that this activity was not delivering so instead set up and promoted a Business to Consumer (B2C) shopping App, which generated much more business.
While it is necessary for a start-up to be committed to and believe wholeheartedly in its product or service, especially when it has done some market research to find out whether there is a sufficient level of demand, in a rapidly changing market it makes no sense to remain wedded to that product or service if it does not generate the projected sales.
Continuing to spend money on promotion without achieving any improvements sooner or later will lead to cash flow problems and a business in difficulty.
So while commitment is of course a fundamental ingredient for success when starting a business, flexibility and an open mind about what can be fashioned out of the core business skills are essential.
Sometimes it is necessary to pivot the business model by implementing fundamental change to achieve a transformation of the business’ prospects.

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Business Development & Marketing General

There’s no “one size fits all” marketing strategy

It is fair to say that marketing in all its forms should be an ongoing activity for SMEs in both good and bad times.
This should be regarded as a universally-applicable rule and arguably the only other such rule about marketing is that there should be a clear marketing strategy and a plan that establishes discipline over expenditure and monitoring results.
Beyond that, however, so many businesses fall at the first hurdle, which is collecting the information on which to base a strategy and plan.
Identifying ideal customers to target is the first step. For an existing business they may be easier to identify but for a new business it is essential to define the customers to target in any marketing campaign. Who are they? What is their buying behaviour?
Where are you most likely to find them, particularly online? How are you going to approach them? Why will they buy from you?
All this should be obvious but it is surprising how many businesses buy advertising or embark on getting a website or setting up a business page on social media without doing so.
Then there is the question of what you want from your marketing. Is it about getting your company’s name and business known (brand recognition), about maintaining a good relationship with existing customers or about generating leads to new potential customers?
Marketing can be pro-active or reactive and different campaigns are needed for each objective to get the best return on the investment from a marketing budget.
There are so many “marketing gurus” around that this research is essential to help you to decide which of them is knowledgeable and which best avoided.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Insolvency Rescue, Restructuring & Recovery

“Unknown unknowns” and the Fed's failure to confront reality

Will they? Won’t they? Should they? Shouldn’t they?
Every business analyst has been pondering whether the US Fed’s Open Market Committee would raise interest rates this week. Now we know with one exception there was a collective failure of nerve and interest rates have been held at their current level.
In essence the first rates rise since 2008 would have signalled the start of a return to normality and an indication that we are coming out of recession, which in our view would have been welcome. But clearly they bottled it.
The BBC’s Robert Peston opined that there was never a risk free time to raise interest rates. Indeed there is no comparison in history from which to infer the possible consequences.  This is because there has never previously been such a long period of near-zero rates.
This view was shared by business writer Hamish McRae, writing in the London Evening Standard on Monday.
We know some of the drawbacks of low interest rates.  Savers suffer because their savings earn them little or nothing. Borrowers, particularly household borrowers with mortgages, gain because they pay less interest although all too few have used this as an opportunity to pay down debt.
The fact is that those with a large debt, be they an individual, a business or a national economy, would face increased costs in paying back the debt following a rate rise and that would impact on future plans.
Plainly the worry about the destabilising effects of a rate rise on emerging economies (particularly Russia, Brazil and China) and the potential pain from rising prices and increased repayment costs for those that are have borrowed heavily to finance their economic growth played its part in the Fed’s decision.
But perhaps most of all the question of timing that has been exercising people and the “unknown unknown” of what a rate rise would do to a less than stable, post-2008 global economy was what justified the Fed for “wimping out” by kicking the can down the road.
Another “unknown unknown” may have contributed to their failure to confront reality, that of being held responsible for the unknown consequences.
We do, however, know that cheap money has distorted the markets and may have stored up potential for a crash. Such financial bubbles can only grow while interest rates remain low and the reality is that if a bubble is growing then the next crash will be bigger the longer it is put off.

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Recession or lacklustre growth in the next decade?

We all know that forecasting is an uncertain business and that news headlines should be treated with considerable caution.
But it is difficult for a small business to plan ahead without paying at least some attention to both.
Over the last week or two a random selection of economic and business news has included, inevitably, China’s continued economic slowdown, warnings of a “global financial bubble” from Germany’s finance minister Wolfgang Schaeuble, and worries from the World Bank about the effects of interest rate rises with national and the global economies still so unsettled.
In the UK, manufacturing and engineering growth has continued to decline according to the ONS (Office for National Statistics).
At the same time the service sector continues to perform strongly and energy and raw materials costs have been coming down.
Yet we are told that the UK economy is one of the best performing.
Given these mixed messages a report from McKinsey & Company outlines four possible scenarios for economic performance in the next decade. There are two negatives. They are uneven and volatile but high global growth, or volatile and weak global growth. On the other side are rapid, globally distributed growth with productivity increases and, finally, low but more stable growth.
All depend on how countries manage both their own economies and co-operation to tackle international challenges.
Clearly SMEs, even those that operate solely in a domestic market, cannot remain completely immune to wider economic issues but given such an uncertain outlook, perhaps the best message is to remain cautious but “Keep calm and carry on”.

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Banks, Lenders & Investors Finance General Insolvency Rescue, Restructuring & Recovery

Productive borrowing and unproductive borrowing

Borrowing money to finance both business and household spending has been central to the growth of most countries’ economies.
But borrowing can get out of hand, as it arguably has been in the UK since the 1980s, and the results for an economy can be the opposite of what was expected or intended.
Debt and paying it back both have to be manageable and it is clear that for many businesses and households this is not so. Nor should the two be seen as unrelated.
For a business, productive borrowing is when it uses a loan to buy machinery or equipment that will enable it to grow or improve efficiency. Such debt expects to be repaid and contributes to the prospect of being able to pay the money back. Similarly, the householder borrowing for a mortgage would be productive, in that over time this too would be paid back, leaving the owner with a valuable asset.
Unproductive borrowing, such as re-mortgaging a house to increase consumption in the short term or a business loan to pay back debt, becomes a problem when the debt becomes impossible to repay, the situation currently affecting large numbers of over-indebted businesses or households.
The business cannot then finance growth and even if they could, the consumer has little appetite or disposable income to buy.
For some time the banks have been unwilling to lend to SMEs, which have been turning to other avenues for finance. These have included crowdfunding and, according to a recent survey by the software company Sage, more than half the owners of SMEs have been using personal savings or remortgaging their homes to keep their businesses afloat.
This is not a sustainable situation and it is time to accept that finances for many SMEs and households need to be restructured and, like Greece, to address the need for a level of debt forgiveness (creditors taking a “haircut”) to solve the impasse that is inhibiting growth.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Why UK is struggling to fund new ideas

It could be argued that in the past investors had a more direct connection and interest in the businesses in which they invested.
They would therefore be willing to be more patient and to wait longer for a return on their investment. Equally they could justify a larger investment by using their knowledge and experience to reduce the risk of losing their investment.
However, as fewer businesses have been involved in making tangible goods for purchase so that the UK’s manufacturing sector has shrunk dramatically and the service sector has grown, so too, investors have become more dissociated from the organisations into which they put their money.
Alongside this, investors have become more impatient to see a profit and shift their money around much more quickly, as demonstrated by returns to hedge funds and justified by some high profile, rapid growth companies.
The high profile, rapid growth investment opportunities are mainly in the technology sector, which can be less predictable but which also requires fewer staff, particularly at middle-management level.
This explains why it is difficult to source finance for disruptive technology or to fund new ideas in UK to find large investors unless they move to California.
Outside friends and family, the main option for SMEs with rapid growth potential to find finance in UK is from crowd funding.

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General HM Revenue & Customs, VAT & PAYE

SMEs need to keep on top of their tax bills

HM Revenue and Customs (HMRC) may have been accommodating in the early years after the 2008 financial crash, but not any longer.
In the last three years HMRC use of powers of distraint and seizure of goods from SMEs that have failed to pay VAT, PAYE and also on late payment of self assessment tax bills has been rapidly increasing.
In 2014-2015 distraint powers were used to seize business assets from 1,080 SMEs, according to the finance organisation Funding Options, quoted in an article by Business Money in July. By comparison, 1,376 seizures were carried out in 2011-12 and just 730 in 2010-11.
Previously, these powers had almost fallen into disuse. Then, after 2008 HMRC showed some forbearance for businesses facing difficult economic circumstances with them approving approximately 400,000 Time to Pay arrangements.
However, the signs are that for the last three years, with Government pressing for improved tax gathering, distraint has become more and more aggressively pursued and increasingly in cases of late payment of self-assessment tax bills.
Under these powers Revenue officers have enforcement rights and can attend company premises after issuing a Notice of Enforcement if payment is not made within seven days.
The officer can then take control of the company’s assets whether by walking possession (seizure of goods without removal) or immediate removal and if payment is not made within a further seven days, the goods can be sold to recover the money owed.
The introduction of real time monitoring of PAYE and wages SMEs a couple of years back means that HMRC has far more accurate information about what companies are likely to owe in tax and are plainly acting far more quickly and decisively to recover it.

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Business Development & Marketing Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround

Business improvement is a continual process

As people become a bit more comfortable in their businesses, growing and selling more, it is easy to forget the basics.
It is easy to do when the pace has picked up and everyone is busy keeping on top of all the extra work.
However, all businesses will experience ebbs and flows of activity and if they do not keep on top of the “housekeeping”, not only will they not be forewarned when a fallow period is looming, they will not be ready to deal with it.
Good practice means continuing to monitor the cash flow, regularly reviewing the management accounts, making sure the tracking of orders from start to invoice and including credit limits for customers and payment terms are adhered to.
Keeping an eye on debt collection is one of the activities that can slip when things are going well.
Continuous business improvement means finding new efficiencies, cost savings and better quality as an incremental process with the aim of building a more sustainable business.
This is especially important when times are good as it prepares a business for survival during recession.
There is no right or wrong way to do this. It depends on the individual business but among the items that could be regularly reviewed are reporting of management information, production or service speed and quality, bought in and inventory stock levels, working practices, safety and environment, staff training, marketing and communication, all initiatives to relentlessly make a lasting and beneficial difference.
Maintaining good habits like this will help to smooth out the inevitable peaks and troughs of business and ensure fewer nasty surprises.