The pros and cons of bitcoins for SMEs

bitcoinsRemarks by Jamie Dimon, chairman and CE of JP Morgan Chase, earlier this month disparaging the bitcoin virtual currencies as a “tool for criminals and money launderers” are perhaps no surprise. Nor is the scepticism that bitcoins are a bubble, an “Enron in the making” as quoted yesterday by Saudi billionaire Prince Alwaleed bin Talal.

For the mainstream banks the rise of cryptocurrencies represents the risk of a serious loss of revenue from currency exchange and other transaction charges.

However, cryptocurrencies like Bitcoin have been growing in popularity both among investors and SMEs, particularly those that trade via e-commerce or in several countries.

While there has been a significant growth in investors trading in bitcoins, this should come with a health warning.  Value can be volatile.  In January 2017 one Bitcoin was worth $800 and by June it had risen to $3000. But within a month the value had dropped to less than $2000 before rising nearly $3000 by the start of September.

Plainly, investment in the currency is only for the experienced investor with strong nerves and an ability to write off the investment at worst.

How useful is accepting payments in bitcoins to SMEs?

The advantages for businesses in allowing payment in bitcoins is in lower costs and therefore greater profits.

Accepting payments via debit or credit cards attracts significant transaction fees, whereas the charges made by companies that manage Bitcoins are significantly lower. Because bitcoins are not currencies issued by any government, trading in them is not subject to tax.

For small businesses the speed of transactions is another benefit. It can take up to a week before a credit card payment reaches the business’ account, whereas with bitcoins payments typically arrive within a couple of days.

Another benefit is saving on the high cost of currency conversion that is charged by banks.

Bitcoin payment is becoming increasingly popular with customers which presents an opportunity for those businesses that accept it.

There are, however, drawbacks to having a bitcoin account. There is no regulation in the UK, so it is not covered by the FCA (Financial Conduct Authority) and losses would not be covered under the Financial Services Compensation Scheme, which protects lost deposits of up to £85,000 from bank or savings accounts. There is also the perception, whether or not this is justified, that bitcoin transactions are used by those wishing to launder money, or by those operating in the ‘dark web’ or others trying to avoid paying tax. This is made easier by the distributed ledger payment system that confirms a payment without the need for disclosing a customer’s personal information. Use of bitcoins could therefore expose businesses to greater scrutiny by HMRC and anyone monitoring money laundering such as banks that receive the converted cash.

The other main risk is bitcoin value fluctuation, but this can be mitigated by using a payment processor to convert bitcoin transactions into actual currency (whether $US or £Sterling) and pay it into the company bank account.

For any business trading globally there are certain benefits to using bitcoins, but legitimate businesses need to have appropriate and secure systems supported by detailed record keeping in place.

Don’t discount the awkward people in your business

awkward people are coolSocial misfit, loner or nerd. These are all words that are often used to describe awkward people.

In this context awkward does not mean deliberately difficult, disruptive or aggressive, but describes people who don’t quite fit in or interact socially with their group, peers or colleagues. Indeed, all too many amateur psychologists ascribe people with these character traits as being socially dysfunctional, or being ‘on the spectrum’, or worse, as having Autism or Aspergers.

But US psychologist, author and relationship expert Ty Tashiro argues that such people often have striking talents.

The author of AWKWARD: The Science of Why We’re Socially Awkward and Why That’s Awesome, argues that while such people are less likely to be socially skilled or good communicators they also have what he calls obsessive interests.

However, being socially awkward is not synonymous with being on the Autism spectrum.

Tashiro says socially awkward people are likely to have considerable focus and energy and to deliberately practice something that interests them repeatedly until they achieve mastery of it.

How can this benefit a business?

It is almost a cliché that to achieve mastery in an activity or discipline requires a single-minded focus and hours of practice.

So awkward people can often achieve a high level of expertise in what interests them.

The pace of technological change is being driven by innovation and advances in science so it is easy to see why having some awkward people in a business can be a huge benefit.

With the right level of understanding and support, an awkward person’s skill is a resource that can result in a ground-breaking innovation that could put the business ahead of its rivals.

So, it makes sense to recognise that an awkward member of your team may have hidden depths and to find ways of nurturing their interests and skills for the benefit of the business, its profitability and the security of everyone involved in it. Respecting, understanding and supporting them takes time and effort but the rewards can be stunning.

It is also called “leadership”.

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.


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.

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.


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.

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.

The importance of strategic focus to business success

strategic focus dartboardIn an age of multiple distractions, it is more than ever important for business leaders to have a strategic focus for the direction of their enterprise and clear goals so that progress can be measured.

Especially in the early stages of starting a new venture enthusiasm may be high, but if insufficient thought has been put into the aims and goals and the direction of travel, activity may become scattered in too many directions at once.

It is a waste of time, energy and possibly resources and a lack of focussed effort can lead to disappointing results, even to business failure.

How to keep your head while all around you are losing theirs

It is important for an organisation and its key people to have a clear idea of its purpose, its competence and the value of what it is offering to clients and customers.

This should be defined in the business plan and be regularly reviewed and, if necessary, updated.

What worked at start up and during the early stages may no longer be relevant or at least may need tweaking.  Perhaps what has worked and been learned can be applied to introduce new, more innovative products, services or ways of doing things. The lessons learnt might justify pivoting the business in an entirely new direction.

But at each stage, if change is to be introduced it must be in the context of a strategy that helps people to keep their eyes and their actions on the goals.

The LinkedIn Influencer and writer, Bruce Kasanoff, argues that we live in an age of multiple distractions and that people who master the so-called skill of multi-tasking are actually training their brains to be less effective and efficient.

Kasanoff also offers workshops exploring the role of enlightened self-interest in professional organizations and within individual careers.

In a world based on competition, he says, it is inevitable that businesses and enterprises will compete for customers’ attention and business leaders are likely to be no less susceptible than anyone else.

He advocates taking a break to pursue another activity, in his case photography, when starting to feel distracted or stressed.

The result, when returning to a piece of work or the business environment, is that a person is refreshed and ultimately more focused.

Perhaps it’s a lesson busy business leaders need to learn.

Detecting and combating business fraud

detecting business fraud

Any business without robust systems can be vulnerable to fraud, either perpetrated by third-party criminals, suppliers, clients or even internally, by employees.

It has been calculated that the typical organization loses 5% of its annual revenue each year due to employee fraud.

As with cybercrime, which we have covered in previous blogs, prevention is preferable to dealing with the consequences, and will help avoid unnecessary loss of cash and write down of profits.

This means monitoring, having clear policies and processes for handling money but also checking they are being followed.

Signs of possible business fraud

Business fraud comes under three main headings, asset misappropriation, corruption and financial fraud.

Watch for unusual behaviour, such as people calling in sick frequently, becoming defensive or irritable. Be alert to complaints from clients or customers relating to a specific employee.

In bank reconciliations, deposits or cheques not included in the reconciliation could be indicative of theft. Other symptoms include credits, write offs, phoney customers, cancelled and refunded till receipts with no documented proof of the reason, also duplicate payments, excessive expenses claims and altered time sheets. The big giveaway here is inadequate accounting systems, inadequate records and a lack of reconciliation that all help conceal fraud.

Another giveaway may be in the stock inventory where the available stock does not match with records. The big giveaway here is inadequate stock control, poor record keeping and a lack of stock checks.

Minimising the opportunity for business fraud

Top of the list is to ensure that there is robust record keeping for all transactions, whether it be transactions with customers and clients, ordering of stock and materials or book keeping.  There should be a clearly-explained reporting system for employees to use if they identify a possible problem.

Keeping records alone is not enough, however.  Regular independent checks to identifying any discrepancies is essential for monitoring the accuracy of reports as well as identifying inappropriate activity.

Make sure that you know your employees so you can detect changes in attitude and behaviour and that they are aware of the business’ policy on fraud prevention and the penalties for anyone caught.

Similarly, if a business is approached by a new client with a potential large order, it is wise to check their credentials with a credit reference agency or, if it is another business, with one of the many services that vet business clients.  It is also helpful to make any new order conditional on payment of a deposit, which can be anywhere from 10% to 50%, and setting up a system of staged payments.

Finally, if fraud appears to be systematic there are outside experts, such as Certified Fraud Examiners (CFE), Certified Public Accountants (CPA) and CPAs who are Certified in Financial Forensics (CFF) who can be hired to investigate.

Prevention of fraud costs far less than the consequences which in some cases can cause a business to become insolvent.

Why do so many in the construction industry get into difficulty?

construction contractorWe have been experiencing a rash of main and sub-contractors in the construction industry coming to us for advice because they have got into financial difficulty.

It has become clear that those who contact us have not been managing the financial side of their business.  They generally pay wages, labour, sub-contractors and suppliers in that order but all too often not other bills, such as to HM Revenue and Customs (HMRC).

Another characteristic is that those who end up dealing with HMRC and debt collectors don’t tend to have good quality financial information.

It has also become clear that their suppliers have been tightening up on sub-contractor payments and this has been putting pressure on their cash flow.

Traditionally construction is a cyclical industry, where there are seasonal peaks and troughs as well as fluctuations in demand for building, often influenced by conditions in the wider economy.  For example, the demand for commercial building construction has been diminishing in the uncertainty over the outcome of Brexit negotiations, as businesses hold onto their money and cut back on investment. These factors impact on margins.

In the housing sector given the lack of availability it might seem that there was a continuing, high demand, but again, the available cash for projects is limited, partly because there is a lack of government cash and local authority power to build those homes that are most needed – at the affordable end of the market.

At the other end of the scale, the property market has slowed as householders economise in the face of rising inflation and stagnating pay, plus, again the Brexit uncertainty.

How can contractors manage their finances to ensure success?

The pressure of ensuring an adequate work flow can lead to a sense of urgency in bidding for jobs at the lowest price, risking making a loss, and in taking on more work or agreeing to projects that there is insufficient capacity to handle.

It is also easy to bury one’s head in the sand, such as hoping HMRC won’t notice non-payment of CIS, PAYE or VAT, or ignoring their demands when they do; never a sensible long-term strategy.

All too often contractors succumb to factoring their book debts instead of getting help when they experience cash flow pressure. This often means they lose control of their business the next time they are subject to creditor pressure or get into arrears with HMRC.

Contractors generally need external support to help them manage their finances and in particular help them stay in control of their cash flow.

When pricing and bidding for work, contractors should not feel under pressure to win tenders at a loss just to keep the work coming in. Instead they should make honest assessments of each project and include a margin for overheads and profit. All too often premiums are ignored. Fixed prices also need a risk weighted margin to cover delays and unforeseen costs. It may be better to remove risk by retaining the right to use variation orders to cover unforeseen costs, external factors and inflation such as increased sub- contractor costs. Another approach is open book with an agreed margin.

However work is priced, contractors should walk away from projects that are not profitable and where they have any concern about being paid on time.

Once a contract has been won the contractor should keep careful track of the ongoing external and prelim related costs and constantly monitor profit and cash flow, ideally by trade.

Ultimately, success in a fluctuating and seasonal market means tight control but also whenever possible putting aside a proportion of the profit from the busy period to offset the leaner time.