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Business Development & Marketing Finance General

Older employees – a valuable resource to retain and retrain?

older employees reverse mentoringSkills shortages in the UK have been an issue for some years and to an extent the gaps have been filled by workers from the EU and other countries.
However, continued uncertainty about the eventual status of EU citizens as the Brexit negotiations stumble onwards is prompting many of them to consider whether they have a future here and making others think twice about coming here.
The skills shortage is not simply a problem that can be solved by recruiting from overseas, though. A combination of near-full employment, an ageing population and rapid technological change is compounding the difficulties businesses face in finding people with the right skills.
Already, according to Open University research carried out in July 2017, the shortages are costing UK businesses more than £2 billion a year in higher salaries, recruitment and temporary staffing costs.
The new Government Apprenticeship levy from those companies with an annual pay bill above £3 million only came into force in April this year. Those businesses below the threshold for the levy were also promised financial help towards training apprentices, 100% for 16-18 year-olds and 90% for those aged 19-plus.
The new scheme aims to produce three million new apprentices by 2020. Even if this figure was met, it would still be some years before these newly-qualified young people build up the experience needed to fulfil many roles in the workforce.
More than half of those businesses asked in the OU survey said they were employing people with a lower level of skills than they had been recruiting for and were paying for training to build up those new employees’ skills.
But addressing the skills shortage requires more innovative thinking.
How many businesses have older, long-standing workers who may not be up to date on the latest developments in their fields and are assumed by their employers to be coasting gently into retirement?
As retirement ages are pushed further and further back no business can afford to ignore the potential there may be in these older employees.
Recently, the BBC introduced a scheme called reverse mentoring in which young employees in their 20s were asked to help older colleagues, in this particular case to understand the likes and dislikes of millennials.
However, the idea of reverse mentoring has been spreading into other sectors. It has been used to help bring older employees up to speed with new IT developments and to modernise out-dated working practices.
The corporate mind-set has regarded the over 55s as old and not to be considered for investment or further career progression.  But such people could be seen as a resource already being paid for, experienced and committed and worth the investment of time and energy in helping to update their skills to be able to contribute even more productively to the business.
 

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Banks, Lenders & Investors Debt Collection & Credit Management Finance HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery

How should a business in difficulty choose a turnaround or insolvency adviser?

trusted advisorAll too often directors can feel overwhelmed by the problems they have to confront when their business is in difficulties.
In fact, they may have been hoping the problem will resolve itself for some time, while instead the situation has escalated to a crisis point.
However the problem has arisen, the result is often a shortage of cash and the knock-on problem of not being able to meet payroll, buy supplies or pay creditors. This is where the early intervention of a trusted expert can be crucial to business survival.
Calling in a turnaround or insolvency advisor to look at the whole operation, not just the finances, is essential as their independence will mean any recommendations are honest and impartial.

The questions to ask when choosing an advisor

Advisors may not come cheap, but there is a good reason for this.  The best advisors have a breadth of knowledge and experience across a range of disciplines.  While the most obvious and pressing problems may be insufficient cash and impatient creditors, the right advisers will look for and advise on overall solutions for the business that may involve operational reorganisation, not just a short-term financial fix.
In the course of their investigations and subsequent work to save the business the advisor may have to cover financial analysis of statutory accounts, cash flow forecasts and be able to forecast trends. They will need to understand legal compliance requirements with HR and employment, especially if staff are to be made redundant as a means of saving the business.  If they have run their own business so much the better as they will understand your own anxieties.
They should be able to identify viable parts of the business with potential for growth and be able to negotiate with clients, creditors, employees and union representatives, suppliers, HMRC, banks and if relevant insolvency practitioners, who often represent banks.
Advisors often need to deal with Winding Up Petitions, attempts of seizure of assets by Bailiffs or High Court Enforcement Officers and other action by creditors. This requires them to know the different procedures and the legal options for dealing with them.
Professional qualifications, a track record in saving businesses and people skills are all aspects of restructuring work that directors would be advised to explore when choosing the right advisor. Being aware of the difference between different types of adviser may also help since insolvency practitioners generally work for creditors while turnaround professionals work for companies.
It goes without saying that some companies cannot be saved but with the input of objective and impartial advice from the right advisor, there are normally myriad options for saving most of, or at least part of, a business.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Rescue, Restructuring & Recovery Voluntary Arrangements - CVAs

What is the difference between a CVA and a CVL?

insolvency signpostA CVA, a Company Voluntary Arrangement, is a binding agreement between a company and those to whom it owes money (creditors).
It can allow a company in difficulty to carry on trading, by proposing affordable, realistic and manageable repayment terms to creditors and depends on the company’s proposals and what is finally agreed. It may also include provision for some of a company’s debts to be written off and will usually include a plan for restructuring the company.
The directors formally agree that the company should continue to trade and propose a CVA to creditors.
A CVA proposal is prepared by the directors, normally with the help of turnaround advisers, and then sent to the Company’s creditors along with an independent report on it by a licensed insolvency practitioner acting as Nominee and Convenor of a decision procedure through which creditors are invited to consider and vote on the proposal.
Creditors may respond to the proposal, either by accepting it, accepting it with modifications or rejecting it. Their votes are counted; 75% by value of all those voting, and 50% by value of all ‘non-associated’ creditors voting, must accept the proposals and modifications for a CVA to be approved.
The Nominee/Convenor will also convene a physical meeting of shareholders, to take place after the creditors’ decision procedure.  The meeting of shareholders will decide whether to accept or reject the CVA by simple majority; however if they reject a CVA proposal already approved by creditors, the CVA is still approved.
A CVL, Creditors’ Voluntary Liquidation, on the other hand, is a process by which the directors of an insolvent company can close it down without involving a court procedure and like a CVA, the CVL procedure is defined by the Insolvency Act 1986.
The directors formally agree that the company should cease to trade and propose the CVL to shareholders, and will also propose a liquidator to be appointed. At least 75% of the shareholders must approve the company be placed into liquidation, and over 50% must agree on who should be the liquidator.
The directors will also propose a liquidator to creditors via a decision procedure – either a virtual meeting, where creditors are invited to log on or call into a meeting and vote on who is liquidator, or deemed consent, where creditors are told by the directors who they want the liquidator to be, and will be given a deadline by which they can lodge an objection.
In both cases, the company is insolvent but the difference is the crucial test of its situation and whether with restructuring it can survive to emerge from insolvency in a way that will improve the position for creditors.
In both cases, also, the directors of the company should seek advice from a qualified professional, such as a turnaround professional or insolvency practitioner, to ensure they are abiding by their director duties, the legal obligations that all directors must adhere to and that are designed to ensure that their actions and decisions are in the best interests of the creditors and the company in that order.
Ultimately, the directors have to decide, with advice, realism and honesty, whether their company’s insolvency can be rectified with the right measures to return it to profitability, or whether the situation is irretrievable and the only solution is to cease to trade and liquidate the assets.
In summary, a CVA is a formal procedure for restructuring the balance sheet as one of many tools that can be used to save a company while a CVL is an efficient procedure for closing down a company.
 

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

How will struggling businesses cope with an interest rate rise?

According to the latest research into struggling businesses 79,000 UK businesses (4%) say they would be unable to repay their debts if there was even a small interest rate rise.
The research, carried out in June 2017 by the insolvency and restructuring trade body R3 said this was almost a fourfold increase on the 20,000 from September 2016.
With the latest insolvency statistics for July to September (Q3) due to be published on October 27 the numbers of businesses in difficulty will become clearer but there are signs that Brexit has contributed to an increase in the number of businesses struggling where interest rates will compound their problems.
Indeed, the signs are ominous as the Bank of England, many economists and investment managers have been predicting a 0.25% rise is likely in November 2017. And the Labour party has begun preparations for a run on the pound when they are elected.
Exactly struggling business closing downhow many struggling and zombie companies, able to service only their debt repayments, there are in the economy is not clear but what is clear is that many would be pushed over the cliff edge by even a small rise in interest rates.
 
 

How can a struggling business prepare itself for an interest rate rise?

Unfortunately, there will be many that have left it too late.
There are three considerations that must be confronted which are how to fund the business, how to repay debt and crucially how to service debt when rates rise.
A company finding itself in this situation may not necessarily be a failure or inept.  It could be that it has a legacy of debt despite being profitable. This may be down to historical investment introduce development or growth during favourable economic times. Many companies today are much smaller than they were where they have downsized to become more profitable and reduce the funds needed for working capital. For many the downsizing hasn’t been a one-off exercise but continual as a form of genteel decline.
But that does not make a business immune to market forces and preparations to face a change in circumstances takes time and honesty. Indeed, a lack of investment means that a lot of companies are not prepared for the future.
While there are several options for dealing with unaffordable debts by rescheduling payments or writing them off, sustainability and viability need more than financial restructuring. This means freeing up funds to invest in improving profits, product development and growth which becomes more difficult when more cash is diverted to servicing debts.
Dealing with this conundrum is not something any struggling business should undertake alone. It is wise to use the services of a turnaround adviser to review the business in depth, help develop a plan for restructuring finances and reorganise operations to achieve sustainability and growth. And to help the company implement the plan and deal with the ensuing negotiations.

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Business Development & Marketing Finance General

Should SMEs use traditional marketing?

traditional advertisingThe benefits of using online marketing through social media, blogs, websites and the rest have been well-covered in other blogs.
Traditional marketing, on the other hand, is deemed to be costlier in terms of printing and distributing the materials for a newsletter or magazine, brochures, leaflet drops, press and trade publication advertising (plus the cost of buying the space). The cost of content ought to be similar although it has been dumbed down with everyone now producing their own.
While billboards are plainly too costly for SMEs, press activities/PR need not necessarily cost a great deal. Imaginative ideas such as submitting news about activities or functions that include a reference to a celebrity, or a well known organisation or charity may be enough to catch the news editor’s eye. A great photograph with minimal text is the easiest way however for an SME to get press coverage.
Or what about the well-known Pizza company that hires a person to stand or walk along a street wearing a superhero costume with a sign or a sandwich board?

Comparing the costs

Online marketing is often free to post on your own website or on LinkedIn. Reaching the right followers however is key and costs escalate when posting on a platform that has a well-defined audience. Online does arguably level the playing field by making it easier for the smallest SME to compete alongside its larger rivals.
Results of online marketing are measurable in as much detail as the business would like, creating greater understanding of customers’ behaviour, needs and allowing for precise targeting. This is where successful companies spend more time and money on analysing what does and doesn’t work. SMEs can also do this but all too often don’t value the investment.
Since time is money, and it takes quite a long time to learn about the marketing and associated analytical tools, it makes sense to use an experienced marketing specialist, part time if necessary. Whether employed or outsourced, an expert can run the marketing campaigns, monitor them, analyse them and provide reports based on data. The reports are key to improving the results which is achieved by constantly adjusting the marketing campaigns to achieve better results. Again this is what the successful companies do.
If a business economises by having someone do this in-house as well as their main role, how much does it cost to have them constantly juggling tasks when they might be more productive focusing on their main role?
It is also said that online marketing enables a business to create relationships with customers, raise awareness of its brand and demonstrate its knowledge, especially in an era of short attention spans and browsing via mobile phone. If online marketing is done in-house how much time can you afford to let the employee spend on monitoring and responding to responses? What about the costs or rectifying an unfortunate piece of online marketing that goes wrong and could damage the business’ reputation?
While traditional marketing costs for printing and distributing materials may be higher at the outset arguably their potential longevity is far greater than the unopened or swiftly deleted message on a screen. This is not only because the material can be re-used, with tweaks, repeatedly but also because there is some scientific evidence that people like to have something they can touch and keep. At least they have to physically handle hard copy materials.
Research done in Canada on the benefits of traditional marketing, by testing eye tracking and measuring EEG brain waves, attention spans and ease of understanding has also found that the hard copy scored far higher for ease of understanding and brand recall.
While there is a wealth of analytics data for measuring online marketing, it is argued to be less easy to target and to measure results for traditional marketing. But is that really true?  Run a simple postcard campaign with a tempting offer for replies and include a code or codes in the return address or even a dedicated phone line and it is easy to track the origins of the responses and compare the results with the previously-defined percentage return for the campaign.
There is no doubt that there is some value to businesses from using traditional marketing, but do they have to choose between this and online marketing?
It may not be a case of either/or but identifying the right mix of online and traditional for an individual business after carefully weighing up the costs in relation to its available marketing budget.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Can the UK have a balanced economy?

A new YouGov poll of voters has discovered that at least 85% of them want to see a strong emphasis put on manufacturing by the next government believing that there will be greater economic security in a more balanced economy.
The British Chambers of Commerce (BCC) has also warned recently that the recovery could risk being stalled unless more is done to balance the economy away from a disproportionate reliance on consumer spending.
ONS figures show that manufacturing makes up just 10% of the UK economy despite chancellor George Osborne’s call for a “march of the makers” in the early days of the current coalition government.
But why are we surprised?  Industry, particularly but not only construction, regularly highlights difficulties in recruiting people with the right skills and this is the result of years of neglect.
Young people have not been encouraged to believe in, or aspire to careers using practical skills, in fact quite the opposite.
Inevitably, even if a shift of emphasis and a change of direction that encourages young people and others to value the training acquired through an apprenticeship or college as highly as a degree currently is, it will take some years before the skills imbalance can be corrected.
Then there is the question of whether manufacturing can ever compete in an export market that includes China, India and others, where production and wages costs are so much lower than in the UK.
And finally the question of funding where investors in particular for some years have disliked industries that tie up capital and have high fixed overheads, whether this is due to perceived risk or the long-term nature of such investments.
Is it already too late to revive an industrial base in the UK (or possibly England given today’s vote on Scottish Independence) and what kinds of goods can we manufacture in such a way as to be competitive?

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Banks, Lenders & Investors Finance General Insolvency Personal Guarantees Turnaround

Director guarantees should mean cheaper borrowing

Financial institutions, especially banks dealing with small business loans, are often asked for loans by directors of companies that do not have insufficient assets. This places banks in a difficult position because they often want to help their clients but at the same time they can’t take risks with depositors’ money. The result is that banks frequently require directors to give a personal guarantee as security for money borrowed by the company.
If the business is subsequently unable to repay the guaranteed loan then the bank expects to rely on its guarantee. Accordingly guarantors are now asked to seek legal advice before signing a guarantee or at least confirm they have been advised to get advice before signing.
Directors should therefore be mindful of the obligations they may be taking on when seeking business finance and weigh up the pros and cons.
We are, however, aware of clients being told by bank managers that they would never expect to actually call upon the guarantee. This confuses the issue as it begs the question why take a guarantee. However most likely if a guarantee exists, it will normally always be called upon in the event of a default providing the director has sufficient personal assets.
While a bank relationship manager may be uncomfortable asking a client to sign a personal guarantee and often confuse their client by trying to reassure them, the bank’s in-house recovery team won’t have a problem if the a bad debt is passed to them.
Some commentators and many aggrieved directors have tried to turn this into an ethical or moral issue but it is straightforward. Banks need security and they should not be lending money at risk, at least not retail or commercial banks. In turn the reduced risk to the bank should attract a low cost of borrowing to the client.

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

Is it time to accept some responsibility for our own behaviour?

As we emerge from the 2008 Great Recession, is it time to reflect on the broader values and behaviours that contributed to the hubris and subsequent crash?
Much of the focus to date has been on blaming others and in particular bank bashing. We have cheered from the sidelines or simply remained silent over attempts at regulating and curbing remuneration for bankers and CEOs. The aggrieved have engaged with the various inquiries into the conduct of banks and other financial institutions.
This all underpins our desire to blame someone else.
It continues, like the recent call by ResPublica think tank for bankers to be made to swear an oath to fulfil both a moral as well as an economic purpose. Presumably this is envisaged as the equivalent of the oath to which doctors sign up. While the Hippocratic Oath may on the whole work to prevent misconduct in the medical profession, applying it to bankers comes across as our continued belief that we bear no blame.
We implicitly know that legislating for moral or ethical responsibility for bankers will be almost impossible to enforce and will only end up with more clauses in contracts where we confirm we have taken independent advice.
For too long there has been an unspoken assumption that our values are different from those of bankers or CEOs. It is time for us all to take responsibility for borrowing more that we could afford, for believing that getting rich is easy and without risk, for contributing to the hubris.
Only when we accept some responsibility for our own behaviour can we change the values that contributed to the Great Recession.

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

Glass half full?

In an ideal world every small business is planning ahead but needs some clarity and certainty about the future economic environment in which it is likely to be operating.
The reality, however, is more like an exercise in crystal ball gazing.
Business headlines portray a rosy picture of the UK economy back to pre-Great Recession levels of performance which is underpinned by unemployment falling dramatically. It should however be remembered that we are already in the build-up to the next election, now less than a year away.
Other commentators who are not getting the headlines are promoting a level of caution that no one wants to hear. We have had quite enough bad news over the past 6 years and now want some good news.
It may however be unwise to be unaware of the warning from IMF Chief Christine Lagarde, that financial markets may be a little too optimistic, given that recovery is still lagging in Europe, one of the UK’s chief export markets.
It would also appear that not everyone is enjoying a boom if the reports are correct about UK businesses being in arrears with VAT, calculated as having have risen by £100 million to £2.6 billion in 2013, according to business finance provider LDF.
The Bank of England’s Monetary Policy Committee is also concerned about signs of a weakening in growth in the second half of the year, pointing out also that real wage rates have not yet started rising, while inflation is edging up.
We should know that economic forecasting is by no means a precise science, and if we had forgotten 2008 was a big reminder that chancellors of the exchequer cannot ensure there will never be a return to “boom and bust” economics.
Business planning needs to take into account confidence or lack of it. Hope and spin are not much help to the small business deciding whether to seek funds to invest in the future or avoiding taking risks.
So, apart from continuing to keep a close eye on cash flow as a prudent measure, is it time for businesses to plan for growth? And who is going to back them by sharing their risk?

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Finance General Uncategorized

Knowledge of history may help us avoid making the same mistakes

Empires at outbreak of WW1
Today 100 years ago Britain declared war on Germany.
Alarmingly many of the circumstances that led us to war then are being repeated today.
During the early 1900s the Empires of Austria-Hungary, Russia and Germany could not reach agreement over the Balkans. The Ottoman Empire was shrinking. Alliances between the various countries obliged support in the event of war.
Russian political manoeuvring in the region destabilised the situation. Unrest among the Serbs, Croats and Bosnians led to local militia seeking to establish control.
Demands were made, which when not fully met justified Austria-Hungary declaring war against Serbia on 28 July 1914.
The Russians weren’t prepared to lose their influence so they partially mobilised on the 29th.
The Germans mobilised on the 30th so the Russians responded by fully mobilising.
The Germans declared war against Russia on the 1st August 1914.
On 4th August, Belgium sought neutrality and refused to allow German troops to cross its borders, Germany declared war on Belgium so that day Britain honoured its alliance.
Does any of this resonate with the current situation in Ukraine?

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

Update on Interest Rate Swaps missold to SMEs

 

The May deadline for banks to compensate thousands of small businesses for the misselling of Interest Rate Swaps (IRS) has now past and banks would seem to want everyone believe that they have resolved matters within the deadline.

But campaigners Bully Banks say that many SMEs will miss out on compensation arguing that banks have rejected most claims for consequential loss.

The compensation scheme imposed by the Financial Conduct Authority (FCA) on the banks allowed for basic redress – a refund for excessive interest paid plus 8% interest. However, affected businesses could also claim for such things as lost profit and legal expenses (consequential loss).

Bully Banks Chairman Jeremy Roe was quoted recently as saying: “I don’t know of any business that has successfully claimed for consequential loss and received reasonable compensation from their bank”.

Meanwhile the British Bankers’ Association claims that banks have met their obligations by informing businesses of the IRS compensation they may be owed by May’s end. The claims for consequential loss are being dealt with case by case but would seem to be being dragged out.

It is three years since Bully Banks first began their campaign into IRS misspelling.  That is a long time for a small business to wait for recompense. 

But for many it seems that the waiting is still not over and the outcome remains uncertain.  In the meantime many such businesses would be well advised to prepare for the worst by revising their business plans with the help of a turnaround adviser rather than wait in hope for a big payout.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Wednesday will be an interesting day for small businesses

 

Results of a survey into lending to small businesses are due to be published tomorrow (Wednesday) and are expected to prove an eye-opener.

The six-month survey, carried out by the British Chambers of Commerce (BCC) and Federation of Small Businesses (FSB) at the behest of Chancellor George Osborne, is widely thought to show that small businesses continue to feel excluded by the banks from lending, despite all the exhortations of the Chancellor and Treasury.

Bank of England figures have, in any case, already indicated that business lending continued to fall in the three months to February 2014 down by £500 million, following a reduction of £3.3 billion in the preceding three months.

Publication of the survey will coincide with the launch of a joint BCC/FSB website called Business Banking Insight (BBI), which is expected to allow small businesses to rate their banks’ performance on services and on understanding their businesses.

It is expected to give small businesses the information they need to compare offerings by banks and by alternative finance providers.

While it may be, as reported in the weekend’s Business Telegraph, that the Treasury will urge banks to increase competition in lending to small businesses, is it likely that bank lending will rise, given the lack of security for new loans and regulators’ requirements for higher capital reserves?

The matter for real concern should be existing loans and the impact on borrowers when interest rates rise.

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

Be prepared!

 
The news is awash with worries about a new housing bubble and the need to contain it by raising interest rates.
Although the focus of 17% increases in housing prices is mainly on London and the South East, an interest rate rise will not only affect housing costs across the UK, but all debt repayments including loans to small businesses for growth.
While the economy may be recovering there is still a risk that an interest rate rise could trigger the insolvency of many businesses that are still burdened with historical debt.
Low interest rates are keeping quite a lot of businesses afloat where some may need to consider their restructuring options before events overtake them.
Before rates rise, as they inevitably will, it makes sense for a business to take a close look at its cash flow, its business plan and its plans for growth so that it is not knocked off course.
Amid the day-to-day attention on keeping the business running smoothly and efficiently to satisfy customers, do small business owners have the capacity and the time to stand back and assess its fitness for the future?
Would it help to bring in the supportive, outside expertise of a business adviser, a fresh pair of eyes with the time to focus on what adjustments might be needed?

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Quality v quantity in social media marketing for SMEs

 

Part of the job of transforming a company in difficulty is finding a market. While the immediate crisis is often a lack of cash, the more fundamental ones relate to funding, sales and margins that are necessary to drive growth and we regularly see a failure to effectively market the goods or services.

A case in point is the use of social media, where it is easy for a small company to find itself running ever faster to stand still and to no effect whatsoever by trying to keep up with all the latest advice on frequency of posting on every available outlet .

How often, for example, do you ‘follow’ someone on Twitter or read their blogs because their insights impress you, only to eventually ‘unfollow’ them because the quality of their posts has deteriorated as the frequency has risen?

For the time-poor small business owner attempting to produce a high volume of good quality material for the ever growing list of platforms including LinkedIn, blogs, Facebook, Twitter, Pinterest, Google+, YouTube and more, it is an exercise in fantasy if they don’t have the time, knowledge and writing skills to do it well.

The DIY approach can damage your company’s brand, especially if it isn’t thought through or properly implemented.  

Far better to have a clear understanding of the company’s target customers, which media they use and what sort of information they value. This can then be used to develop a marketing strategy based on clear goals, whether to generate awareness or generate inquiries and a marketing plan for implementing the strategy. Your strategy might include marketing via social media as a very personal means of communication.

While business owners need to be involved in social media, especially in approving the strategy and monitoring its implementation, there are a number of ways to achieve this without doing it all your self or abandoning it to others. There are plenty of social media marketing firms but SMEs might consider outsourcing specific tasks to one or several specialists. This might be someone carrying out research for relevant topics as a source of content, drafting blogs and posts, editing them in consultation with the you, then posting them online to media that you specify. 

Over time the right specialist can help you achieve your social media marketing goals with the minimum of your time and cost.

In our view quality trumps quantity every time and it is better and more cost effective to produce fewer well-researched and presented pieces than to swamp the e-waves every day because that’s what some “guru” has advised.  Developing your brand may take longer but quality content will not damage your brand unlike trivia that may lead others to ‘unfollow’ you.

Please share your own experience of social media and also any techniques that might benefit others.

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

From little acorns……..

 

Our regular readers will know that we continue to liberally apply a pinch of salt to reports on the solidity of the much-heralded economic recovery for several reasons.

Firstly, most national news emanates from London and there is still a great gulf between the capital and the rest of the country. Much of London’s optimism is down to the enormous rise in the value of property which has contributed to London home owners feeling wealthier.

Secondly, a little-noticed report in late April in the Daily Telegraph noted the latest data from the Bank of England’s quarterly report showing that business lending, especially to smaller and medium-sized businesses, has continued to decline for the sixth successive quarter.

Thirdly, there is the evidence of our own eyes and ears. We are hearing that small and micro businesses are still facing tough trading conditions. Most are having to work hard for the money they make as well as dealing with continued uncertainty and experiencing the frustration of a long wait for the decision on every contract they pitch for.

Finally, the greatest impediment to recovery and growth remains a fear of interest rates. While they will inevitably rise, the concerns are threefold: 1. the ability to service them, 2. the impact on consumer spending and 3. whether banks and other secured lenders will call in their loans like they have in the recovery phase after previous recessions.

Interestingly, David Boyle, writing in the Business Guardian this week points out that talk of rebalancing the economy (from London to the regions and from financial to manufacturing sectors) seems to have morphed into little more than reducing the trade deficit.

He argues that far more attention needs to be paid to putting money into what he calls “ultra-micro-projects” perhaps by using existing resources such as waste land, unoccupied people and buildings for innovative small businesses that would bring money into the community.

It may not be glamorous, nor is it attractive to the policy makers, but given that the so-called recovery is taking place in a situation where there is still a large amount of business and consumer debt perhaps his idea has some merit?

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County Court, Legal & Litigation Debt Collection & Credit Management General Rescue, Restructuring & Recovery Turnaround

Are businesses vulnerable to fraud?

 

One our investment portfolio companies, Music Room Direct, is a small internet retail business that supplies musically themed goods via online sales that are paid by credit card when the order is placed.

We were horrified to find that once the goods had been delivered the credit card transaction could be cancelled and the funds recalled. We immediately contacted our bank’s credit card administrator, who sent a form asking us to respond within 10 days.

We complied immediately but were horrified to find that our bank had already refunded the customer.

Fortunately on this particular occasion we were able to contact the customer who acknowledged their mistake  as an accounts department error and repaid the money immediately.

But when we questioned the administrator, Global Payments, which administers credit cards for several mainstream banks, it transpired that there is absolutely nothing we can do to protect ourselves from clients claiming a refund of the transaction.

While we acknowledge that consumers should be protected, this system clearly offers scope for the less scrupulous and fraudsters to order and pay for goods then to reclaim a refund when the goods arrive.

Have you come across this or any other “loopholes” that make small businesses vulnerable in a similar way?

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Business Development & Marketing General Rescue, Restructuring & Recovery

Thinking of trading overseas? Where can you get help?

 

Businesses are being encouraged to sell their goods and services overseas as part of the drive to rebuild and rebalance the UK economy after the carnage unleashed by the 2008 crash.

Prime Minister, David Cameron, has set business a target of increasing exports by £1 trillion by 2020, but, if a recent reported comment by business secretary Vince Cable is accurate, businesses cannot expect any help from Government to do so.

So what is a small or a middle-sized business with little or no export experience outside the EU but with the potential to expand overseas to do?

Well actually, there is at least some Government help via the auspices of UKTI (UK Trade and Industry) which acts as a facilitator in organising trade missions to specific countries and pointers to local contacts and to the local issues to be aware or wary of.

Its website also has a very useful page called “where to go next” which details all the issues that a business will need to address to minimise and protect from risks.  These include legal advice on local employment, tax and other issues, insurance, access to export finance (including services provided by UK Export Finance) and specialist advice on risk and security.

While a business may be able to find all this expertise  relatively easily in London, it can be harder for businesses in the regions and the one glaring piece missing from the whole jigsaw puzzle is the existence of experts who can project manage or help a business to organise all these additional aspects.

Has your business considered moving into export markets? How difficult do you find organising all the elements?  Where have you gone for help?

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Banks, Lenders & Investors Debt Collection & Credit Management General Rescue, Restructuring & Recovery Turnaround

Strong arm tactics and fractured thinking

 

Many Buy-to-Let landlords who bought property before the Great Financial Crisis are being subjected to strong arm tactics by lenders.

UK Asset Resolution Limited (UKAR) is the holding company established in October 2010 to “facilitate the orderly management of the closed mortgage books” of Bradford & Bingley (B&B), its subsidiary Mortgage Express (MX) and Northern Rock Asset Management (NRAM). The run-off period UKAR was anticipated as taking between five and ten years.

It would seem that UKAR are becoming more assertive in their zeal to recover taxpayer money, despite the consequences.

Landlords are being sent demands, for full repayment of loans giving only a few days’ notice. If followed through this would result in personal guarantees being called and trigger the bankruptcy of many landlords.

Even when landlords are not in arrears due to low interest rates, UKAR are relying on clauses in the loan agreements such as those that relate to ratios defined as a Loan to Value covenant.

In one recent case repayment of approximately £1.4 million was demanded by NRAM giving 7 days notice even though their client wasn’t in arrears. This was following a valuation of six Buy-to-Let properties out of a portfolio of ten very different properties two years previously. Extrapolation of the part valuation was used as the pretext that the total value breached a Loan to Value covenant of 80%.

In another case, a landlord tried to sell one property in a portfolio, but discovered that the fine print meant she had to sell the whole portfolio.

It should be acknowledged that many of these mortgages are interest only which concerns UKAR about its ability to meet target dates for the run-off time frame. Furthermore most of these loans have come out of a fixed rate period and are now benefiting from low interest rates with UKAR being concerned about landlords’ ability to service interest when rates rise.

However, these concerns do not justify a 7-day notice letter.

Instead cool heads are needed to develop solutions such as those that can be developed by independent turnaround advisers.

Strong-arm tactics tend to invoke fear and a lack of trust, they are not the way to reach consensual agreement.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

RBS – whitewash or exoneration?

 

The first of the investigations into behaviour by the Royal Bank of Scotland (RBS) following publication of the Tomlinson Report in November last year has found “no evidence” to back up the most serious allegations that the bank systematically put customers out of business.

Clifford Chance does not however completely exonerate RBS in its dealings with customers, only the allegation of a deliberate policy – a copy of the report is available at  http://bit.ly/1ljINfK.

The report by the law firm Clifford Chance was commissioned by RBS after Tomlinson, adviser to the Department for Business, Innovation and Skills, investigated the behaviour of the RBS-owned turnaround unit, Global Restructuring Group (GRG).

His report accused GRG of systematically charging large fees to small businesses, thereby putting them out of business and generating profits for the bank.

While there is speculation that RBS could sue Mr Tomlinson for libel, for damage to the bank’s reputation, it is likely that RBS will wait for the FCA report before responding formally

Given that Clifford Chance are a panel firm of advisers to RBS and the limited scope of their investigation, it will be interesting to see if their findings are supported by the FCA whose report is due to be released much later this year.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Further thoughts on small business definitions

 

If, as is argued, Micro businesses are unable to take advantage of Government initiatives for small businesses (the S in SME) what about these further two sub divisions?

There are two other types of business that presumably currently fall into the “S” category of SME – the Lifestyle business and the Sole Trader.

Broadly the Lifestyle business can be described as one where its owner(s) deliberately run it so as to allow them to support a lifestyle. They need a satisfactory level of profit but tend not to focus on growth beyond a certain size. Typical examples would be those who want to prioritise their time with children, or those who want to work from home. Such businesses might be based on providing services time can be self-managed such as designers or consultants, or using creative skills to write or make goods for sale. The internet has made many such businesses possible.

The Sole Trader, on the other hand, is a definition used by HMRC to cover anyone who is self-employed. They may have a particular trade or skill they can sell, such as carpentry, plumbing, painting and decorating, accountancy, book keeping and so on, and some may have set up independently as a result of redundancy though others will have made a conscious decision to become independent.

Given time, effort and ambition this second group can potentially grow into a much larger business employing people. There is likely to come a time when the Sole Trader needs support, mentoring and funding to achieve growth.

Plainly, though, to be of genuine, practical help any Government support for the Sole Trader, the Micro Business with fewer than 10 employees and the Small Business, with between 10 and 50 employees should be tailored to each specific group’s needs.

While economic recovery is said to depend on the growth of small businesses what chance is there of Government understanding or adopting this more nuanced and necessary approach to achieve this?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are SMEs really MSMEs and what is the squeezed Middle?

 

We all use it without really thinking and assume we know what it means.

The acronym SME provokes puzzlement in some quarters and ire in others, according to Daily Telegraph business writer  Michael Hayman, who quotes King of Shaves founder Will King: “Get rid of this casual piece of profanity…It needs to be removed from the Oxford English Dictionary.”

So what is the problem? 

SME is short for Small and Medium Sized Enterprises and that, according to CBI director general John Cridland, means the M in the middle is a “forgotten army”, the middle-sized businesses on which the economy is relying for growth.

But it’s actually a bit more complicated than that since no-one agrees on the definition of small.

The UK and the EU use the same definitions for businesses, based on number of employees and turnover – Micro, Small and Medium – which actually would give us the acronym MSME!

Micro Businesses are those with fewer than 10 employees and turnover under £2 million, Small Businesses consists of fewer than 50 employees / turnover under £10 million and a Medium Business has fewer than 250 employees / turnover under £50 million.

It is argued that 95% of UK companies qualify as Micro Businesses. This has led to the setting up of a parliamentary group, the All-Party Parliamentary Group (APPG) for Micro Businesses, chaired by Anne Marie Morris, Conservative MP for Newton Abbot.

The CBI has calculated that middle-sized companies contain between £20billion and £50billion of unrealised economic output, and are best placed, unlike their smaller brethren, to take advantage of export opportunities in the emerging markets of the world.

The argument is that by lumping them all together the M, Medium, businesses in SMEs are neglected and don’t get the support they deserve.  Equally the other M, Micro Businesses, lose out by being lumped in with Small but actually can’t take advantage of government support aimed at the Small.

What do you think? Do you see yourself as Micro, Small or Medium?  Do you feel neglected? And should we replace SME with MSME?

Categories
Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Further questions need to be asked

 

In our last blog we highlighted the case of businessman Michael  Hockin’s 15-month battle to be allowed to sue RBS over a mis-sold Interest Rate Swap (IRS) which added over £600K to his company’s annual repayment bill to the bank.

The High Court ruled in his favour even though his company had been put into administration and, as mentioned, the administrators had declined to pursue the bank for the benefit of creditors.

We’ve found an interesting little note on the Financial Conduct Authority’s (FCA)website regarding reviews of  a bank’s mis-selling of an IRS, which clearly states that businesses in administration are (our italics) eligible to participate in the review:  http://tinyurl.com/pgqsr9p  

“…when banks invite businesses in administration to submit any relevant information…..we would generally expect administrators to offer the former directors or shareholders the opportunity to put forward their perspective.

“However, it will be the administrators and not the former directors or shareholders who will engage with the banks during the review.”  (our italics again)

We have previously questioned the conflict of interests between panel firms advising directors and their relationship with banks. Is there another potential conflict between panel firms representing banks and their duty to unsecured creditors? These issues were not included in last month’s review by the Insolvency Service of the regulatory regime and fee structure. A missed opportunity.

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

High Court ruling on mis-sold IRS gives businessman the right to sue RBS

 

As time goes on more and more murky behaviour by the banks in their treatment of SMEs over Interest Rate Swaps (IRS) is being revealed.

It has been two years since the lobbying group Bully Banks first highlighted IRS mis-selling (IRS are also sometimes referred to as Interest Rate Hedging Products- IRHPs).

As a result of their efforts, and the Tomlinson report into the behaviour of RBS, the Financial Conduct Authority (FCA) has been tasked with investigating the banks’ behaviour and administering a redress scheme to allow SMEs to reclaim their money.

Now a High Court ruling has given one businessman, Michael Hockin the right to sue RBS over a mis-sold IRS, even though the bank put his business into administration in a classic illustration of the behaviour highlighted by Tomlinson.

The company, London and Westcountry Estates, had had a loan that RBS converted to a 10-year IRS, adding an estimated £600,000 extra in annual repayments and an exit fee of £11 million that Mr Hockin said the family was never warned about.

One of the questions that needs to be asked is why the administrators of this once-prosperous business, Ernst & Young, did not pursue a claim against RBS over alleged mis-selling.

RBS meanwhile is quoted as saying that it had investigated Mr Hockin’s concern about mis-selling and found no evidence of wrongdoing by the bank

The case will now be heard in court. Hopefully the issue of why the administrators declined to pursue the bank will be given an airing.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are investors continuing to think short term?

 

A week ago ASOS, one of the UK’s most successful online retailers, announced plans to increase its investment in its warehousing and its IT as part of a longer term growth strategy.

Capital expenditure would therefore increase from £55 million to around £68 million and the outcome in the longer term would be an increase in ASOS’ sales capacity by £1 billion. In the short term the company’s operating margin up to August this year would be reduced from 7% to 6.5%.

Almost immediately after the announcement was published ASOS’ share value dropped by 20%.

Surely this company was being sensible in planning for growth in the longer term.  Isn’t this kind of thinking exactly what the business community should be doing?

Here yet again, we would argue, is an example of the kind of short term thinking that is endemic among investors and other “rent” seekers.  Or are we missing something here?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

What help was the budget to SMEs?

 

A post-budget vote in Kent by 100 business people revealed that 80% of them were more confident about the prospects for the economy in the South East than at this time last year.

But looked at closely, there was very little in the budget that was likely to make things any easier for the UK’s SMEs, which account for more than half our output and two thirds of all employment.

Admittedly, direct lending from government to UK businesses to promote exports was doubled to £3bn and interest rates on that lending cut by a third and business rate discounts and enhanced capital allowances in enterprise zones were extended for three years. But how many SMEs will benefit from these measures?

Admittedly also, some small builders may benefit from the extension to Help to Buy until 2020 and the “support” for the building of more than 200,000 new homes.

But there was not a word about the review of business rates that had been pressed for by so many businesses, not only High Street Retailers, in the days leading up to the Budget statement, nor about the previously oft-repeated promises to reduce red tape.

Given that the Chancellor himself has conceded that economic recovery is built on very fragile foundations is such an increase in confidence on the part of the businesses of Kent a case of too much too soon?

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

Investigation of treatment of SMEs by banks – what next?

 

We reported in a recent blog on the announcement that the Treasury Select Committee (TSC) had begun investigating the banks’ treatment of SMEs, covering everything from lack of financing to bullying.

The first session heard evidence from Sir Andrew Large, Laurence Tomlinson and the Financial Conduct Authority and on February 25 it was the turn of Prof Russel Griggs OBE, Independent External Reviewer of the Banking Taskforce Appeals Process.

However, according to reports in the International Business Times, despite the best efforts of his interlocutors, Griggs’ evidence was less than critical of the banks’ behaviour and in his view SMEs’ opinions about banks were “more about perception than reality”. Here are just a couple of quotes:

“I don’t think I have ever seen a bank which has deliberately gone out of the way to upset the customer.”

And:  “Banks have also provided a lot of training for relationship managers over the last two years as well. Yes, [they are fit for purpose].”

Details of further sessions and formal terms of reference will apparently be announced in due course.

Unfortunately scrutiny of the TSC’s schedule for the next month on its website currently shows no further sessions yet.

While clearly investigations have to be thorough, objective and careful, one has to ask how many more SMEs will perish as a result of their bank’s actions due to the time taken to seek redress.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Can SMEs afford to bid for public sector contracts?

 

By coincidence on the same day that the British Chambers of Commerce (BCC) announced revised growth forecasts, predicting that the economy would overtake its pre-2008 crisis peak in the second quarter of 2014 rather than in 2016, an SME announced that it was pulling out of further involvement in a valuable contract with the Ministry of Justice (MoJ).

Sara Murray, founder of Aylesbury technology company Buddi, said in an interview with the Daily Telegraph that tendering for the contract to supply software and tags for tracking 24,000 offenders had eaten up nearly two years of the company’s time and cost £2 million to assemble the documentation required for the bid. The paperwork filled 13 large boxes delivered in two taxis.  It was the only SME to win a part of the 4-Lot contract.

Then came further MoJ requests for “thousands of pages of information” to be given to other bidders and requests to share Buddi’s intellectual property with other bidders.  Buddi also had to deal with constantly changing specifications until finally the demand that Buddi would do further development work free of charge. This was the final straw that triggered Ms Murray’s decision to withdraw from the tender process.

In 2005 Buddi was a start-up. When it began working on the bid it had 25 staff. While preparing the tender for this contract with the MoJ it was servicing existing contracts both nationally and internationally and focused on growth. It now employs 40 people.

Ms Murray said the company has tendered for and won work overseas and found their processes far faster and far less complex.  She sits on a number of Government advisory panels and is passionate about getting SMEs working with Government.

Government claims it wants to help SMEs grow, it promises to remove red tape, and it wants more SMEs to work with them. It seems there’s a long way to go.

If the BCC’s prediction is proved accurate, given Buddi’s experience one has to ask whether all this growth will be confined to the “usual big-company suspects”.

Are you aware of SMEs tendering for public sector contracts? Is there one bit of red tape above all others that you would like to see removed?

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Business Rates – time for a change?

 

As the Chancellor’s March Budget statement approaches, calls for a complete overhaul of business rates have been growing.

The British Retail Consortium (BRC), several large manufacturers (including Tata Steel and Vauxhall), ex Tesco boss Sir Terry Leahy and a number of MPs have been among them. There seems to be general agreement that the current tax regime needs reform.

Some, principally the BRC, have put forward alternative suggestions, one of which is to replace the property-based tax with an energy tax.  There is no doubt that for High Street retailers the payment of rates, set at pre-2008 crash property valuations, has posed a particular challenge given the competition they face from online shopping and changing consumer habits.

But, as the British Chamber of Commerce has pointed out, business rates affect all sectors, not only retail.

The BCC is right to highlight the burden placed by this tax on all businesses. 

There will doubtless have to be a thorough review before any new system is introduced and perhaps now it is appropriate for a more nuanced approach to be considered.

There may be scope for a scale of charges tailored to different sectors of the economy, or tailored to the size of a business, or one based on the number of employees in a premises, which may achieve political as well as tax collection objectives.

We need to support both SMEs and employers to promote jobs and people on whom the economy is depending for growth.

Do you have any suggestions for the Chancellor on a fairer way of assessing business rates?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Should Private Equity be involved in High Street retail?

 

2014 started with much media speculation that a variety of well-known retailers – or more correctly, their Private Equity(PE) owners were preparing to float on the Stock Market.

They included Fat Face (77% owned by PE firm Bridgepoint) Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).

This resurgence of so-called “animal spirits” seems to be fuelled by a perceived improvement in consumer confidence, investor appetite driving the search for better returns than those available in a low interest rate debt market, the lack of debt available for refinancing businesses and the need for PE owners as investors to realise profits.

This may herald a resumption of the pre-2008 practice of PE buying out retailers, often as a public to private deal, repaying themselves by loading them with debt, and then flipping them back into public ownership.

The 2008 Global financial crisis put this practice on hold and indeed it has placed enormous financial pressure on some PE funds due to the lack of debt available for refinancing their acquisitions.

Indeed many PEs have ended up with burnt fingers, such as Guy Hands’ Terra Firma’s purchase of EMI,which defaulted on its debt to CitiGroup,  and US-based Bain Capital LLC (owned by Mitt Romney), which purchased the purchase of Toys “R” Us, which has seen a decline in revenue.

High Street retail casualties over the last five years have included Nicole Farhi, Comet, JJB Sports, Jessups, Blockbuster, Clinton Cards, Habitat, Focus DIY, Floors-2-Go, the Officers Club, Oddbins, Woolworths and MFI.  Some, such as Focus, JJB, Nicole Farhi, MFI and Comet were PE owned.

With banks having tightened up so significantly on lending in recent years PE sources of funding are inevitably more focused on investors such as pension funds and not surprisingly fund managers are generally risk averse being responsible for other people’s money.

Despite the economy picking up, the buy, refinance and flip PE model may not work in the way it did. The growth in online shopping, concentration of retail parks, intense competition and changing consumer habits may yet thwart many PE deals.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Bully Banks fight back on behalf of SMEs

 

The Treasury Select Committee (TSC) has begun investigating the banks’ treatment of SMEs, covering everything from lack of financing to bullying.

The investigation follows media pressure and a number of reports, including the Tomlinson Report into complaints about RBS, and details relating to the Financial Conduct Authority’s investigation into mis-selling of Interest Rate Swaps (IRS) to SMEs.

Arguably, though, the pressure for a thorough investigation began in December 2011, with the formation of Bully Banks, an independent organisation to lobby for investigation and action on the IRS scandal. Membership of Bully Banks has now reached more than 2000 and all are SMEs.

Bully Banks (www.bully-banks.co.uk) has campaigned for action to help SMEs recover their money, but this year it widened its campaigning following Tomlinson and the emergence of another potential mis-selling scandal affecting banks’ use of the Enterprise Finance Guarantee Scheme (EFG),  which we was covered in a recent blog.

The investigation by the TSC would suggest the group may have achieved its objective, at least partially.

The question is whether the TSC has the teeth to do what Bully Banks wants and if it does find evidence of bank mistreatment of SMEs, what recommendations would you want to see and what likelihood is there of the banks actually taking notice or acting?

Categories
Banks, Lenders & Investors General Insolvency Rescue, Restructuring & Recovery Turnaround

Is another bank mis-selling scandal brewing?

 

The full extent of the banks’ questionable behaviour following the 2008 crash has seemingly not yet played out as suggestions of yet another possible mis-selling activity surface.

Many SMEs are still awaiting compensation after being mis-sold insurance in the form of hedging products to protect them from potential interest rate rises.  Libor rate rigging is still under investigation and the recently-published Tomlinson report has prompted Business Secretary Vince Cable to refer RBS’ approach to dealing with companies in financial difficulty for investigation by the Financial Conduct Authority and the Prudential Regulation Authority.

Mr Cable is plainly going to be an even busier man following recent revelations in the Sunday Mail, the FT and the Times, that banks may also have been taking advantage of the Government’s five year-old Enterprise Finance Guarantee (EFG) scheme whereby they may have sought to repair their balance sheets at their SME clients’ expense.

Reportedly some SMEs have had their overdrafts cancelled by their banks who have then offered loans under the EFG scheme. The benefit for banks is that EFG loans do not require the same level of reserve capital as overdrafts but it is not clear whether this was the reason behind the withdrawal of overdrafts.

It seems that many banks have not fully explained the terms of an EFG loan.  Loans under the EFG scheme are intended for businesses that do not have sufficient assets or track record for a conventional loan where the scheme guarantees the bank 75% of any loans should the borrower’s business fail.

Unfortunately, many SMEs appear to have been given the idea that should they fail they would only be liable for repayment of 25% of the outstanding debt.  In fact they are liable for the full amount and the banks get the 75% from the Government ONLY after they have exhausted the recovery terms of the EFG loan which require security over the business assets and personal guarantees from director/shareholders. As such the government only pays out under the scheme after the company is formally declared insolvent and the guarantors are made bankrupt.

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

Unbalanced recovery – surprise, surprise

 

Over the past few weeks there have been a number of profit warnings from high profile companies, including Serco, Pearson, RBS, Debenhams and Morrisons, mainly based on their sales in the last quarter of 2013.

Subsequently the Governor of the Bank of England, Mark Carney, said that the so-called economic recovery was “neither balanced nor sustainable”.

Then last week Chancellor George Osborne, speaking to business leaders in Hong Kong, referred to the economy as being “not secure” and “unbalanced”.

Prior to these developments the overall message coming from Government was far more positive with unemployment falling faster than expected and predictions that the economic recovery would consolidate throughout 2014.

There had been plenty of voices warning that the recovery was far too dependent on consumer-led spending and the property market but they went unheeded.

What has changed?

Now it seems the ONS figures due to be released next week are expected to reinforce this latest message of an unbalanced and fragile recovery too reliant on consumer spending.

Could it be that we are being prepared for an unpalatable budget which the Chancellor is due to deliver in three weeks’ time? 

The message for SMEs remains that caution is warranted, close attention to cash flow is still in order and ever greater efforts to grow are needed.

As an SME owner are you more confident than you were a year ago  – or less?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are you a collaborator?

 

It is widely believed that larger companies are reluctant to engage with sole traders and SMEs because they feel they will be too small or inexperienced to take on a bigger contract.

But with business finance still reported to be hard to get, skill shortages widely reported and SMEs very nervous about taking on any debt it can be frustrating or not cost effective to try to grow a small business to be able to offer the range of expertise some potential bigger clients may expect.

An alternative solution may be to collaborate with related businesses as partners when making bids.  As long as they are organisations the SME knows well and trusts this does not have to mean entering into a formal long-term partnership but it does require excellent communication and agreeing on some basics.

Examples of such collaborations could be a web developer offering a combined service with a marketing content writer and a graphic designer to offer an all-in-one service for clients looking for marketing support.

Sole traders who specialise in carpentry could collaborate with painters, plumbers, bricklayers and so on.

The advantage in collaboration for the client is that they get all the services they need for a project with one central point of contact for co-ordination and communications. 

The advantage for the small trader is the ability to bid for larger contracts by offering a full set of the skills required.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Change is now the only constant

 

Consumers and clients are fickle, the pace of life is accelerating and it’s all thanks to the internet.

It may be a bit harsh but the SME that wants to do more than just survive needs to not only ensure the quality of its products or services and of its customer service, but also to be alert to potential new innovations and changing customer habits.

Here’s an example – a cafe in London recently switched from charging customers for coffee to charging customers an hourly rate for the time they stayed there.  The owner had noticed that his cafe had become popular with self employed people with laptops looking for a place to work.

The change has reportedly been popular with customers and illustrates the point that these days it pays to be flexible, responsive and therefore change the business model to meet new situations.

Here’s another example.  At one time a business website would likely have been seen either on a PC or a laptop.  Not any more. Now web developers have to produce something that will accommodate itself to these and to tablets and mobile phones.  It’s called responsive design.

A business model does two things.  It can set short, medium and long term financial and growth goals but it is also a daily and weekly satnav to be referred to often.

Increasingly, savvy businesses need to build a responsive model that can cater to changing circumstances as well as keep them on track for the longer term.

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

Self Employed? You need to think like a Business

 

The government has been playing up a rise in disposable income, culled from figures compiled by the Office of National Statistics (ONS), but there is one fact that has been conveniently ignored.

This is that the ONS pay figures do not include earnings by the self-employed.

According to the research organisation the Resolution Foundation, the numbers of self-employed have increased by 26 per cent between 2002 and 2013 while their median reported income had dropped by 28% (approximately £4,000) between 2001 and 2010.

The TUC estimates that  540,000 of the approximately 1 million jobs created since 2008 have been through self-employment.

These are the people who supply the “outsourced” services – from plumbing to IT to Marketing to Consulting – that SMEs rely on.  They are also themselves SMEs as far as HMRC is concerned, where they are classified as sole traders.

No matter what their skills, arguably these are micro businesses with potential to grow, and as the economic recovery continues, they will hopefully be able to benefit.

But like any business, even a one-person micro business needs to set goals, have a business plan, understand finance, and have a marketing strategy for advertising and promoting themselves to generate business leads. 

Furthermore they need a passion and determination to succeed.  Being self-employed can be a lonely existence but need not be with the support of mentors, local networking and business organisations, industry groups or business advisors, any and all of whom can make a huge difference.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Family businesses surviving the centuries

 

According to the Institute for Family Businesses there are 3 million family firms in the UK and they represent two in every three UK private companies.

Moreover, some of these companies have endured and prospered for almost 500 years.

A recent article in the BBC magazine http://www.bbc.co.uk/news/magazine-25711108 provided a fascinating insight into some of these firms as well as asking how they had managed to survive for so long in a changing world.

They were a diverse bunch, from a family butcher that started with a market stall in Dorset in 1515, to a building company from Kent that has been trading since the reign of Elizabeth 1.

Two things stand out clearly in their survival.  They are attention to customer service; and a willingness to innovate.

Arguably trading conditions have never been tougher than they are in this the 21st Century with customers able to access global suppliers so for any SME owner who is competing in the current market these stories provide a lesson and encouragement.

With a positive attitude, with support from an experienced business advisor as and when needed, and with proper planning and focus on cash flow many SMEs could still be around for the next half millennium.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

You just can’t get the staff these days!

 

A problem that many SMEs struggle with and have raised again in recent weeks is finding suitably qualified people who will fit in.

There are several issues that particularly affect the small employer.

As well as paying another salary, NI and pension contributions, there is the management and admin time spent on payroll which has significantly increased due to tax and employment legislation such as the recently introduced Real Time Information (RTI) for PAYE.

While there may still be many unemployed people available since the 2008 financial crisis, finding someone with the right set of skills can be a costly and difficult business and already would-be employers have been identifying a shortage of people with IT, sales and financial skills.

Also, according to new research, The Flux Report, produced by the talent management group Right Management, the most important qualities employers will want from future employees will be resilience, flexibility and the ability to cope with change.  This is partly because of the economic volatility that has been apparent since 2008, and partly because the pace of change in technology, marketing and other areas has accelerated dramatically.

So what other options are available to SMEs?  Plainly costs need to be kept under control and many do not have the resources to train someone.  One solution to consider is outsourcing basic functions such as bookkeeping, payroll, credit control, secretarial work or answering the phone. Other functions such as sales & marketing, IT, delivery, premises management, and even manufacturing or servicing clients are often best done by external experts brought in as and when necessary. This can leave an SME to really focus on what it does best.

I know of a number of professional service and management consulting firms that focus on marketing to bring in the work and then outsource it to others to actually carry out. I know others that outsource their sales and marketing so they can focus on doing the work.

Those who want to take on staff might consider offering work experience to interns, seeking help with the cost of apprenticeships or with new employment costs from the new Employment Allowance scheme that can contribute up to £2,000 towards an SME’s National Insurance bill.

Most importantly growth starts with having a clear business model, a clear plan and identifying what skills gaps will be needed before starting to search for the right person.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Flavour of the month – MINT

 

It started with the BRICs, then came the PIGS and now it’s the MINTs.

What do they all have in common besides being acronyms?  They’re all groups of countries that have at various times been grouped together as either economies that are tipped to grow, and therefore offer good potential for UK firms wanting to expand and export their goods and services, – or possibly not, in the case of the PIGS (Portugal, Ireland, Greece and Spain) highlighted as problem economies at the height of the global financial crisis.

It seems the BRICs (Brazil, Russia, India and China) are old news.  The potential new kids on the block are the MINTs (Mexico, Indonesia, Nigeria and Turkey).

Although they are widely disparate both geographically and in terms of infrastructure they are being seen as emerging economies with growing populations of young people.

We’ve said before that SMEs in the UK need to become more innovative when researching markets for their products and services and to not discount opportunities for growth abroad.

We’re not pretending it will be easy so you need to do your homework.  If you can, it’s worth actually visiting the country to get a feel for how things work and what opportunities might exist.

The Government’s UKTI (UK Trade and Investment) is a good place to start.  It offers support and experts to help you and regularly organises business delegations to countries around the world.

Fancy a MINT anyone?

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Economic recovery outside London?

 

From my office in Mayfair it would seem that economic recovery is gathering pace, but when I visit clients outside the M25 it is a very different picture.

A year-end editorial in the Observer highlighted the imbalance between London and the rest of the country, calling for efforts to redress the balance of wealth distribution across the regions.

In my last blog about the winners and losers over Christmas I cited examples to show the patchy nature of recovery.

However some research highlights the issue on imbalance:

The Trussell Trust, organiser of the food bank network, reports a 400% increase in demand for emergency food parcels in 2011-12 (most recent figures). More alarming is that the recipients are “ordinary families, who in the past would never have had to fall back on such support”.

These include recipients among the “squeezed middle” who according to the Resolution Foundation make up a third of the country’s working age households – people on an income of between £20,000 and £35,000, 60% of them owner-occupiers. These households spend 48% of their household income on essentials (food, clothing, transport, energy supplies) and 25% of their income on mortgage payments. 

This is no surprise given that energy prices have risen by 24% since August 2009, not including the most recently announced increases averaging around 7%, and that house prices have risen by 7.5% in the last year, according to the Halifax, while wage increases have at best only risen by around 2%, if at all.

The Foundation predicts that: “Based on current projections, the typical low to middle income household is expected to be no better off by 2017-18 than it was in 1997-98”.

Not all of those in the squeezed middle can get on the train in order to exploit the opportunities available in London – especially not when the cost of a season ticket is around £3,236 from Southend, £6,760 from Grantham, £5,440 from Rugby and £7,480 from Norwich.

All of this underlines the lunacy of relying for recovery on a growth in consumer spending and property sales – and why many SMEs outside London are somewhat sceptical that there is economic recovery at all.

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

Transformation of the High Street

 

 So far the end of year trading results are revealing a mixed picture of High Street retail winners and losers.

While Debenhams saw profits drop, John Lewis, House of Fraser and Next have all reported healthy overall profit growth at 6.9%, 7.3% and 7.7% respectively. Most significant in all three cases was the increase in online sales with Next recording a 21% increase, John Lewis 23% and House of Fraser a colossal 58%.

One of the most encouraging stories is the turnaround in the fortunes of the clothing store Bonmarche. Its  400 stores, then owned by Peacocks, went into administration in 2012 and were bought by private investors for c £10 million. 

Restructuring involved closing “dozens” of unprofitable stores and renegotiating rents on others, classic turnaround basics.

One significant factor in this success story that has seen the business now valued at more than £100 million was the laser-like focus of new CEO Beth Butterwick identifying its niche customers and then catering specifically for them.

Bonmarche identified its market as the 40-plus woman, defined how this group preferred to shop and provided clothes they wanted to buy, with the help of designer David Emmanuel best known for designing Princess Diana’s wedding dress.

Another example of a terrific turnaround is Jaeger the fashion retailer that was bought by Better Capital from Harold Tilman in 2012. 

Jaeger has reported a sales jump of 23% in like for like sales for the 13 weeks to 28 December 2013 when compared with 2012. These include a huge increase in online sales which also offered a click and collect service.

Such examples are proving that the High Street is undergoing a transformation.

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

It’s all about getting the balance right if SMEs want to grow

 

There is a lot of optimism in the press and the New Year heralds confidence about the prospects for growth.

What does this mean for SMEs hoping to take advantage of the predicted improved trading conditions?

In a word: realism.

It requires deep knowledge of a business’s current financial position, specifically its current assets and liabilities, as these are crucial for funding growth.

If an SME is operating on very slender margins, or just about hanging on from month to month, it is unlikely to be able to take advantage of increasing orders without some additional finance and preferably not of the kind that relies on personal savings or support from friends and family, as a quarter of SMEs currently are, according to research by Bibby Financial Services.

SMEs will need to be mindful of two things when planning for growth. Firstly, it is looking increasingly likely that interest rates may start rising towards the end of 2014 which suggests that having a robust forecast will help assess the impact of interest rates before taking on more debt.

Secondly, there is as yet little evidence that lending to businesses is becoming any easier, especially loans from the banks or extended credit from suppliers which suggests that growth will need to be funded by either reserves or shareholders.

So an SME’s first step in planning for growth is to not only to know the current financial situation but to also have realistic forecasts that may need to be prepared with input from an external business advisor.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Growth for SMEs in 2014?

This is the time of year when all the pundits, stargazers and assorted “experts” start predicting what the next 12 months will hold for businesses.
K2 is not planning to join them, but we do have a few questions that may affect SMEs in the months ahead.
So let’s set the scene.  We have some indications of a recovering economy that many believe will consolidate in 2014.  However, there are plenty of experts already warning against a repeat of a consumer debt-driven, housing bubble- led upturn that is inherently risky after the property market collapse in 2008.
CBI director-general John Cridland made this point in his New Year’s address: “As a country, we need to move away from an economy that was far too reliant on consumer and government debt.”
He has, rightly, called for well-balanced growth, with a renewed effort from business to focus on new markets and exports, of both products and services.
So the questions for SMEs who may be hoping to grow their businesses are: how will they finance growth? Is now the right time to be taking on additional risks? How are they going to minimize the risk of getting their timing wrong?  Is the growth likely to be sustainable? What is growth – sales, margins or both? Are there any options for growth without taking on more risk?
We will be looking at aspects of these questions in coming blogs and would welcome comments from SMEs about how they see the future for their businesses and how they are addressing these questions.

Categories
Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Will we see more retail failures in the New Year?

 

With a quarter day looming in December many retailers will be hoping for healthy sales in the run-up to Christmas in order to pay their rent.

We are led to believe that an economic recovery is consolidating and that 2014 will continue the upward trajectory, but on the High Street the picture is not so clear.

There is already some evidence that the pre-Christmas rush has been delayed with consumers waiting for last-minute reductions. Figures from the accountant BDO showed that High street sales fell in the first week of December by 4.1% in non-food sales to December 8, while online shopping rose by 25%.

Fashion stores seem to have suffered worst with sales in the first week of December down by 5.9% and H & M already launching a winter sale offering reductions of up to 60%.

Whether High Street shopping picks up in the next few days remains to be seen, but there is a likelihood that with wages lagging behind the cost of living and significant energy cost increases the much vaunted consumer-led recovery may not be as lively as hoped.

Complicating the picture is the growth of the “buy local” movement, which may encourage more shoppers to patronise their small, local independent stores for both food and non-food items, especially unusual gifts.

Looks like it might be an interesting start to the New Year.

Categories
General Insolvency Rescue, Restructuring & Recovery Turnaround

Bosses don’t always know best

It is fantasy for directors to think that they can keep things under wraps when their company is in difficulties.
Too often they will engage in secret meetings in the belief that it is important to keep employees in ignorance while they decide on the way forward.
At one company where I was called in to advise, the directors were having secret meetings and believing their staff knew nothing.  But late one night, I happened to inspect the loos, something I often do to gauge when a company is in trouble.  If the ladies’ is less than clean or tidy it can often be an indication of disaffected or unhappy employees.  In this case, however, the facilities were clean enough but I could hear a phone ringing.
Further inspection revealed that the ringing phone was in the boardroom right next door with just a thin wall in between.
It is wise for directors to remember that not only do employees generally keep themselves informed of their rights for their own protection.
They also often have good instincts and sense when their company is not doing well.  In this case, it would have been easy enough if they had concerns to listen in from the ladies’ to confirm their worries.

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Banks, Lenders & Investors Debt Collection & Credit Management General Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

The proposed revisions to SIP 3 do not adequately address the issue of IPs being both poacher and gamekeeper

A CVA (Company Voluntary Arrangement) is an agreement that allows an insolvent company to survive with the consent of 75% of unsecured creditors to reschedule and possibly write down debt to a level that is affordable.
As such it can be a useful vehicle for both creditors and the business concerned, offering the creditors the chance of a better return on their money than they would perhaps expect from the company being wound up.
A CVA essentially involves a proposal to creditors by the company directors, sponsorship of the proposal by an Insolvency Practitioner (IP) as Nominee, and upon approval monitoring by an IP as Supervisor. The preparation of the proposal is often done by or at least with the assistance of an Adviser who has experience of CVAs.
There are a number of issues with IPs drafting CVA proposals which may be the reason that so many fail, approximately 70% I am given to understand. One major issue is the lack of fundamental change to effect a turnaround of the company. This is understandable given that IPs can rarely justify their hourly rate approach to charging for sorting out the causal factors that contributed to the insolvency. 
Another issue is the inherent conflict of interests between the Adviser who acts on behalf of the company, and the Supervisor who represents creditors. The Adviser drafts the terms which include a proposed basis for the Supervisor’s fees and also whether the Supervisor benefits from a failure of the CVA. I have seen examples of uncapped Supervisors’ fees being far greater than estimated, leaving insufficient funds to pay a fixed percentage dividend to creditors such that the CVA failed, despite the contributions being paid into the CVA as projected in the proposal as drafted by the same IP as Adviser.
The above reasons alone are sufficient to challenge the revised proposals to Statement of Insolvency Practice 3 as set out in SIP 3.2.
I would suggest that an IP can be either an Adviser or Supervisor, but never both for the same company.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

The integrity of leaders is subjected to scrutiny when negotiating their remuneration

The Swiss have just turned down a proposal in a referendum to limit executive pay to no more than 12 times the salary of the lowest paid worker in the same company. This is the second time the Swiss have voted on issues of executive remuneration.  In March by contrast they voted to curb big bonuses and to ban so-called “golden handshakes and goodbyes”.

John Lewis Partnership – a chain of department stores owned by its employees – recently announced a new rule that no boss can earn more than 75 times the lowest paid partner, as they refer to employees. Indeed the Partnership’s managing director Andy Street argued that this was reasonable on the grounds that it compares favourably with many FTSE 100 companies where the gap is wider.

Clearly he, like most employed directors, doesn’t get the point. 

It is no wonder that public anger is growing at the ever-widening remuneration gulf between those at the top and the rest.

Most people, including employees and the public, have a sense of fairness. They know the difference between a reasonable and unreasonable pay and bonus package. Indeed most people recognise the need to reward effort, ability and outstanding performance. But managers, however senior should be incentivised and rewarded for their contribution to a company’s medium and long term performance, not for manipulating short-term profits to boost their bonus. 

Perhaps applying the Swiss 12:1 ratio to executive salaries and imposing a requirement to commute anything above into equity may help promote executives as leaders by restoring some lost integrity. 

What do others think?

Categories
Banks, Lenders & Investors Debt Collection & Credit Management Insolvency Rescue, Restructuring & Recovery Turnaround

Does the latest banking revelation have an impact on the insolvency profession?

The treatment of SMEs in the aftermath of the 2008 credit crunch by RBS, one of the UK’s two main lenders to small businesses has come under scrutiny this week.
An investigation, by businessman and government adviser Lawrence Tomlinson, has claimed that RBS may have “engineered” firms into RBS’s turnaround division Global Restructuring Group (GRG) so that RBS could generate enhanced revenue at the expense of their SME clients.
Tomlinson claims there was a “systematic abuse” of corporate clients by RBS that allowed them to charge significant fees before appointing administrators who immediately sold the clients’ business assets back to RBS’s property division West Register.
It is assumed that West Register has been required to generate its own profits for RBS by increasing the value of those assets it acquired from clients. This would suggest that the assets were bought at a very low value before they appreciated in value for the benefit of RBS.
The whole sorry saga is now being investigated by the Financial Conduct Authority and the Prudential Regulation Authority following a referral by Business Secretary Vince Cable.
While the focus has so far been on banks, the saga raises the question as to whether there has been a conflict of interests among some insolvency practitioners (IPs), who following an introduction by RBS to clients then sold the clients’ assets back to RBS under an Administration Pre-pack procedure.
While such realisations may have been legal the practice stinks and reminds me of the activities of HBOS’s Impaired Assets division in Reading which resulted in senior managers being charged with conspiracy to corrupt, fraudulent trading, money laundering and blackmail. Fortunately none of the IPs involved in that saga was charged, but it would seem that their role was not investigated.
All this suggests that the directors in these situations are not getting independent advice.
It would also seem there is a need to review the relationship between banks and their panel IPs?

Categories
Banks, Lenders & Investors General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Zombie companies have a number of options for achieving growth

Zombie companies will at some time need to confront three fundamental problems before they can achieve growth: 1. how to fund growth; 2. how to repay debt; and 3. how to service interest when rates rise.
Provided that a zombie company can generate profits on an EBITDA basis (earnings before interest, taxes, depreciation, and amortization), it has a number of options for resolving these problems as a pre-requisite for growth.
Options include negotiating a partial debt write-off, a pre-pack sale via Administration or a Company Voluntary Arrangement (CVA).
From the suppliers’ viewpoint a growing business offers the prospect of increased profits from increased supplies. From the existing lenders’ viewpoint profitable growth means that non-performing debts can be repaid. From a new investor’s viewpoint, new money can be used to fund growth rather than replace existing debt. From the company’s viewpoint growth inspires confidence in the future prospects of the business. 
Given the benefits, it makes sense for zombie companies to get help from restructuring experts who are familiar with these options.

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

Zombies are not dead

We hear a lot about the dead weight of zombie companies and how they should be put out of their misery.
But we take a slightly different view.  Yes a zombie company is regarded as one that is limping along only servicing interest on its debt, unable to fund growth.
However, a zombie status does not mean that a business is necessarily a failure and that the best thing creditors can do is to take the money and run.
Often, the reason a company has reached this point is that it has pursued aggressive growth based on debt during the so-called “good times” pre 2008 but the trading climate since then has changed out of all recognition.
All companies are at the mercy of market forces at all times, but we make the point that it does not necessarily follow that the services or products a business is offering are in themselves a bad idea.
What is needed is for the directors and management to recognise that there is a problem sooner rather than later.
Then they should get in expert help to assess the situation and advise them of their options and if necessary help implement changes to secure the future of their business.
A turnaround advisor is on the company’s side unlike the insolvency practitioner who, if appointed, works for creditors.
The turnaround advisor has an interest in helping the company survive and be prepared, including having adequate finance available, for growth when it comes.

Categories
Cash Flow & Forecasting General Rescue, Restructuring & Recovery Turnaround

Is it wise to rely so heavily on a recovery led by consumer spending?

There has been some recent data and a good deal of spin about the economic recovery becoming more secure and that it is time for businesses to start investing for growth.
While unemployment may be steadily decreasing, the housing market picking up and consumer spending rising a little it would, in our view, be wise to be cautious, not least because the Government seems to be relying a little too heavily on a consumer and SME-led recovery.
Firstly, there has been evidence that the jobs being “created” are part time and low-paid and that in any case wage increases are lagging far behind the rising cost of living. 
Secondly, on the evidence so far, households will be facing hefty utility and energy price rises in the region of 10% by the end of the year, despite Thames Water’s attempt to increase water rates next by 8% being rejected by the watchdog. 
Thirdly, there is also some evidence that increased consumer spending is yet again being financed by credit cards and personal debt, which has been rising steadily since mid-2012. 
Fourthly, there are still plenty of voices arguing that the ‘Help to Buy’ scheme is merely pushing up house prices and borrowing to “bubble” levels – a point reinforced by property website Rightmove, which revealed a 10% rise in property price in London in October and of an average 2.8% in asking prices in most parts of England. 
It would appear that measures to stimulate the economy are working, but can we be certain these are not a pre-election gimmick that conceals the truth? 
Regardless of short term statistics, consumer spending will continue to struggle while personal and SME levels of debt are so high and households continue to worry about making ends meet. In such a market SMEs as well as consumers might be wise to wait until after the election to confirm growth is sustainable before making big investments.
 In the meantime they would be well advised to continue paying close attention to cash flow, paying down any expensive debt or hoarding cash and if necessary restructuring to be as lean and fit as possible ready for the moment when the fat lady really does start singing, IF she does. What do others think?
 

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

Why isn’t more effort made to rescue failing businesses?

It is almost 30 years since legislation in the Insolvency Act 1986 introduced Administrations and Company Voluntary Arrangements (CVAs) as mechanisms intended to help with turning around failing businesses.
This legislation followed the 1982 Cork Report, which recommended procedures for trading out of insolvency.
Despite this and further legislation, however, there has not been any noticeable increase in rescue attempts where Insolvency Practitioners have been brought into companies in distress.
We explore why this should be and whether anything can be done to encourage more banks and IPs to embrace the rescue culture so that more businesses can be saved.
To see the full article please visit: Insolvency Today at http://bit.ly/17TpoJj or join the lively Insolvency Today LinkedIn discussion here http://linkd.in/1cBA6vD

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Business Development & Marketing Cash Flow & Forecasting County Court, Legal & Litigation General Rescue, Restructuring & Recovery Turnaround

Law firms need to get serious about their business plans and cash flow

Professional Indemnity insurance is advisable for most professional businesses but for law firms it is compulsory.
Renewal has been complicated by the fact that since 2012 insurers were required to disclose their credit ratings in order to become “qualified” by the SRA (Solicitors’ Regulatory Authority).
In the last year a number of qualified insurers have become insolvent and the financial situations of approaching 1,800 law firms are being closely monitored by the SRA. 
At the same time at least 185 law firms have failed to meet the deadline for re-insuring and if they fail to do so within 90 days under SRA regulations they must close down. Already one London firm, Harris Cartier Limited, has entered administration, the first of what may be many.
Is it time that the culture of law firms is changed so that they see themselves as businesses like any other, requiring a proper business plan with a forecast to support the plan. Such plans might also benefit from input by other experts such as accountants and marketing specialists where lawyers have tended to do it all themselves.
Given the lengthy time between taking on a client, completing often complex legal proceedings and the point at which the job is complete some law firms may need the help with running their business and if necessary restructuring it if they are to ensure they are not forced into closure by failing to put in place the systems that any other business would regard as normal.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Read the fine print

We are hearing stories of lenders applying enormously high rates of interest, as high as 59%, on asset-based loans to businesses or in one case, 26% per month.
It is possible that the influence of lenders like Wonga have persuaded people that rates up to 5000% for unsecured loans are the acceptable “new normal” and this has influenced the asset based lenders, especially for bridging or short-term finance, to significantly increase their rates or apply huge fees.
Some SMEs are desperate for money, perhaps because they want to take advantage of the improving economy to develop or more often due to creditor pressure, and as a consequence are neither thinking straight nor considering restructuring as an alternative when agreeing to such loans that are normally secured against personal assets.
While annual rates quoted on a loan may seem reasonable, it is only close scrutiny of the paperwork that reveals penal rates such as the example of 26% per month that may apply to a covenant breach, despite any security.
Our advice is to look very carefully at the detail when considering an asset-based bank loan and to shop around for alternative sources of finance.  There are plenty of options out there and you can find them in our free, downloadable guide:  http://www.k2finance.co.uk

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Economic recovery and funding growth

A recent survey by the FSB reported that 47% of its members had been refused loans in the last three months to September and 56% felt that banks did not care about SMEs.
At the same time, the Chief Executive of the British Bankers’ Association warned that requiring banks to improve their leverage ratio (money lent out in relation to capital reserves) could “do more harm than good”. Contrast this with Sir John Vickers, who was involved in drawing up post-crisis reforms to the banking sector and his arguing that the suggested ratios are still way too low and risky.
And, banks are still facing an estimated £10 billion in potential payouts to businesses mis-sold interest rate protection and hedging products.
No wonder that banks aren’t lending to SMEs.
In the meantime large business are estimated to be sitting on £700 million of cash reserves in readiness for funding development and growth.
What are small businesses supposed to do?
Firstly, there are other sources of finance besides the banks and K2 has a free, comprehensive guide to the options. You can find it at http://www.k2finance.co.uk
Secondly, and more importantly given the prospect of over trading as the recovery gathers pace, now is the time to ensure that the business model is right to fund growth and avoid running out of cash.
Advice from restructuring professionals is not exclusive to when a company is insolvent.  Their experience and solutions can also be used to help SMEs grow.

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Business Development & Marketing General Insolvency Rescue, Restructuring & Recovery Turnaround

Turning around SMEs for growth

Signs of an economic recovery seem to be feeding through into increased confidence among chief financial officers of some of the UK’s largest companies, according to the latest quarterly survey from Deloitte, which has put the appetite for risk at a six-year high.
The findings, reported in Monday’s business section of the Telegraph, found that 54% of financial officers believed it was a good time to take risk onto their companies’ balance sheets.
This is all well and good, given that many of these companies have been sitting on an estimated stash of £700 billion in cash, but what about the SME sector?
There has been no sign of any improvement in lending to this sector as we have heard repeatedly in recent weeks, yet they are seen as essential to a sustained economic recovery.
So what can they do if they don’t have either the reserves or the borrowing capability to take to take advantage of the signs of recovery?
Many SMEs have been hanging on, managing cash flow and paying down debt wherever possible but if they are to grow they need to make sure they are in the best possible shape and this may be exactly the time when a restructuring expert should be called in to take a thorough look at their business model and whether it is possible to free up some of the cash currently going to creditors.
Quick, skilled teamwork by turnaround professionals does not have to be used only when a company is insolvent.  The techniques can also be used to put SMEs into the best position to plan for growth. But they need a consensual approach involving all stakeholders as we say in this article in the Turnaround Supplement just published by the Daily Telegraph here.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Growth will not come from betting on certainties

Financially speaking we are living in a risk averse world post 2008.
This may be understandable but in a globally connected and highly competitive world UK businesses need to innovate if they want to survive and prosper.
It’s a point that British inventor Trevor Baylis OBE, inventor of the wind-up radio in the early 90s, emphasises in calling for the importance of innovation and invention to be taught in schools in an interview with the Daily Telegraph.
Invention is also in the spotlight this week with the announcement by the Institution of Engineering and Technology’s 2013 winner of the annual Faraday Award. The winner was Sir Michael Pepper, a professor of nanoelectronics at UCL whose work has pioneered development of an unhackable computer.
Other IET medallists are in the fields of supercomputing and research in bio-inspired technology that could lead to the first artificial pancreas.
All this takes money and commitment, and while there is some evidence from an analysis of company tax receipts by national accountants UHY Hacker Young showing that investment in R & D in 2012 was 8% higher than in 2011 thanks to increased tax relief on research spending it is still less than 2% of economic output.
But how many SMEs are likely to be able to take advantage of this or have the resources to put into development and innovation when they are still facing an uphill struggle to raise finance from banks unwilling to lend to them?
Indeed banks like most of the lenders coming into the market to replace them, want security over assets which does not allow for innovation.
Many are unaware of other sources of finance and K2 has a comprehensive, free, downloadable guide to sources of business finance available at http://www.k2finance.co.uk

Categories
Banks, Lenders & Investors General Insolvency Interim Management & Executive Support Rescue, Restructuring & Recovery Turnaround

Turning around the economic juggernaut means restoring SMEs’ confidence

Business Secretary Vince Cable warned at the LibDem conference that rebuilding the economy was going to be a long process requiring investment in business, in research and in training people in the skills that will be needed in the future.
We are also told, repeatedly, that SMEs are the primary engine for the country’s growth.
The trouble is that SMEs’ confidence has been knocked for six over the last five years, not least because despite innumerable Government initiatives they have time and again been refused lending by the banks. The most recent figures on the Funding for Lending scheme published earlier this month showed that lending to businesses and consumers had fallen by £2.3 billion since June 2012.
Now the Federation of Small Businesses (FSB ) has produced research showing just how beleaguered SMEs are feeling with more than 56% of those polled believing that the banks just do not care about them and more than a third reporting sharply increased bank fees over the last year. Very few of those polled knew that it is possible to appeal against a bank’s refusal of a loan application.
Worse still only 37% of those polled were aware of alternative sources of lending, such as crowd funding. 
K2 has a comprehensive, free, downloadable guide to sources of business finance available at http://www.k2finance.co.uk . The FSB has also launched a guide, How to Get a Bank Loan, which also covers appealing against refusal, switching banks and other finance options.

Categories
Accounting & Bookkeeping Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Further evidence that a safe pare of hands is not enough for growth

Some new figures on attitudes to innovation from Price Waterhouse Cooper reinforce the point that growth will not come from being risk averse and hoarding cash.
In the UK the most innovative top fifth of companies grew 50% faster than the bottom fifth and, more alarmingly, the survey found that in the UK just 32% of companies regarded innovation as very important, compared with 46% of German and 59% of Chinese companies. Just 16% of UK companies planned to prioritise product innovation in the coming year compared with almost 33% globally.
Further proof, if it were needed, that, while it would of course be foolish to be complacent about economic recovery, the risk-taking, innovative manager is needed more at this point in the cycle than the risk-averse accountant.
 

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

It’s the political silly season again

The first shots are being fired in the annual round of party conference one-up-manship with Chancellor Osborne claiming that the economy is “turning a corner”.
Oh really?
It may look like that in London thanks to a rapidly inflating property bubble but out here in SME world even to say “turning a corner” may prove to be premature.
Monday saw publication of a survey by the FSB that had found 47% of its members had been refused loans in the last three months and 56% felt that banks did not care about SMEs, the much vaunted “engine for growth”.
On the same day, with the Banking Reform Bill due for debate this week, the Chief Executive of the British Bankers’ Association warned that requiring banks to improve their leverage ratio (money lent out in relation to capital reserves) could “do more harm than good”. Contrast this with Sir John Vickers, who was involved in drawing up post-crisis reforms to the banking sector and his arguing that the suggested ratios are still way too low and risky. Sounds like joined up banking!
In addition the banks are facing an estimated £10 billion in potential payouts to businesses mis-sold interest rate protection and hedging products. Other news such as the trade gap (between imports and exports) doubling in July and questions about where the demand will come from all challenge the notion of ‘green shoots’.
Businesses, like consumers, are under increasing pressure from rising prices, and continue to focus on cash flow.  While there may be a bit more optimism around it plainly has not yet translated into anything as definitive as turning a corner.
Lies, damn lies and statistics!

Categories
Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Rescue, Restructuring & Recovery Turnaround

A safe pair of hands does not include plans for growth

UK companies are reportedly hoarding as much as £700 billion in cash. Despite this, business investment grew by just 1.7% in June, according to Bank of England Governor Mark Carney, in his first speech to businesses in Nottingham.
It appears that businesses are still not confident of sustained economic recovery, and this may be understandable following the shock waves after the onset of the global economic crisis in 2008.
When times are hard the general rule is to put an accountant in charge as they will basically hoard a company’s cash.  Accountants are generally pretty risk averse and when the emphasis is on controlling cash flow they are a mainstay of business survival.
But at what point in the cycle should companies start to look at investment and growth for future profits? And at what point should accountants take a back seat and hand over to someone else?
In UK we tend to be slow to adapt to changes in the market. Let’s face it no one will criticise managers for not losing money. Only too late will shareholders realise they have been left behind.
We are still pursuing a strategy of hoarding cash when perhaps the time has come to shift from pessimism to optimism and at the very least we should be planning for growth. Now is the time for carrying out market research, modest investments, testing markets and building capacity for growth. 
We need managers with courage, managers who value mistakes and will learn from them, managers who know how to grow businesses.

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Banks, Lenders & Investors General Insolvency Liquidation, Pre-Packs & Phoenix Rescue, Restructuring & Recovery Turnaround

Pre-packs under scrutiny again?

Baker Tilly’s purchase of the debt-laden accountancy firm RMS Tenon has put the use of pre-pack administration under the spotlight again. It follows other recent high profile pre-packs such as Dreams and Gatecrasher and the debate about Hibu as publisher of Yellow Pages.
While a pre-pack may be a useful tool for saving a struggling business by “selling” its business and assets to a new company immediately upon appointment of an Administrator, the consequences to unsecured creditors and shareholders can be catastrophic as it normally involves writing-off most of their debt and all the investors’ equity. The only beneficiaries are normally banks and other secured creditors who control the process through their appointed insolvency practitioners.
In the case of RMS Tenon, which had more than £80.4 million of debt, unsecured creditors and investors are reportedly furious that their entire debt and shareholdings have been wiped out, the more so because Lloyds TSB, its only secured lender, allegedly forced the sale by refusing to grant a covenant waiver while at the same time agreeing to finance Baker Tilly’s purchase of the assets of RMS Tenon.
While the sale has safeguarded the jobs of around 2,300 RMS Tenon staff, and this is surely to be welcomed in the current economic climate, there are plenty who will once again question pre-pack administration. It may be legal, but is it an acceptable and ethical method of rescuing a business in distress? There are other restructuring options that offer a better outcome for creditors and shareholders, such as Schemes of Arrangement and Company Voluntary Arrangement for instance. But all too often these are not pursued.
As the UK economy proceeds along its halting path to recovery the last thing that is needed is short-term and self-interested behaviour by secured creditors.

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Banks, Lenders & Investors Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Administrator's fees of £500k for a small firm

This shocking story in the Daily Telegraph did not name the insolvency firm who built managed to charge a staggering £500,000 for the administration of a small company with 40 employees, see http://tinyurl.com/jwzlcmc.
It appears that secured lenders pulled the plug on this small shopfitting business, presumably to recover their secured loan. The article refers to 10p in the £1 being paid to unsecured creditors.
Given that secured loans are paid ahead of the insolvency fees and that these are paid ahead of unsecured creditors, then this business had significant assets. While the fees will have been justified as representing the time and costs incurred in performing their duties, administration fees also need to be proportionate. Stories like this don’t do the insolvency profession any favours.
Insolvency firms will always justify any adopted procedure and its associated fees but sometimes we might question whether they are justifiable.  If there were sufficient funds in the business to pay such fees then why wasn’t an effort made to restructure and save it such as by using the much less expensive CVA (Creditors’ Voluntary Arrangement) procedure?
Indeed who was advising the directors and shareholders? Too often directors make the mistake of trusting the advice of an insolvency practitioner who is normally working for the secured or unsecured creditors. They rarely ever appoint their own advisors.  
All too often a company in difficulty is closed down rather than being restructured. In most cases everyone loses out: directors, shareholders, unsecured creditors and employees. 
The only “winners” in an administration are the insolvency firm and the secured creditor that appointed them.

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

Business pain in a recovering economy

There are two things happening that suggest that signs of economic recovery are believable, rather than government spin.
The first is the narrowing of the trade gap with a significant growth in exports in June and the second is a 10% rise in business insolvencies (compulsory and creditors’ voluntary insolvencies) in the quarter from April to June 2013 (3,978) compared with January to March (3,601).  However, there were actually slightly fewer insolvencies this year when compared with the same quarter in 2012.
Insolvencies generally do increase when an economy is coming out of recession because creditors normally start to lose patience and begin recovering debt when they can see signs of a rising market.
This time, however, I believe something else is going on.
Firstly, for more than two years now businesses have been focusing on paying down debt so why should creditors suddenly lose patience? Secondly, it may be that HMRC is taking a tougher line on collection of arrears now.
But most importantly now that the owners and directors of businesses can see the future more clearly, and there is greater optimism around, they are starting to restructure their businesses because clearly any future growth is not going to be fuelled by business lending.
It is perhaps no bad thing that growth is likely to be slow and steady and will be achieved by businesses ensuring they have enough working capital, by imposing tough payment terms on customers and suppliers and by everyone in the supply chain working together.
The worrying thing is that in other circles there is still too much reliance on a consumer-led recovery and that exports to non-EU countries were lower, playing no part in the narrowing of the trade gap.

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

Unintended consequences

Turning around a struggling economy, like turning a business in distress, is a complex process where it is wise to be mindful of the possibility of unintended consequences.
Here are a couple of examples of ideas and policies that seemed like a good idea at the time.
First, of course, was the idea that it was possible to mitigate the risks inherent in subprime mortgages by packaging them with safer loans and creating complex insurance products for protection such as Credit Default Swaps and we all know where that led us in 2008.
More recently, despite many warnings against creating new housing bubbles, the Government’s Help to Buy lending scheme was supposed to encourage construction firms to start building sorely-needed homes.  What has happened so far? Anaemic growth in house building, surging house prices and an explosion of Buy to Let mortgages.
Removing planning restrictions in order to make it easier to convert redundant High Street shops into homes is one scheme of many to revive struggling High Streets.  How about actually addressing the issue of sky high business rates, last set in 2008 before the financial crisis with a review postponed until 2017?   There are approximately 40,000 High Street shops currently empty. Why would anyone start up a new retail business when business rates are so high?
I am sure you will all be able to come up with many other examples. 
Two questions: why do we seem to be incapable of learning the lessons of history? Do we rely too much on social, economic and business models that can never accurately encompass the complexities of real life and real people?

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General HR, Redundancy & Trade Unions Rescue, Restructuring & Recovery Turnaround

Can employers expect loyalty from workers on Zero Hours contracts?

Employee consultation and support can, in our view, make a huge difference to success when a company in difficulties is being restructured.
But it has emerged that as many as 90% of Sports Direct employees are employed on part-time, Zero hours contracts, and therefore are unlikely to be eligible for the company’s recently-announced bonus payouts. It has been reported that only full-time employees are eligible for the bonus.
Given that these contracts are now used for about 1 million UK employees we should question them. 
The advantages to the employer are obvious in that they only pay for workers’ time as and when needed and there are reduced, or even no, entitlements to sickness and holiday pay, thus enabling a company to keep its overheads under control.
Despite their flexibility, which may be appropriate for a very few employees, the contracts offer few guarantees or certainties and yet could result in considerable hardship for employees due to them being expected to be available at short notice without guarantee that they will earn enough to provide a living wage.
At the same time employees on Zero Hours contracts are viewed as being in employment and therefore not eligible for any state help in weeks when they have had no work or pay.  Nor can a worker on such a contract take on any other work to supplement their income if they are required to be available at short notice.
We believe they could be abused by employers and support Business Secretary Vince Cable’s initiative for a review of Zero Hours contracts and how they are being used.

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General HR, Redundancy & Trade Unions Rescue, Restructuring & Recovery Turnaround

Will the new Employment Tribunal fees give employers some protection?

On the face of it the new charges on employees seeking redress for workplace issues via tribunals could be good news for employers, particularly SMEs.
In theory, as the FSB has pointed out, the £160-£250 to lodge a claim and the £230 or £950 fee if the case goes ahead ought to deter weak or frivolous claims that businesses have hitherto felt obliged to settle without contesting for fear of huge legal bills.
A client of mine recently had a male employee who, after a couple of warnings, was then made redundant. Despite ample evidence that he had had several recent girlfriends he then took the company to tribunal, encouraged by a solicitor’s no win no fee deal, for unfair dismissal on grounds of his sexual orientation as a gay man! The company settled out of court for £7000 for fear of high legal costs if they contested in court.
When turning around companies I believe in working with the unions or employee representatives when reorganising staff or redundancy. Indeed K2 now has a former union official who as our ‘Employee Liaison Officer’ specialises in managing the process. Equally, it is important that employers follow all the correct procedures when using redundancy.
However, there are some caveats about how effective a deterrent to weak claims the new payments will be.  Firstly, Unison has been granted permission for a judicial review on the introduction of fees. Secondly, costs can be reduced where there are multiple claims of two or more people against the same employer. Similarly fees can be significantly reduced or waived where a claimant cannot pay.  Thirdly will the new fees deter the “ambulance chaser” lawyers offering no win no fee deals?
In our view the jury is still out on whether this new ruling will make life easier for employers. What do others think?

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Relying on consumers for restored economic growth is madness

Moderate improvements in economic activity, upwardly revised growth forecasts for the rest of 2013 and now, Bank of England figures showing increased lending to small businesses in June are to be welcomed.
Certainly coupled with a few sporting triumphs and some hot, sunny days this has all been seen as good news by politicians and some media commentators.
But look a little more closely and actually many of the figures given are still well below pre-2008 levels. In the case of SME borrowing records only began in 2011 and lending has been falling since 2009. SME borrowing may have risen a little in June but compared with a year earlier according to the BoE it is still declining, by 3.3% on the same period last year. One monthly swallow does not make a summer.
Sensible businesses are still watching their cash flow, consumer debt may be falling but is still believed to be unsustainably high, yet everyone seems to be jumping on the optimism bandwagon. Most recently the EU’s Gfk/NOP indicator is suggesting that consumer sentiment will continue to pick up.
Haven’t we been here before?  As the Telegraph’s City AM editor Allister Heath pointed out a week or so back, lessons have not been learned if everyone is relying on credit-fuelled consumer-led growth via increased activity in the housing market and rising house prices, fuelled by the Help to Buy scheme.
Isn’t it also true that our economic difficulties are where they are precisely because of a house price bubble and too much credit pre-2008? Plainly there are still lessons not yet learned.

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General

FREE Essential Business Owner Seminar

Come and hear Tony Groom speak at the FREE Essential Business Owner Seminar organised by Accounts 4 U Direct, local accountants in Watford on Thursday next week – Register at: http://www.eventbrite.co.uk/event/7373483287
The Essential Business Owner Seminar will be held:
On: Thursday 1st August – 09:30 – 12:30 hrs
At: The Mercure Hotel Watford (on the A41)
Tony is on a panel of speakers who are passionate about helping business owners.
You will learn about:
Tax Matters
– Tax Insights and Advice
– How you can pay just 10% tax – legally!
– Preparing now for a future disposal or sale of your business
Management Challenges
– Managing and retaining customers
– Crisis management – and where to turn for help
– Protecting yourself as a director – the do’s and don’ts
– Protecting your business from fraud
The Technology of Business
– Assessing your IT systems
– Managing your data
– Understanding ‘The Cloud! and how to make it work for your business. What is “The Cloud” all about, and how can small and medium sized business owners ensure that they are not left behind.
The seminar is completely Free of Charge and will provide you valuable insights and lessons that will add to the bottom line in your business.
Register now at: http://www.eventbrite.co.uk/event/7373483287

Categories
General Insolvency Rescue, Restructuring & Recovery Turnaround

Involving employees can be crucial to successful company restructuring

It shouldn’t be rocket science to accept that giving employees a stake in their company’s future encourages commitment and efficiency.
The John Lewis Partnership, owners of John Lewis department stores and Waitrose, is perhaps the most famous example of a company that fully involves its employees in both decision-making and a share of its profits, and now Sports Direct has announced that its staff will receive bonuses following a record year for profits.
But what happens if a company gets into difficulties and needs restructuring to survive?
Often, the employees are the last to know and this can make turning around a company much more difficult.  While directors try to keep information to themselves employees will usually know that something is wrong and an atmosphere of uncertainty may only make things worse as key people start looking for other work and productivity drops even further.
While trades unions regularly suffer from a negative press we would argue that their involvement in negotiations during restructuring can have positive benefits, not only in consulting with workers about the way forward and keeping them informed, but also in negotiating agreements should shorter working hours or redundancies be necessary. To help reassure those concerned about trusting unions to keep turnaround plans confidential there exists a protocol confidentiality agreement that was developed by the TMA (Turnaround Management Association UK) in association with the TUC.
We would be interested to hear from anyone who has had experience of union involvement in turning around a failing company.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Learn to say “no”

Most of us love a bargain but it can be a false economy if the lower price means reduced quality.
From the business perspective it can be tempting to reduce prices in order to win orders when trading conditions are challenging.
I’m seeing a lot of businesses agreeing to cut their prices, but equally a lot of them are walking away.
Why are they walking away? Because they are not prepared to compromise their own business models by acquiescing to that kind of pressure, especially if they have confidence in the quality of their product or service and have done the research to pitch a fair price that gives value for money.
A good business will only take on work on terms and at prices it feels comfortable with.  A bad business will succumb to pressure.
It’s better to grow your margins than to grow your business, in my view.  What do others think?

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Banks, Lenders & Investors Debt Collection & Credit Management General Personal Guarantees Rescue, Restructuring & Recovery

Should Governments try to help businesses or leave us alone?

Governments are an easy target for blame when life is difficult for businesses.
The previous UK incumbents were accused of exacerbating the conditions that led to the 2008 global economic meltdown, while the current regime’s efforts to improve conditions for business have hardly won high praise.
No business can exist in a vacuum and all benefit from so-called “public goods” such as infrastructure and the education system, but recently John Timpson, chief executive of Timpson the family-run shoe chain, was quoted as saying that the best way government can help businesses is to leave them alone.
Certainly various government initiatives, such as stimulating bank lending to SMEs, have been a resounding failure.  For example, the Enterprise Finance Guarantee Scheme only pays out when the banks have exhausted all other forms of security, including directors’ personal guarantees. Not surprisingly the scheme has failed to attract many takers.
Calls for a review of business rates have fallen on deaf ears and tinkering with the planning regulations in a bid to help revive faltering High Streets has so far yielded no noticeable results. The new Help to Buy scheme designed to stimulate house building and revive the construction industry brought forth dire predictions of a potential new housing bubble.
It’s clear that these days few politicians have significant experience of the world outside of Westminster so is John Timpson right?  Tell us what you think.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Joined-up Thinking on Retail?

Everybody and his wife has an opinion on what should be done to revive the UK’s High Streets and retail.
They range from the defeatist “the High Street is dead” thanks to online shopping to the Portas Pilots that have given 27 towns in England approximately £100,000 each to try out new ideas.
We’ve had the pop-up shop idea, policy changes on planning, calls for a review and reduction of business rates and calls for the scrapping of town centre parking charges.
Now Bill Grimsey, former Chief Executive of Wickes has decided to do what he calls an alternative review of the High Street, after calling all of the above “tinkering at the margins”. He believes what’s needed is a complete solution encompassing health, education, housing and leisure as well as shopping.
K2 Business Rescue agrees.
People define the High Street in different ways but what’s really needed, we believe, are integrated communities that put less emphasis on shopping as a destination activity. 
For example it used to be the case in the City of London that there was nothing but acres of offices. There was nowhere one could pop out to buy a shirt, or a gift, or perhaps a few groceries. That has changed and it’s a principle that can be applied in High Streets around the country.
Stop press:  Latest to come from a review of Portas Pilots is a proposal to allow more empty shop to residential conversions in town centre side streets to stimulate footfall.  http://tinyurl.com/nj2knoy

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

Are We About to See a Rise in Insolvencies?

New research by the insolvency industry’s trade body, R3, has found that the number of zombie companies has gone down by just over 50,000 since November last year.
Zombies are defined as companies that are only paying off the interest on their debt.  However, R3 also found that more SMEs are now in distress as they struggle to negotiate new payment terms with lenders or to repay loans when they fall due.
As banks have been set new targets for improving their capital reserves they are unlikely to do anything other than improve their position.
However we at K2 believe they are also unlikely to pull the plug, so the march of the zombies will continue for some time.
As a result we are unlikely to see the number of insolvencies rise until interest rates are raised. Indeed any significant rise in interest could cause the carnage that normally follows a recession where it is in fact evidence that the economy is coming out of recession.
What’s your view? Are we about to see a rise in insolvencies?

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

How can private equity help to turn around a business?

When a private equity group buys out a struggling company they are often seen simply as injecting finance that only adds to the debt on the company’s balance sheet without substantially improving its performance.
Nevertheless, the PE’s objective is surely to achieve a higher return for fund members on their investment and a recent article in the Economist (June 22 2013 edition) highlighted how a US-based company, Clayton, Dublier & Rice, operates post buy-out to achieve this.
This company not only puts in money, it calls on its collection of expert former corporate bosses, as partners in the Private Equity fund,  to go into the company either as chairman or chief executive and drive the restructuring process forward.
In the UK, private equity firms don’t really do this, yet it makes sense to get in the experts and incentivise them in a way that encourages them to get closely involved in and improve on the company’s operation.
If an improvement in performance, and therefore in profits, is driven by someone with the expertise as well as a financial interest in the outcome the likelihood of a successful restructuring  is arguably greater than it would be if the only interest is financial.
Successful turnarounds need fresh ideas, knowledge and hands-on involvement that are unlikely to be generated by the company’s existing directors and managers, who will likely struggle without them.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery

Culture Shock

If all the recommendations in the Banking Commission’s long-awaited report on banking standards are implemented the banking industry will undergo a profound change in its operating culture.
We would argue that it is not only in banking and finance that a change in culture is long overdue following the 2008 credit crunch.
Businesses and consumers have already had to rethink the way they manage their finances. Businesses have been paying down debt and larger companies with comfortable capital reserves are not spending or investing. Consumers, too, are trying to repair their finances while coping with rising inflation and falling incomes.
Depending on which audience they are speaking to, however, Government seems to be wedded to austerity, sustainability or growth, as the solution to the UK’s economic ills.  
Every new monthly statistic is used to herald imminent recovery.  Most recently, new figures showing a 17% rise in mortgage lending in May 2013, compared to May 2012, will doubtless be seized on as evidence of success for schemes like Funding for Lending and the newer Help to Buy in stimulating home ownership.
Yet all the “experts” warn that without massive additional home building, they risk precipitating another housing bubble because the lack of affordable small homes will overinflate house prices.
With the homeless charity Shelter estimating that a first time buyer may have to spend 14 years raising the deposit to get on the property ladder, the chances are that consumers are already facing a massive culture change from home ownership to long-term renting, but without the tenancy protections that used to provide some security and continuity in living arrangements.
Is it time that politicians stopped grasping at short term electioneering straws and underwent their own cultural revolution to get real about economic life in the 21st Century?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Is Starting a Business in a Recession Wise or Foolish?

It is no secret that the Government is relying on SMEs to stimulate both the economic recovery and jobs.
Lord Young, senior adviser to the Prime Minister, is on record as saying that a recession may actually be a good time to start a small business on the grounds that wages are low, competition may have fallen by the wayside and premises, too, may also be cheaper to get.
That’s all well and good but there is more to starting a business than having a bright idea and the passion and motivation to get started.
There are a number of other factors to consider, especially where the business is something new and innovative and therefore unlikely to raise finance from currently risk-averse banks and investors.
A start-up must carry out research, identify potential customers, set sensible targets and put all of this into a business plan.  If it needs finance it should consider alternatives to the mainstream sources, whether these are friends and family, partnering with existing firms, seed funding, crowd funding or business angels and also investigate what grants and special concessions may be available that will help in the first year or two of trading.
A mentor or business guardian to help set the path and keep things on track can also make the difference between success and failure.  It’s impossible for a novice to do everything themselves without support and joining local business networks can also be a valuable source of advice and support.
If it is the kind of venture that can benefit from collaboration with other enterprises where there is a synergy, this is an option worth exploring since partnering with existing businesses in a market will help a start-up forge relationships with both a supply chain and  potential customers.
When money is tight, entrepreneurs should explore cash saving ideas such as offering equity, or future work, or future discounts, or other benefits in kind to any business that can provide them with useful services. Examples include introduction to customers, advice, market research, book keeping & accountancy, manufacturing prototypes, provision of office space, use of specialist or expensive equipment, and many more ideas that are only limited by the entrepreneur’s imagination.
Recession or not, starting up a business is all about doing all you can to weight the odds in your favour.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Politicians and Economists are failing SMEs

Investment in innovation has to be a long term strategy while the UK’s fixed term parliamentary system and the need to grab headlines encourage short term thinking.
The evidence is piling up for all to see.
Firstly, research by the Big Innovation Centre has emphasised, if it were needed, that there is a “systemic failure” holding back the economy shown in part by the worsening of access to finance to SMEs and in particular to those developing entirely new products and processes.
Yet these new innovative SMEs are the most likely to create new markets and achieve rapid growth, so have a disproportionate impact on employment and the national economy.
The point was reinforced by Tony Robinson OBE, a successful micro-business owner with more than 25 years’ experience and co-owner of Enterprise Rockers, which supports micro enterprises. In an article in the Daily Telegraph business pages, he says that despite the UK’s 4.5million micro businesses providing 32% of private sector employment and 20% of its turnover: “…95% of all government employment support and training funding goes to the largest 5% of UK businesses.”
Sir Hossein Yassaie, CEO of Imagination Technologies, has also weighed in, comparing planned support for innovation in S. Korea over the long term to what happens in the UK, where much of industry has been sold to overseas owners: “…The Government changes and everything is short term…. I think we really need to stop all that.”
In his view, also quoted in the Telegraph, instead questions need to be asked now about what we need to do today to be in markets in ten years’ time and imagination now is the key to future success.
Politicians need to put in place support that is genuinely aimed at SMEs that is more than rhetoric and not prone to change by a new Government, or they need to provide real short-term incentives to investors in innovation that will have the same effect over the longer term.
Examples of such incentives might be to provide soft loans, or offer matched funding alongside new share capital. We don’t want politicians trying to be clever as they have been with the flawed Enterprise Finance Guarantee Scheme which was never going to stimulate business.
It is a great pity that ‘highly regarded’ economists like the BBC’s Stephanie Flanders, who I understand also advises the Government, are unaware of the Small Firms Loan Guarantee Scheme that for approximately 15 years drove much of growth by SMEs in the 1980s and 90s. I asked her recently, and she had never heard of it.
This makes me think that economists like to operate at a theoretical and strategic level rather than try to understand what really makes SMEs tick so they can develop tactical stimuli that promote SME growth. Quantitative Easing is another example of theory not working for SMEs.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Investors need to rethink their requirements

Many of us believe that a change in investor culture is long overdue. We need to incentivise long-term investment in sustainable growth instead of short-term ‘quick flip’ or ‘get rich quick’ schemes that deceive everyone into thinking that making money is risk free and easy.
It is this short-term thinking that has made it more difficult for Private Equity firms to raise new funds for further investment.
Private Equity firms depend on their reputation for making profits for their investors and their problem since the Credit Crunch of 2008 has been that funds have been tied up in businesses that are effectively zombies because of the amount of debt they have, no matter whether these businesses may have good potential for growth.
Similarly both lenders and investors are very wary of taking a risk with new and small businesses, hence the Government’s failure to persuade funders to support start-up companies and SMEs, even profitable ones and those with potential for growth. The only source of funds really available for such businesses are book debt and asset based lenders but these only improve cash flow they don’t provide equity or loan capital for investment.
To address the funding culture issue we need to justify a switch from investing in property to investing in businesses. This will involve understanding a risk rated return on investment that provides for better returns to investors.
There are a number of ways of achieving this change of investor behaviour, one is to penalize investment in property by taxing them, another is to provide for matched funding from banks alongside new equity, possibly with a Government guarantee, another would be for debt forgiveness by banks to restructure their ‘zombie’ client loans alongside new equity, others could be an expansion of the Enterprise Investment Scheme and Seed Enterprise Investment Scheme, or simply a reduction in the corporation tax rate.
But all this requires a Government to confront those who view property as their source of security.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Is it all doom and gloom or are there rays of sunshine on the horizon?

It started mid-May with the Bank of England governor Sir Mervyn King upgrading the economic forecast for the rest of this year.
The British Chamber of Commerce (BCI) was also slightly more optimistic in its forecasts and reports on business confidence.
In the last few days we’ve had three forecasts on monthly performance for the manufacturing, service and construction sectors, all of them showing signs of growth.
While no-one is denying that there are some years to go on paying down household and business debt, as the Telegraph’s CItyAM editor Allister Heath emphasises this week, is his doom-laden piece predicting an even more cataclysmic crisis really justified?
He cites the need to further massively cut the welfare state and also to what he calls the “terrifying recklessness” of the Government’s proposed Help to Buy scheme that could stoke up another credit-fuelled housing bubble.
It doesn’t help that we are only building 100,000 new houses a year instead of the 300,000 that we need to satisfy demand.
However, if the scheme were to stimulate house building we might stem house price inflation and avoid a bubble. It could also be used to redress the scarcity of smaller homes for both first time buyers and older people wanting to downsize as well as provide jobs for the approximate 20% of all SMEs that a thriving construction industry could employ.
We all know that “bad news” sells papers but there is also a converse argument that we need businesses to believe they have a future. With some measure of confidence in the future, businesses and SMEs in particular might begin to invest in growth.
So are you a pessimist, a realist or an optimist?

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

Calls for Private Equity investment to stimulate growth

There has been a chorus of voices recently wanting to see private enterprises or Private Equity firms investing to stimulate a recovery and growth, both in the UK and Europe.
It’s all very well demanding someone else invest money but why should they? There are many ‘zombie’ companies that could be ripe for investment but in effect are overvalued due to the debt burden which will almost certainly never be repaid. These firms need restructuring with bank lenders prepared to take a hit if they are to be attractive for investors.
The chorus may not be aware that investors normally rank behind the bank, or are they hoping investors are naïve enough to underwrite the bank debt by pouring good money after bad? Private Equity companies rarely have either the time or the patience to spend on business improvement as most rely on financial restructuring followed by a swift exit to deliver a huge return on investment to their own investors.
Another factor is Private Equity’s reliance on cheap and easy money to recover their investment by refinancing assets and to realize profits by funding a sale where the lending market underwrites their returns. This is how many of the banks were left with bad debts so it may be a while before they return to providing cheap and easy money.
Private Equity firms, like most alternative investments, depend on their ability to attract funds from investors who want to see an adequate return, normally in a relatively short period. 
Since the financial crisis began many investments by Private Equity have been locked in due to the inability to refinance or sell their investments, which has impacted on their return to investors and thus on their ability to raise new funds.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Rent seeking is a drain on growth

There has been more media doom and gloom about the High Street, with the news that 10 out of 12 of the Portas Pilots have suffered an increase in empty shops and the CBI’s May retail health check showing the steepest falls in sales this year, not only on the High Street but also online.
This is not solely about the squeeze on household budgets but also about the fact that the High Street, like many SMEs, is not competing on a level playing field.
Economists have a word for financial gain that doesn’t do anything to stimulate either real production or economic growth.  It is called rent seeking. It covers everything from income gained from vast financial sector fees, bonuses and charges on transactions to actual rent received by landlords.
Sports Direct owner Mike Ashley has given landlords a deadline of today (May 31) to accept a deal to reduce the rents on the Republic chain that he “rescued” in February from administration or he will walk away and the 116 shops will close. 
The BBC also recently highlighted the plight of one trader in electrical goods in the “Portas” town of Nelson in Lancashire, who needs to move to larger premises. He has identified an empty property vacated by a national chain but it is still tied to a long lease so the landlord has no incentive to re-let at a lower rent.
Add to that the ridiculously high town centre business rates that are no longer justified in the current climate and that the Government has not reviewed since 2007 – arguably another form of “rent seeking”.
How are SMEs supposed to be the engine of growth when even those with potential to grow are facing such impossible odds?

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

Two steps forward and one step back is the new normal

“It seems that every time an upward trend in sales volumes seems to be emerge it’s quickly snuffed out. While disappointing, trades data are a reminder that despite some positive upward indicators, the ongoing squeeze on incomes means there’s a limit to how quickly growth can pick up”.
This reported comment from Simon Wells, HSBC’s chief UK economist, in the London E. Standard may seem to be a statement of the obvious but it bears repeating in a world where every tiny short term uptick is seized on as evidence of recovery from the global economic crisis.
Irrespective of who is to blame we should remember that high price inflation and minimal salary inflation plus the current uncertainty about employment have meant a real squeeze on incomes. Both businesses and consumers remain focused on paying down debt.
While confidence might rise this can only translate into a rise in credit and in people’s ability to service debts.
We are also in the midst of a global economic rebalancing that is shifting power and influence away from the so-called developed world to other economic centres and this is likely to take a long time to stabilise.
Every business, and not only the retail sector, that is looking at restructuring for growth needs to bear all this in mind whether it is considering developing exports or its home market.  It will be about focus on the longer term, about real innovation, about providing value for money and about close attention to customer service to achieve success and growth.

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Cash Flow & Forecasting General Rescue, Restructuring & Recovery

Is blaming the weather for a downturn in High Street trade a red herring?

With the somewhat slow and tentative arrival of Spring have come the by now regular comments blaming the weather for the struggles of High Street retailers.
But there are signs that the High Street might not be dead quite yet and that actually the weather is only a small part of the picture.
Research from analysts Kantar recently has revealed that 70% of us still like to try a product before we buy despite the boom in online shopping and that even with the rise of online shopping 90% of retail spending last year had taken place in actual shops and stores.
While trading conditions are difficult in the continuing economic crisis it may be that what is going on is actually a restructuring process between online, out of town malls and the High Street. 
Recently Tesco has cancelled some plans to build larger retail outlets but in common with other large supermarkets continues to develop smaller drop-in stores both in town centres and suburban local shopping areas. Some formerly online only stores are also moving into physical stores in a process called “showrooming”.  They include the Kingfisher-owned Screwfix, furniture store Oak Furniture Land and SimplyBe, owned by online fashion group JD Williams.
Small independents are also said to have a place on the High Street but as a specialist in turnaround and restructuring I would want to look at their business plans, costs and potential cash flow before recommending that they go ahead.
What would help most of all, however, would be for the Government to finally get the point that Business Rates, last revised at the height of the pre-crisis boom and now at an artificially high rate, which increased again in April, are no longer either justifiable or affordable for SMEs like the independent retailers.
According to Graham Ruddick of the Daily Telegraph, even the Policy Exchange, which is said to have close ties to senior Conservatives, is recommending freezing business rates for two years until they can be thoroughly reviewed. http://tinyurl.com/pxm2c2y
In our view a review and revision downward is urgent. Freezing them will only allow the Government to avoid having to consider revaluations and reductions in the hubristic hope that growth will return to pre credit-crunch “normal”.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery

When will businesses invest in the future?

It is hardly a closely-guarded secret that the UK’s largest companies are holding onto a large pile of cash, estimated to be more than £300 billion.
While the Government is expecting recovery from the 2008 economic crisis to come from the private sector, the latter remains focused on minimising tax bills and maximising short term rewards to shareholders and CEOs, while avoiding risky investment at all costs.
One of the major complaints among businesses at all levels is that they are finding it hard to recruit the skilled and educated people they need. At the same time investment in research and development is dwindling.
There can be no future reward without taking some risks and thinking for the longer term but businesses also have to recognise that their activities are also made possible because of the benefits they derive from a combination of the physical infrastructure and education system, the so-called public goods that are often taken for granted.
Perhaps it is about time that businesses realised that if they want to grow and develop and if they want a supply of educated people, they need to take some responsibility by unlocking some of their capital to support innovative new enterprises, to invest in Research and Development in our universities and in their own companies and to help the existing and future workforce to acquire the skills companies say are in short supply.
This may require a degree of restructuring of companies’ own operations and at the very least restructuring their current short term, risk-averse thinking to enable investment over a longer period.
While the Government is considering closing the loopholes that make tax avoidance possible it could perhaps also consider a tax on unused capital sitting on company balance sheets to stimulate some investment in the economic future of UK Plc.

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General Rescue, Restructuring & Recovery Turnaround

UK Business Growth

There are indications of consumer confidence in the UK. One the sale of new cars where during the first three months of 2013 the sale of new cars in UK was up 7.4%, while elsewhere in Europe they were down in Germany 12.9%,  France 15.6%, Italy 13%, Spain 11.5% and Cyprus 41.6%. In March alone new car sales in UK were 394,806, against 281,184 in Germany, 165,829 in France, 132,020 in Italy and 72,677 in Spain.
This would suggest that we in UK are emerging from a long-term malaise if not depression while it would appear that Europe remains mired in a torpor with declining confidence.
So where is the engine for business growth? the above evidence would suggest it won’t be Europe which some eminent economists such as Professor Nick Crafts at Warwick University argue will be approximately 1% a year until 2030.
I don’t believe we want it to be driven by consumer confidence due to property inflation as this will become another bubble.
We need industrial, manufacturing, service and professional businesses that add value and we need export sales. These require investment in developing ideas, training people, building capacity and marketing them.
I would urge everyone to get this message across to every politician you come across as we need policies that stimulate and justify investment in such businesses.
As for the increase in car sales, how many UK manufacturers are benefiting from the new sales? The lack of a UK car industry is down to short-sighted and weak politicians who supported fundamentally flawed restructuring plans like the Phoenix Four’s failed attempt to save Rover.

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

Are we brewing another bubble?

Profits are up at Currys, PC World and Asda.  Outgoing Bank of England Governor Sir Mervyn King has revised upwards the bank’s growth forecast for the year and the CBI too is a bit more optimistic about “more balanced growth” in the economy.
Add to this, results from the Royal Institute of Chartered Surveyors’ latest survey showing that house buying enquiries had reached their highest level for three years and in April the Ernst & Young ITEM Club predicting a pick up in the housing market activity to almost pre-2007 levels.
Some would argue that Chancellor Osborne’s Funding for Lending and Help to Buy schemes are finally helping potential home buyers but let’s not get carried away here.
Was it not unwise lending on housing that led to the unsustainable property bubble that precipitated the 2008 economic meltdown?
Despite the unseasonably chilly May are these reliable signs of green shoots?
Or are we collectively clutching at short term straws?
We should remember that banks are still weighted down by illiquid assets such as commercial property, investors continue to seek short term gain rather than investing in the longer term future and politicians think only in career terms of keeping their seats in the next election.
Clutching at short term straws will not fix our economic problems. Investing in the longer term, in promising new companies, in support for R & D to keep our knowledge economy competitive overseas and investing in a sensible education and business support policy that provides the skilled workers for the future through apprenticeships just might give the economy a fighting chance.
In the meantime while it’s a bit early for SMEs to shift their focus away from managing cash flow it might be appropriate to revisit the business plan and model to identify any changes that should be made to prepare to take advantage of growth should it materialise.

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Banks, Lenders & Investors General Insolvency

Politics and banking – an unholy alliance

Politicians remain wedded to the importance of the financial sector to the UK economy despite the ongoing aftermath of the 2008 financial crisis
So the taxpayer bailed out “too big to fail” banks and is now being treated to the misery of an austerity drive unprecedented since the last World War.
Now in the aftermath of the Co-op bank pulling out of plans to buy more than 600 Lloyds branches and the resultant downgrading the Co-op bank to so-called “junk” status ratings agency Moody, it seems there never was much likelihood of the deal being finalised.
The trusty old Co-op is, it seems, no different from other over-exposed bigger banks.  It has suffered from defaults on loans acquired by its purchase of the Britannia Building Society in 2009 leading to a loss of £674m in 2012.
All of which has led BBC Business Editor Robert Peston to ask why the now-defunct FSA did not block the Co-op’s sizeable expansion plans and why Chancellor Osborne was so supportive of the proposal. http://tinyurl.com/bm4sx7n
It would seem that the FSA set the Co-op high capital targets but, according to one of Peston’s innumerable inside sources, that it did not feel it could block a proposal that had so much parliamentary support.
Apparently MPs’ love Mutuals and the Treasury hoped that the Co-op would provide competition to the big banks.
Politicians’ relying on hope and sentiment does not bode well for any rigorous effort to regulate the banks and prevent another crisis or to the likelihood of any meaningful support for those SMEs fighting to survive in a challenging market.

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Banks, Lenders & Investors Business Development & Marketing General Turnaround

Short term thinking is wrecking the UK’s future

As if risk averse lenders were not problem enough UK businesses have long complained that there is too much short term thinking stifling any chance of recovery.
Increasingly we have career politicians with little or no experience of business or life outside Westminster and with little incentive to think beyond the next election, so we get tinkering with taxes and regulation on businesses without a long term strategic vision.
The financial Industry, too, is more concerned with short term rewards (dividends, gains and bonuses) than in long term investments in industries that make stuff or have innovative ideas.
Shareholders and investors have been focused on short term dividends or income rather than investing in the longer term.
We need to encourage money to be invested in the right places and for the long haul.
It seems, some are beginning to agree. At a conference in London on Friday, May 10, called Transforming Finance, academics, campaigners and financiers will gather to develop ways for building a better banking system. http://tinyurl.com/cxnvyyr
Among them will be Catherine Howarth, CE of Share Action, a lobby group which will be emphasising the point about the need to think over the longer term.

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

Business realism – or not?

Last week we asked whether the extension of the Funding for Lending scheme by the Bank of England was a case of excessive spin.
This week the BoE seems to be reverting to realism.  The Telegraph business pages today (May 2) quote Paul Tucker, the Bank’s deputy governor for financial stability, as saying that the revised FLS scheme was not a “silver bullet”.
However, ever the optimist, Mr Tucker is still expecting FLS Mark 2 to have some effect on lending to SMEs within six months and arguing that there was reason to hope that the economy was on the mend.
Perhaps the worthy gentlemen at the BoE should get out more – and talk to the SMEs on the ground.
We are hearing nothing from SMEs to suggest that they are any more confident about borrowing and they remain focused on paying down existing debt and managing cash flow.
We remain underwhelmed about the potential for FLS to stimulate growth any time soon.

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Banks, Lenders & Investors General Rescue, Restructuring & Recovery

If it doesn’t work the first time do it again only bigger

Funding for Lending has not stimulated bank lending to SMEs so what does the Bank of England do? That’s right, they’re extending the scheme, offering the banks loans at just 0.75% with no limits on how much the banks can borrow – but only if they lend more than they are receiving in repayments from customers.
And the formula applied by the Government makes it almost impossible for the banks to be able to fulfil the lending obligations. For the full details see the BBC’s blog by Robert Peston http://tinyurl.com/c38w4rp
All this has been announced at a time when the banks are also required to focus on recapitalising to even greater levels and when despite such initiatives SMEs are not borrowing, but instead are focused on controlling cash flow and paying down debt and are generally as risk averse as the banks.
So is the BoE missing the point or is the Funding for Lending scheme nothing more than excessive spin?
Which leads one to speculate whether Spinmeister Alastair Campbell is back in action behind the scenes.

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General HM Revenue & Customs, VAT & PAYE Insolvency Rescue, Restructuring & Recovery Turnaround

HMRC is getting tougher on SMEs with unpaid VAT

SMEs have been bearing the brunt of HMRC taking a much harder approach to unpaid VAT bills, according to a report in Sunday’s Financial Times. http://tinyurl.com/d88d3w2
Its seizure of assets (distraint) doubled in 2012 to 4,746 cases compared to 2,401 cases in 2011. Almost 95% of all HMRC use of distraint have involved SMEs.
HMRC appears to have also been limiting access to the Time to Pay arrangement to help struggling businesses to catch up on overdue payments.
This tighter approach has been variously described as unwelcome, inflexible and aggressive.
Now more than ever unpaid VAT or tax is not a situation to ignore in the hope that it will go away.
It is at times like these when the help and support of a Business Guardian experienced in negotiation with HMRC and in turnaround and restructuring could make all the difference to a small company’s survival.

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

Why HMV may just survive while other high street retailers crash and burn

Despite the continuing carnage on the High Street there are glimmers of hope emerging from the restructuring process currently being carried out on the music store HMV.
Why? Well as with any business restructuring the first step is to carry out a review which includes a thorough look at the accounts to identify any areas where savings can be made, the most obvious in this case being loss-making stores, onerous rental agreements and  the employment roll.
Already the closure of 66 loss-making stores has been announced, plus a further 37 this week, and also administrators Deloitte have noted that landlords have been generally “flexible and supportive” during the ongoing efforts to restructure the business.
Most significant, however, may be the recent announcement that trading agreements for the supply of new stock have been signed with the majority of HMV’s suppliers, something that is generally unusual when a company is in difficulties.
It is clear that HMV’s business model needs to change to take account of the shift in consumer behaviour and deal with intense competition for the sale of music, DVDs and games from online suppliers, digital downloads and also from supermarkets.
HMV however has support from a record industry, particularly the independent labels, which is keen to maintain a High Street presence and can learn from other retailers that justify their High Street presence by providing consumers with a retail experience rather than just a place to purchase goods.
Artists, too, have expressed support with Elton John suggesting holding live gigs in the stores.
The secret is in the details. Customers have been quoted as saying they valued the opportunity to browse, to talk to knowledgeable experts when they are searching for unusual and niche items and to have a sample listen to tracks before they buy. With appropriate staff training, these could provide a USP for the retail arm of the business to highlight.
All this illustrates that a thorough business restructuring involves attention to detail and identifying those aspects that make it special or unique and that may just help it to survive by returning focus to core strengths that may have been lost sight of over time.

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Banks, Lenders & Investors Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Insolvency does not have to be the end of your business

When an SME encounters cash flow difficulties and cannot pay its bills many owners assume that their business is bust and should close.
It does not have to be the case. If the core of the business of a company is offering a genuinely useful and saleable product or service, it can normally be saved.
A detailed look at cash flow and accounts is the first step in the process of turning around a struggling business although this needs the help of a business doctor plus commitment, realism and honesty on the part of its owners.
The business doctor will help to identify the profitable activities that should be saved and also has a number of techniques in the toolbox to help deal with the pressing debts that impact on cash flow.
An increasingly useful tool provides a way of dealing with debt by reaching agreement with creditors to repay all or part of the debt in an affordable way that allows the business to focus on building its strengths for the future.
This is a Company Voluntary Arrangement also referred to as a CVA.  The CVA is a binding, formal agreement that is agreed with creditors but needs the help of a business doctor or turnaround adviser. To find out more, K2 Business Rescue has published a useful guide to the steps that need to be taken: K2 CVA Guide 2013. A copy along with other useful guides is available as a free download via the Resources section on the K2 website.

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

Frozen panic could become a self-fulfilling prophecy

The latest quarterly survey carried out by the insurance giant Zurich found that 16% of the British small and medium-sized businesses (SMEs) surveyed considered themselves at high risk of going out of business within the next year due to financial pressures.
Those perceiving themselves to be most at risk were SMEs in the Retail (21%), Construction (37%) and IT (24%) sectors. In all three the fear of going out of business had risen since the last Zurich quarterly survey.
However, it must be stressed that the survey is a record of the perceptions of SMEs.
More important, perhaps, is that almost 100% of them are not getting any help in dealing with their problems. Despite the latest government lending scheme, Funding for Lending, the banks continue to shun the SME sector as the Federation of Small Businesses (FSB) repeatedly highlights.
Just as important, is that most of them are not seeking help in dealing with their problems. Despite the perceived concerns of SMEs, they are not speaking to business advisers who remain quiet. Indeed insolvencies are at their lowest level for 30 years.
But again, perception plays a part but the insolvency statistics are a matter of fact.
Firstly there is the common view among SMEs that if they can’t see a solution then how can an “outsider”. Secondly, too often SMEs don’t know where to go for help and thirdly, they assume that it will cost them money they can’t afford to get help.
The danger is that the fear of going out of business then becomes a self-fulfilling prophecy, when with the help of a business doctor or turnaround advisor owners could save the business that has taken them years of hard work to build. Just a free consultation may be all that is needed, and most business doctors will provide some free support. It’s good business for all concerned.
 

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

A revolution in business culture?

Are the super rich at the World Economic Forum in Davos “morally and intellectually bankrupt” as opined by Will Hutton in last Sunday’s Observer? He argues that many of them generate excessive profits by squeezing employees’ wages. More tenuous is his view that this lack of wealth redistribution is restricting economies that would otherwise trade out of recession if employees had more to spend. 
However Mr Hutton does have a point: “Reality will out. Everyone knows by now, even in Davos, that there can be no return to the world before 2008, relying as it did on abundant supplies of cheap credit. Equally, we need our economies to grow with real, sustainable growth, as opposed to an artificially stimulated variety….. Real growth can only be achieved by the economic empowerment of ordinary men and women, by promoting individuals to become capitalists, to want to be owners who will bear the pain, and also share the spoils.”
He suggests: “It is a wonderful opportunity for enlightened business leaders, politicians, trade unions and indeed all of us to reimagine the role of people in western societies. One of the reasons it has been easy to reduce the power of people in the Anglo-Saxon world is through fear, fear of change. This has preserved the status quo and kept incumbent leaders in power.”
Those with long memories will recall the militant opposition of the British trade union movement to co-determination – that is, putting workers on company boards – in the 1970s: stupid. 
Yet Britain, and the West for that matter, needs a way of relating labour to capital. We need to engage employees by encouraging ownership and sharing the benefits of their efforts. It seems an impossible ask. We need employee representatives, union negotiators and business leaders to become leaders of change. Not confrontational or militant style negotiation of change, take it or leave it, one out, all out but strategic leaders who can negotiate reward for productive effort – to argue for a share of the spoils when they are genuinely there, but acknowledge that it might involve sharing pain to get there. They should be able to cut deals and support firms when jobs are at risk, but also make sure the deals are fair for all stakeholders when the business is turned round. 
Hutton argues: “One way forward is co-determination, putting employee representatives on company boards. Another would be to revisit the ideas of Nobel prize winner Professor James Meade and organise compensation so that a firm’s profits are equitably shared between workers, management and shareholders.” 
Whether or not Davos is intellectually bankrupt, the ideology it champions will ultimately seek to preserve the interests of its delegates rather than promoting those of employees. Capitalism certainly requires intellectual challengers, social movements and union leaders to take risks and reimagine their role. 
The best time to negotiate a good deal for workers is when their employer really does need their support, when they are in a financial crisis and need to restructure to survive.

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Banks, Lenders & Investors Business Development & Marketing General Insolvency Rescue, Restructuring & Recovery Turnaround

One – or two – swallows do not make a summer

Following on from the demise of Jessups the camera retailers the news that HMV had finally called in the administrators comes as no surprise.
What is perhaps more surprising is that a couple of commentators have seized on this development as perhaps an early sign that banks are feeling more confident about surviving losses and that better times are on the way in 2013 on the grounds that there is usually a rise in insolvencies as an economy starts to recover.
The more realistic view, K2 would say, is that insolvencies are still at a very low level and it is way too early for anyone to be so optimistic.
More likely, and there has been plenty of evidence in the cases of Comet, Jessup’s and HMV, is that their business models have been found wanting in the new world of consumer caution, shopping around for the best prices and the move to online shopping.
With a raft of year-end reports due out this week, including Mothercare, Home Retail Group (Argos and Homebase), Bookers, and Asos the picture will gradually become clearer.  One to watch is Mothercare, which did alter its business model last year to focus more on out of town retail stores rather than the High Street. This measure does seem rather late, being at least 10 years after others took the same initiative. The question will be whether Mothercare has done enough to survive without further and more dramatic restructuring.
While the pain is most obvious on the High Street, reduced consumption, changing consumer behaviour and inappropriate business models apply to many businesses that have not yet gone bust. There is no sign yet of a lift in bank confidence as they continue to prop up zombie companies rather than lending to companies wanting to change their business model or new ones with a vision and growth potential.
For the foreseeable future, businesses would be wise to examine their business models and if necessary to implement change early rather than put it off as restructuring becomes more difficult the longer it is left.  This is still no market for dramatic moves to improve turnover.

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Banks, Lenders & Investors