SME tendering opportunities amid the doom and gloom

There are tendering opportunities despit the storm cloudsIt can seem, amid the uncertainty over the future of UK business as the shape of Brexit remains shrouded in mystery, that there is nothing but relentlessly dire news for SMEs.

Here’s a selection of snippets from the last week or so:

A major bank (Santander) announces that its loans to corporate clients during the first quarter of 2018 were down by 4% amid a slowing demand for business finance.

There is a dramatic fall of 48% in the numbers of new French, Dutch and Belgian businesses registering in the UK (Companies House).

UK GDP growth comes in at just 0.1% quarter-on-quarter in Q1, with factory order growth in April 2018 slowing to its weakest level in two years and yet more “big name” retail casualties and announcements of shop closures, this time M & S.

On top of this it has been estimated that there has been just a minuscule 10% opt-in rate to all those marketing emails attempting to comply with tomorrow’s GDPR deadline and issued by SMEs, sometimes when they did not actually need to, and potentially decimating their marketing plans.

It should be no surprise, therefore, that there is some anecdotal evidence that some SMEs are finding business life just too difficult and deciding to throw in the towel. The recent growth in self-employment and those setting up in business for themselves may be coming to an end.

Despite the changing marketplace there are always opportunities for SMEs, especially nimble ones.

SMEs should explore tendering opportunities

There is undoubtedly a great deal of work outstanding on unfinished projects around the UK as a result of the collapse of Carillion. Sooner or later there will have to be invitations to businesses to tender for them, and hopefully lessons will have been learned about breaking these down into smaller contracts that could encourage SMEs to bid for them.

There are public-sector tendering opportunities at local, regional and national level and while the process can be lengthy, detailed and sometimes costly, wise SMEs can start exploring the options and preparing the material they might need to submit. It gets easier the more you do.

Firstly, if, as I often advise, you regularly review monthly management accounts, have a solid business plan and control over cash flow and overheads, you should be able to identify the services your business can realistically offer, and this should help you to find the right projects for which to consider tendering.

Secondly, you can find regular updates on contracts worth over £10,000 coming up on the Government’s Contracts Finder website and search for more details.  There are other opportunities and more guidance on tendering on this Government website – follow the links as appropriate. For more local projects you can also contact your local authority or LEP (Local Enterprise Partnership).

The advantage of tendering for public sector partnerships is in the quality of the contract and the likelihood that payment terms and dates are more favourable.

Once you identify tendering opportunities that fit the capabilities of your business you will need to factor in the time it takes to gather the information needed and go through the process. It helps to have someone within the company who has responsibility for managing the bid, from doing the research to writing and checking drafts.

During the bidding process your application will first be “scored” by the government department or agency, to create a shortlist of those who will be invited for interview by a panel of experts.

While the tendency has been to look for the lowest price bids, with much less attention paid to other criteria such as SME preference, quality and service based on the applicants’ track record for delivery and their financial stability, it is to be hoped that lessons will have been learned from the Carillion failure and a more comprehensive and realistic appraisal of SME applicants will result.

Hopefully this will help to level the playing field for SME applicants.

 

Is the UK freight infrastructure fit for the future?

UK Freight infrastructure for the futureIt is fair to say that the UK’s economic future as a trading nation post-Brexit will depend heavily on the efficiency of its ports, road haulage and rail freight transport, but the big question is whether the existing freight infrastructure is in a fit state to cope.

According to the Road Haulage Association 80% of all goods transported by land in Gt Britain are moved directly by road and the remainder will often need road haulage to complete the journey.

Road Haulage transports 98% of food and agricultural products and 98% of all consumer products and machinery and the industry employs 2.54 million people. It is the UK’s fifth largest employer and contributes £124 Billion in GVA (Gross Added Value) to the economy.

While the ports are investing heavily in their processes’ efficiency to attract trade, they are not responsible for the road and rail network on which they need to rely to move goods onwards.

A recent BPA (British Ports Association) report, Port Futures, highlighted some of the issues. These included a cumbersome planning process and lack of Government commitment to invest in improvements.

The RHA, too, has criticised the state of UK roads, 20% of which, it says, are five years away from being unusable and the Asphalt Industry Alliance has highlighted a sharp increase in pothole-related breakdowns resulting in expensive damage and delays to HGVs and citing Government neglect.

The FHA (Freight Haulage Association) points out that funding for rail improvement has been falling and added its voice to calls for infrastructure improvement.

Plainly the verdict of those within the freight transport industry is “could do better”.

Investigations on freight infrastructure – but will meaningful action follow?

In November last year the Government’s National Infrastructure Commission was tasked with carrying out an investigation into the issues facing the freight industry and the actions needed to solve them.

Led by Lord Adonis it is tasked with exploring options to improve the infrastructure, as well as looking at ways to use new technology to improve freight movement, covering congestion, capacity and carbon reduction.

It will produce an interim report in the Autumn.

The FHA is also holding a one-day conference in London on June 20 called Keep Britain Trading.

Topics will include the UK’s readiness for Brexit, specific issues affecting critical supply chains, border readiness at the ports and the vexed issue of managing Customs arrangements.

Will any significant action towards a new integrated national freight infrastructure result or will the outcome be yet more hot air?

Retail CVAs – are they a triumph of hope over reality?

failed CVA? boarded up shopsMothercare has reported today that it is “in a perilous financial position”.

It seems that rarely a week goes by on the High Street when yet another retailer or restaurant chain announces that it is seeking to restructure its business by entering into a CVA (Company Voluntary Agreement) with creditors.

With footfall on the High Street plummeting, by 6% in March and 3.3% in April, while rents have continued to rise, trading conditions are continuing to be challenging, to put it mildly.

The inexorable shift to online shopping can account for some of this, but there are still retailers that have weathered the storm by developing more agile business models, often by combining online and in-store shopping, by making it easy to “click and collect” or by providing a great in-store experience.

Among the retailers that have announced that they will use a CVA as part of a restructure alongside divesting themselves of under-performing stores and food chains have been BHS, Toys R Us, Byrons, New Look, Prezzo, Select, Carpetright, House of Frazer and now Mothercare.

What are the attractions of a CVA?

Although the CVA is an insolvency process, unlike all the others it can be used to save companies. The others involve the eventual closure of the company.

A CVA requires the support of a majority of creditors who are offered better prospects for being paid than the alternative of closing down the company.

This is likely to be welcomed by a business’ employees who keep their jobs and those landlords and suppliers who keep a customer.

Restructuring provides the chance for a business to raise further capital and also the opportunity to renegotiate onerous contracts, such as leases to agree rent reductions.  From the landlords’ point of view a CVA means they can continue to receive some rent instead of being left with empty buildings for which they will need to find new tenants in a declining market.

From the viewpoint of the struggling business, it offers scope for reorganising the business to address the underlying issues that caused the problems and put it on a more sustainable footing, although they may need the help of a restructuring and turnaround adviser.

Despite the attractions and approval of a CVA, many businesses subsequently fail due to a lack of fundamental change to the organisation and business model as all too often the CVA is simply used for financial restructuring to write down debts and get rid of onerous obligations. It is rarely used as an opportunity to turn around the business.

Key to a successful CVA is the underlying business model

Toys R Us and BHS are perhaps the most high-profile examples of CVAs that failed. Both initially entered into CVAs but shortly after had to admit defeat with Administrators closing down each business.

Clearly, the terms of the CVA are crucial to a successful restructuring effort. It is a binding agreement between a company and those to whom it owes money.

This means that the directors must be honest with themselves about the problems and must take advice from experienced advisers, who will have carried out an in-depth and detailed look at every aspect of the business to identify what can be saved and what cannot.

Crucially for CVAs to succeed, they need to be realistic in terms of retaining debt that can be serviced, including any CVA contributions, but the underlying business needs to be viable with sufficient profits and cash flow to justify survival. If these cannot be achieved they will fail.

HMRC looking to prevent directors from using insolvency to game the system and avoid paying tax

There are clear signs that HMRC is ramping up its efforts to improve its tax collection rates.

Among several initiatives, about which there will be more in subsequent blogs, it is focusing on what it calls the “misuse” of insolvency as a means of tax avoidance or evasion.

Since the loss of its preferential status on enactment of the Enterprise Act 2002, HMRC has to wait in line alongside other unsecured creditors during insolvency proceedings.

In a consultation document issued in April HMRC is now proposing that it should be able to use litigation to allow an insolvent company’s tax debts to be transferred to the person(s) responsible for the avoidance/evasion or that directors or shareholders should be made jointly and severally liable for the company’s tax debts.

HMRC’s discussion document acknowledges that Insolvency Practitioners (IPs) must still have a duty of care to the interests of creditors as a whole.

Assets realised into cash during insolvency are distributed to creditors by the IP according to strict insolvency rules. Secured creditors, normally banks and other lenders, and then employees as preferential creditors are paid in full before sharing out any remaining balance among unsecured creditors.

Given the payment priority, HMRC like the other unsecured creditors rarely get anything.

However, if HMRC were to pursue directors through the courts the question is who will be liable?

Will HMRC move up the ranking of creditors of the insolvent company which could risk loss to secured and preferential creditors, and heap further losses on unsecured creditors?

Or will directors and shareholders become personally liable for overdue tax?

There is also a worry that if HMRC proposals were approved this would undermine the recent shift in insolvency regulation, which included a moratorium on creditors’ action, to allow time for a restructure and turnaround plan to be devised.

HMRC is clearly redoubling efforts to recover the maximum amount of tax debt it can. This week a Freedom of Information request revealed that its spending on debt collection services had increased by more than 500% in three years, from £6.2m in 2014 to £39.1m in 2017.

phoenix company and tax debtsThe implications on a rescue culture might go further given that HMRC often exercise their blocking vote to reject proposals for a Company Voluntary Arrangement. This generally leaves a Phoenix as the only option.

In other developments around insolvencies

A HM Treasury minister has urged the Financial Conduct Authority (FCA) to take action on the use of phoenix companies, which it has been argued, allow directors of an insolvent company to walk away from their debts to creditors by setting up a new (phoenix) company enabling it to effectively carry on trading under a different identity.

Robert Jenrick, the Exchequer secretary to the Treasury, was responding to a case where a company offering financial advice had used the phoenix option to effectively “walk away” from its previous business taking its clients with it. However, this had enabled its owner to retain his FCA approval and avoid paying compensation to some unhappy clients despite a Financial Ombudsman investigation finding that the previous company had made “completely unsuitable” investments for the complainants, who had then lost money.

Is the rise of the Sharing Economy an opportunity for SMEs?

Sharing economy ideasFrom renting a city-centre bicycle, a place to stay overnight to a taxi ride, there are plenty of examples of the sharing economy, also called the “access economy” or the “demand economy”.

The big, established names in the sector include Airbnb, Uber and Etsy and what they all have in common is that they have been made possible by developments in IT and its widespread use, coupled with the idea that consumers may want access to goods or services for only a short time rather than buying them long-term.

But there is no reason why this type of business should only be the preserve of big businesses.  It is less about economies of scale because the overheads are relatively small, and more about being able to provide something that customers want.

One example is an Essex-based business, Borrowaboat.com, that allows boat owners to rent out their vessels. Within 18 months of launching they had 17,000 boats registered on their platform as available for hire all over the world, from Thailand to Suffolk’s River Orwell.

Arguably, therefore, there is no reason why SMEs cannot be successful in this sector. Suppose someone wants to an hour of a handyman’s time for help with a small household job, or for help with assembling a flat pack. Both are examples of potential services that could be small, shared economy businesses.

While there is clearly potential for consumer-oriented services that does not mean there are no opportunities in Business to Business, such as having people do research or handle business calls for short periods such as when you are on holiday.

What do SMEs need to do to build a successful Sharing Economy business?

The first and most obvious is to thoroughly research the mechanics of a Sharing Economy business model. There is plenty of information both online and in book form about the concept.

There are several online platforms like Kajabi, QE Bot, Simplero, Kartra that make it easy to set up and go.

Knowing your target customers and identifying their needs is crucial to launching a successful Sharing Economy business as is finding the resources to satisfy them.

What possessions or skills do people have that they are most likely to want to share and need to advertise, and are they things for which there is likely to be a demand from sufficient customers?

It doesn’t matter from which end you approach the market since you are finding suppliers looking for customers and customers for them, so essentially you are making it easier for both parties.

Marketing is key and often relies on paid-for promotion and Social Media to create awareness of the service.

One of the benefits of the Sharing Economy is the opportunity to differentiate your proposition for example by emphasising a commitment to minimising waste, to sustainable growth or to corporate social responsibility. It is surely more ethical to share goods or services than it is to own them but use them only rarely. Equally, demonstrating an awareness of the financial constraints many people experience and offering a solution through sharing can be a sign of a responsible, civic-minded business.

Creating a successful Sharing Economy business is about identifying a need and offering a solution that works well both for the business and for the individuals using its services.

How should SMEs adapt their Social Media marketing after the recent data scandal?

social media marketingThe harvesting by Cambridge Analytica (CA) of the personal details of an estimated 87 million Facebook users is rightly being investigated by the UK’s Information Commissioner’s Office (ICO).

It has been alleged that CA, which has since gone out of business, used the data to help their customers to try to influence the outcome of elections and referenda in many parts of the world, notably during the US presidential campaign and also during the UK’s 2016 referendum on leaving the EU.

Whether these attempts were successful remains to be seen, but the episode does raise questions about individuals’ rights on Social Media, especially in the light of the imminent introduction of new Data Protection Regulations (GDPR).

While individuals ultimately have the responsibility for deciding who can see their interactions on social media, and therefore, if they don’t act could be argued to be fair game, it is likely that GDPR will at least force social media platforms to be more careful to whom they permit data access.

What difference does all this make to promotional activities on Social Media?

The first question is whether Facebook, Twitter and other social media users will be less active on these platforms.

So far, it seems not. Research by Reuters/Ipsos in the US has found that a quarter of Facebook users in the survey said they used it less or had left it but another quarter said they used it even more. The other half said their use had not changed.

As yet, there have been no similar surveys on the other side of the Atlantic and the situation is only likely to become a little clearer when Facebook reveals its next quarterly profits.

Facebook, particularly, but also other platforms, derives most of its revenue from advertising on its pages. This has been claimed to be particularly useful to small businesses, especially those that operate within defined local areas.

But it is questionable whether using it to generate sales directly is quite so effective as is claimed. Indeed, Facebook users have recently had to choose whether Facebook can collect and use personal data to serve targeted ads where the opt-out means users will see general ones; there was no opt-out from seeing ads.

Businesses can also use Social Media effectively to raise their brand’s profile, enhance their reputation and drive visitors to their websites and so far, there appears to be no reason why they should not continue to do so. However, like Google AdWords that are served to online searches the social media platforms are restricting visibility in favour of paid-for access to eyeballs.

Nevertheless, despite the influence peddled by CA and restrictions imposed by GDPR, businesses should still recognise that Social Media is becoming a key ingredient of the promotion mix.

As a consequence, businesses need to be very careful about collecting and analysing the personal data of customers, especially with regard to consent.

SMEs – don’t let the looming GDPR deadline distract you from cyber security

cyber security and cyber crimeWith the May 25 deadline looming for businesses to comply with the new General Data Protection Regulations (GDPR) it is only natural that SMEs will be primarily focused on this issue.

While there is some evidence that a number of SMEs have left dealing with GDPR to the last minute, this is understandable given that the consultation period only finished last month.

So, although the clock is ticking, it makes sense to check for any last-minute updates on the ICO (Information Commissioner’s Office) online guidance before completing the GDPR compliance process.

GDPR is aimed primarily at protecting the personal and individual data of your customers and contacts but businesses also need to have robust protection from fraud and other malicious practices for themselves.

Cybercrime is becoming increasingly sophisticated and there is new evidence about how much it has been costing SMEs.

Research by YouGov commissioned by Barclays Business Banking has found that 44% of SMEs had suffered a cyber-attack and a small percentage had actually had to make staff redundant to cover the cost of dealing with it. Given that there are more than 5.6million SMEs that theoretically equates to a loss of up to 50,000 jobs.

The average cost of each fraud has been estimated at £35,000 and in addition to lost jobs, it could also impact on investing in training, equipment and further business development.

A robust cyber security system is essential

Criminals are using ever more sophisticated measures to scam businesses into parting with money.

Among the most worrying developments has been emails appearing to come from someone within the organisation, such as the CEO, instructing a member of staff to pay a bill or transfer money into a named account.  Or emails with attached invoice documents, which when opened give hackers access to the IT system.

It is important that businesses put in place measures to protect them against such scams.

They should include:

Staff training, this is key since staff access and online activity from work-based devices represent the greatest weakness in most online security systems.

Using strong passwords and a password policy to help staff follow security best practice. Perhaps consider also technology solutions to enforce your password policy, such as scheduled password resets.

Restricting staff access to only the data and services for which they are authorised and have been trained.

Installing security software, such as anti-spyware and anti-virus programs, to help detect and remove malicious code if it slips into the business network.

Using intrusion detectors to monitor system and network activity. If a detection system suspects a potential security breach, it can generate an alarm, such as an email alert, based upon the type of activity it has identified.

Finally, the business should ensure staff understand their role and any relevant policies and procedures, and provide them with regular cyber security awareness and training.

Do the Q1 insolvency figures suggest Brexit chickens coming home to roost?

Brexit chickensYet again, as in the last quarter of 2017, construction and retail were the top two sectors in the insolvency statistics for January to March 2018.

The first three months of 2018 were at their highest quarterly level since the same quarter in 2014, with a total of 4,462 companies entering insolvency, 3209 of them via Creditors’ Voluntary Liquidations (CVLs) accounting for 72% of all the quarter’s insolvencies.

Total insolvencies also represented a 26.2% increase on the same quarter in 2017 and an increase of 13% on the pre-Christmas October to December quarter.

Regardless of the excuses of the usual post-Christmas slump, and this year, the effects of the three-week weather event known as “Beast from the East”, it seems clear now that insolvency numbers are heading inexorably upwards as they were throughout 2017.

Equally clear, given the vast numbers of CVLs as a proportion of the total, it seems that company directors are no more optimistic about the future and are continuing to throw in the towel.

So, was “project fear” actually “project reality”?

In the aftermath of the June 2016 majority vote in the referendum to leave the EU, much scorn was heaped on the alleged scaremongering tactics of the Treasury and the then Chancellor of the Exchequer George Osborne for their warnings about the negative effects of Brexit on the UK economy.

While those supporting leaving the EU remain upbeat, the evidence is mounting that all is not well.

Consider the evidence.  Despite the improvements in global growth in the last two years the UK has dropped from being one of the top seven performers to the bottom and last week the ONS (Office for National Statistics) reported that UK growth for January to March had dropped to 0.1% from 0.4% in the previous three months.

The CBI interpreted this as the start of a prolonged economic slowdown and its survey of manufacturers, services and distribution companies led it to predict a near-standstill situation for the next three months.

In a pessimistic comment piece in Sunday’s Observer, the writer Will Hutton was of the opinion that the UK economy was heading for imminent recession, citing as examples the slumps in mortgage approvals (by 21%) and car manufacturing (by 13% for the domestic market and by 12% for export). These are significant examples given that the UK economy depends heavily on consumer spending and confidence, both of which have been in short supply for some time now.

While the pro-Brexit camp remain relentlessly upbeat about the UK’s economic future despite the continued opacity of the negotiation process and the goals, is it time to concede that the fears of those in favour of remaining in the EU are being realised and the Brexit chickens are coming home to roost?

Managers, what effects do your stress levels have on your team?

stress and managementStress is an inescapable part of life and work, and it is well recognised that the effects of stress can be both positive and negative.

Imagine what it must be like to work for Donald Trump who like all managers will have significant impact on stress levels based on how he deals with staff; “you’re fired”.

Psychologists call good stress “eu-stress” and bad stress “dis-stress”.

The effects of stress can have significant effects in the workplace and arguably can make, or break, a business.  To a large extent, this depends on how stress arises and how it is managed.

The average working week adds up to approximately 47 hours a week and over a lifetime this equates to 100,000-plus hours! So, if those hours are predominantly filled with negative stress, both employees and the business are likely to suffer.

Managers have a key role in promoting and controlling stress

While the manager may be under pressure to achieve challenging targets and therefore be stressed themselves, they need to be very honest and self-aware about how they handle both themselves and others to ensure positive, rather than negative results.

They need to recognise when their own stress levels are reaching the point where it is turning from good and motivating to bad and demotivating.  A good indicator of this is when it lasts too long or becomes too intense to be managed. The results can be high blood pressure, fatigue, depression, and anxiety.

If they put pressure on their team to meet results by shouting, swearing, threats and other negative behaviour, they may achieve results in the short-term but ultimately their behaviour will be counter-productive.

So, the first step for the manager in managing their own negative stress is recognising it and trying to moderate their own behaviour to manage it.  This may mean acknowledging their own limitations and getting help, even if only a listening ear, in order to strengthen their self-control.

Negative, or dis-stress happens when employees feel that the amount of effort they are putting in does not meet the rewards they receive. If this happens they are likely to become less motivated to put in effort and do their best.

However, the “reward” or incentive does not have to be the promise of more money.   In fact, research has found that the promise of extra cash, while welcome, is not often the prime motivator for workers to put in greater effort.

It can be as simple as a thank you for a job well done, or for putting in the extra effort that has allowed the team to achieve the desired target. Maybe treating the team to cream cakes at coffee break or taking five minutes out to talk to them about their non-work interests and activities and family.

The point is to convey that people are recognised as individuals and valued, no matter how challenging the circumstances may be.

The other aspect of managing stress is to ensure it isn’t constant, and in especially high-pressure environments to make sure that it is relieved every now and then. Ideally it should not be ‘taken home’.

The effective manager will not only be able to manage their own stress but also to manage the “right” level of stress that gets the best out of their team. Something that Donald Trump is clearly not doing.

 

With thanks to Ivan Throne https://darktriadman.com/2015/12/16/donald-trump-the-dark-triad-man/ for permission to use the picture.

How can UK manufacturers plan ahead given the current pre-Brexit uncertainty?

UK manuafacturer Port Talbot Steel worksIt has become fashionable in some quarters to downplay the importance of the UK’s manufacturing sector to our economy.

Yet the UK is the world’s eighth largest industrial nation, our manufacturing industry employs 2.6 million people and it contributes 11% of GVA (Gross Value Added as the measure of the value of goods and services produced in an area, industry or sector of an economy).

It accounts for 44% of total exports with SMEs doing particularly well representing 70% of business research and development (R&D) and providing 13% of business investment.

But no matter how innovative or agile, manufacturers still need a reasonable length of time to plan ahead as well as at least some degree of certainty.

Both of these seem to be in short supply at the moment.

What are the key challenges for UK manufacturers?

Manufacturing covers a wide range of products, from food to vehicles to machinery.

To keep their businesses healthy all manufacturers need to be aware of their competition, both at home and overseas.

A major concern is the control of cash flow, particularly costs, both payroll and raw materials or, if they are part of a supply chain, the costs of the components or ingredients manufacturers need to complete their part of the process.

In the run-up to leaving the EU, however, these issues have been far from straightforward.  Imported materials prices have risen because of the reduction in the value of £Sterling against other currencies, causing problems for the steel industry, for example.

Then there is the long-standing skills shortage, particularly for trained engineers, construction workers and even for low-skilled workers needed to pick and pack produce from farms, most of which have relied on EU workers. Already, we have seen the numbers of EU migrants reduced substantially over the uncertainty about their status post-Brexit. This has already threatened levels of manufacturing output.

While the Government would doubtless argue that this is in part being addressed by its Apprenticeship levy, the BCC (British Chambers of Commerce) has recently criticised the scheme’s implementation as unfit for purpose, noting that there has been a 24% drop in the numbers starting apprenticeships. In any case, it will take time before people are sufficiently well-skilled to be introduced into the workforce.

Equally, with the UK at near-full employment there is a question mark over whether there are even enough unskilled workers available.

It has been argued that adopting the latest technology and automation is the answer.  However, in some sectors, for a manufacturer to re-equip a factory needs considerable time for planning and to raise the finance, and again, the need for skilled people competent to run and maintain an automated production line. It is a big investment decision and one that understandably manufacturers are likely to be wary of in the current uncertainty.

Which brings us to the other dominant and vexed question of the moment and that is the as-yet undecided situation on tariffs, the customs union and the single market or completely free trade.

While remaining in the customs union with the EU after Brexit would protect exporters from tariffs it would also prevent them from reaching agreements with countries outside the EU. Completely free trade brings its own risks as to whether there is sufficient demand for UK products outside the EU. And then there is the potential loss of EU trade and most likely higher costs from tariffs.

Despite all these concerns, we are told that SMEs have been particularly successful in export markets over the last year or so. It is not, however, clear what impact this has had on overall volume.

Whether this will continue will depend heavily on the outcome of the negotiations over Brexit and the eventual agreements that are made.