ECB calls for more precision in EU-wide insolvency harmonisation

The ECB headquarters buildingThe ECB (European Central Bank) has published its opinions on the EC’s new directive aimed at harmonising practice in dealing with restructuring insolvent companies.

As we reported late last year the EC (European Council) announced changes to allow for what it calls “preventive restructuring”, particularly aimed at SMEs and at harmonising insolvency practice across the EU member states.

The aim of the proposals from the European Parliament and the EC was to help businesses to restructure in time, so that jobs can be saved and value preserved, and to support entrepreneurs whose businesses had failed to recover and try again.

In June this year, the ECB published what it called an opinion on the directive, after noting that it had not been consulted but was exercising its right to comment on “matters in its fields of competence.

The opinion welcomed what it saw as the main object of the proposed changes, to promote common standards and reduce barriers to the flow of capital across borders, but it called for more ambitious action in the efforts towards harmonisation.

It highlights what it considers the two important potential risks in insolvency proceedings: the failure to adequately balance the creditor-debtor relationship and risks and the need to protect and maximise value “for the benefit of all interested parties and the economy in general”.

It argues that “A failure to adequately balance the rights of creditors and debtors could lead to adverse and unintended consequences”.

One of these, it opines, is that the greater transparency and uniformity that would result from the proposals could foster distressed debt markets across the EU, where they are currently “more domestically focussed”. This, it says, would be a concern given current EU banks’ high levels of non-performing loans.

While supporting the use of formal and informal procedures in restructuring initiatives, the ECB would also like to see a code of best practice established to be adopted by all member states.

As an aid to greater clarity, the bank has suggested some amendments to the EC’s proposed wording.

Time to review outsourced services?

Jenga game getting the balance rightIt can be a false economy for SMEs to try to manage all aspects of their business in-house.

However, it is a good idea to regularly review the outsourced services being used and the partnerships or collaborations the SME has been involved in and the ebb in activity during the summer holiday season is a good opportunity to do so.

Typically, SME outsource their IT support, HR admin, book-keeping, payroll, PAYE and VAT and tax returns and many use virtual PAs for some or all of their administration. Some SMEs also outsource their manufacturing, distribution, sales and marketing.

What to consider when reviewing outsourced services

One of the main benefits of outsourcing can be that it ensures that essential back-office functions can be looked after by people who are up to date with legal and other requirements. Another is that the outsourced firms specialise in one aspect of your business so you should expect them to get the work right and do it on time.

When reviewing existing outsourcing arrangements there are several considerations and questions to be asked:

Skill availability in-house: employing qualified and experienced staff to carry out work related directly to the products or services the business offers is crucial to its success.  However, diverting them, or adding to their main work load by having them carry out other tasks may not be the best use of their time and expertise, which ideally needs to be focused on the main function for which they were employed.

Efficiency & time: people are rare rarely under-occupied in a SME, so asking them to multitask may end up making them less productive overall.

Costs: it may be tempting to think that costs can be reduced by doing tasks in-house, but again, it is a balancing act between reduced overheads and the benefits of specialist knowledge and expertise.  This is particularly important with services that are extremely technical, such as IT, or require extensive and up to date knowledge of regulations and legislation, whether it is accounting functions or marketing activities or dealing with employer’s responsibilities or Health and Safety matters.

The value of another perspective and in-depth knowledge can also bring huge benefits such as the accountant who takes a hands-on approach to supporting clients, rather than them being simply an information processor. They may have expertise culled from a wide variety of clients and, with an objective eye, can offer another perspective or suggest possibilities for improving profitability or taking a business forward.

Ultimately, when reviewing outsourced serviced there is a balance to be struck between cost, time and expertise, and the effects on a business’ reputation if standards slip by bringing tasks in-house to save money.

Is your accountant an information processor or an information interpreter?

piggy bank information interpreterThe right accountant can be a very valuable resource for the SME, but their real value depends on the services they offer.

Choosing an accountant needs to be done with some care since anyone can set up as an accountant without any qualifications whatsoever.

So, the first thing to do is to make sure that any you are considering are actually properly qualified.  There are two recognised bodies, the ACCA (Association of Chartered Certified Accountants) and the ICAEW (Institute of Chartered Accountants in England and Wales).

There is a third body whose members focus on bookkeeping rather than advice, the AAT (Association of Accounting Technicians).

Each has its own examination and qualification system and all three require annual membership renewal which includes the proviso that the applicant must show evidence of CPD (continual professional development) they have undertaken in the intervening year.

Decide what services you want from your accountant

At a basic level, the information processor is essentially a bookkeeper who will do no more than prepare your management and annual accounts and may advise you of your tax liability. Indeed, all too many SMEs only prepare annual accounts months after year end which provide little information to help make decisions about the future.

However, increasingly accountants are becoming proactive and offering a great deal more, much of it as valuable advice to SMEs.

They include reporting the management accounts on a regular basis in a format that provides insights such as project reports or profitability by client or by product category. They can also help with analysing alternative funding options and produce forecasts.

You may also be able to appoint them as an arbitrator on your behalf if there is a dispute with HMRC over payments or liabilities, similarly with VAT and PAYE returns.

Again, there is a qualification for accountants offering this service, the CTA (Chartered Tax Advisor). Accountants must be ACCA, ICAEW, or ATT qualified to take the CTA exams.

The additional benefits of the studying, qualifications and professional development, are that your chosen accountant will have the technical knowledge as well as experience from their client base. This can help them understand the needs of your business and provide the basis for giving advice on any problems they foresee or any opportunities there may be to develop and grow.

They will also be able to advise you on the financial implications of any business initiative you may be considering.

Despite the opportunity for accountants, not all of them take this approach as it involves taking the time and trouble to really understand your business. It also requires investment of time on your part as well as some cost for the accountant’s additional input.

So, do you want your accountant to be an information processor or an information interpreter? Remember it’s in their interests to help you grow because as you do, so will they.

SMEs have the agility to win customers where big businesses fail

The latest quarterly analysis of consumer complaints from Ofcom, the telecoms regulator, has BT at the top of the list for the most complained-about broadband provider. Others in the top ten for the first three months of 2017 included Virgin Media (2nd) Plusnet and EE (3rd and 4th), while Vodaphone was most complained about mobile company for the second quarter running.

Yet, nothing seems to change, although it is hardly likely that such large companies either welcome the adverse reactions or fail to try to improve.

The explanation may lie in their very size but more likely it will be down to some level of complacency and a lack of customer focus.  Big corporations can be very complex structures with strictly laid-out chains of command and processes but they don’t like change, especially when they are booking profits.

Like an ocean-going super tanker that needs something like a mile to alter course to avoid a collision, their size, their segmentation and their systems and processes make it much harder to change their work practices sufficiently to make a visible difference.

If action has to be determined at senior level, passed down a chain of command to the front line and communicated as a new message to customer services it will take time for any changes to be effective or to be perceived by customers.

Agility offers flexible SMEs an advantage over large ones

man demonstrating yoga agilityThis presents huge opportunities for SMEs.

By their nature SMEs tend to be less hierarchical and the likelihood is that there is more direct communication between CEOs, managers and front-line team. Initiatives and new ideas can be rapidly implemented, and quickly abandoned if they aren’t working.

The SMEs’ strength lies in their ability to respond quickly if a problem arises.  If a change in a process needs to be addressed, providing they are nimble enough, they can implement change promptly and communicate it to everyone in the business.

Arguably, SMEs are always looking to improve their products or services and therefore open to new ideas without being hamstrung by a rigid hierarchy or processes.

This gives them an advantage in trying to win new customers, when their bigger competitors repeatedly fail to deliver.

An uncertain future for the new and used car sectors?

car for saleFrom time to time K2 looks at the health and performance of specific sectors of the UK economy and this time it is the turn of the new and used car markets.

Data published by the Society of Motor Manufacturers & Traders (SMMT) tracks the monthly patterns of both production and sales in this sector and gives some sense of the overall picture.

After a record start to the year manufacturers reduced production by -9.7% in May 2017 compared with May 2016, when output increased by +26%. The SMMT says that exports are still the main driver of demand in the new car sector with almost 80% of all cars made in the UK going to Europe.

Also in May production for the home market fell -12.8% in May, down -8.1% on the year to date. Today’s June production figures show a continuation in the decline, down by 13.7% compared with a year ago.

Similarly, a three-month reduction in UK sales continued into June, when sales fell by -4.8%, following declines of -8.5% in May and -19.8% in April.

Meanwhile sales of used cars continued to rise throughout the first quarter of the year, up by +3.4% on the same quarter in 2016.

What is going on behind the new and used car figures?

The SMMT figures can be put in the context of Markit/PMI’s overall monthly manufacturing trends, where rates of increased production have been slowing throughout the second quarter (April to June).

It seems that the Brexit factor is beginning to weigh heavily on manufacturers, such that while the fall in the value of £Sterling since the 23 June 2016 Referendum decision to leave the EU has helped exporters, the increase in import costs for materials is having the opposite effect on domestic sales. These costs are now being passed on to domestic consumers.

Also, with the leave negotiations now under way, amid considerable uncertainty about the direction they will take and the outcome, it would not be surprising if producers held back from significant investment for growth.

Particularly for the consumer-dependent sectors of the UK market it is likely that wage growth stagnation, increased inflation and concerns being expressed by the Bank of England, among others, about high and increasing levels of consumer credit debt are also likely to contribute to a decline in new sales.

The rise in sales of used cars would bear this analysis out.

However, another factor that may have accounted for the significant dip in UK sales may be the April 2017 changes to road tax, which imposed new charges on all cars registered from 1 April 2017, and removed road tax exemption from hybrid vehicles, leaving only all-electric vehicles zero rated for road tax.

Finally, calls for the Financial Conduct Authority (FCA) to investigate the ease with which credit is being made available to UK new car purchases may well be adding to the dampening effect on consumer confidence in committing to a purchase.

Leaders with self-awareness are more effective

great leaders Nelson MandelaAnalyses of the characteristics of a good business leader have tended to focus on qualities like toughness, determination, intelligence and vision.

However, there has been a growing body of thought, first pioneered by American psychologist and author Daniel Coleman in 1995, that the truly great business leader is one who also possesses emotional intelligence.

Emotional intelligence is a combination of empathy, social skill, self-awareness and self-discipline, the so-called soft skills that distinguish the most effective business leaders from the merely good.

It should be no surprise that the business leader with self-awareness is the one most people would like to work for and the one who is generally the most productive. It is obvious that people will go further and work harder for someone who, they feel, listens to them, respects them and shows that their contributions are valued.

Developing self-awareness requires honesty

Using a SWOT analysis of yourself can be helpful as a way to identify which soft skills you have and which may be lacking or need more work.

While you may find that one of your strengths is to be a good communicator, for example, and therefore able to get your message across, are you also a good listener?  This could be a weakness that might need further developing.

How about your ability to negotiate? Managing conflict and producing a successful resolution is a key skill for effective leadership.

It may be that some of your behaviour goes back to incidents or past experiences, even from childhood, that have resulted in self-protective behaviours that you may not even be aware of. It can be useful to think over significant incidents in the context of the SWOT analysis and see whether they represent weaknesses or threats to you that have resulted in blind spots or destructive emotions.

While some of this analysis may be painful, and all of it requires you to be honest with yourself, once you have identified your weaknesses and threats, practise will help you to develop those areas where you feel you are lacking.

If you want to be a truly effective leader cultivating, refining and developing your self-awareness to improve your communication, management and motivational skills will be time well spent.

Remember, she, or he, who shouts loudest or is the most ruthless doesn’t ultimately get the best results.

The importance of a business review

carrying out a business reviewAt the very least a business review should be carried out once a year although sometimes it should be done more frequently, perhaps quarterly.

This is especially true when, as currently, the economic and business climates are so uncertain with a number of global and local situations in flux, especially in the current climate with inflation creeping up and the UK’s trading relationship with the EU being so uncertain.

At the same time caution should always be exercised in reading the signs and drawing conclusions from regular reviews, since the information gleaned may be subject to short term fluctuations rather than identifying the longer-term trends that might influence a change of strategy.

In addition to influencing strategy, a business review is a useful tool for assessing performance and making improvements to processes, systems or marketing as needed or identifying opportunities that may have been missed.

What should be covered in a business review?

The end goal of a review is to establish whether a business is performing satisfactorily or whether adjustments or something more radical is needed. Essentially, it is the business equivalent of the school student report for parents.

The review should bear in mind the current business plan and any previous reviews or analysis such as the last SWOT analysis (Strengths, Weaknesses, Opportunities and Threats).

It should review the goals that were set for the year and there should be some simple mechanism for scoring the results. It may be as simple as checking of goals have been achieved, exceeded or if there is a shortfall.

using a magnifying glass to look at detailA thorough review will look in detail at all aspects of the business, not just its financial position but also its systems and processes, employee performance, and sales and marketing performance in relation to defined goals that have been set for the year.

Indeed, surveying or simply speaking with customers to get their feedback and in particular their input on how any complaints were dealt with are also useful.

A review can also benefit from the input of staff. One useful way of achieving this is to carry out staff appraisals at the same time.

A key aspect of any review is to consider future opportunities and potential goals, in addition to those currently being pursued. This can influence research that might be carried out so it is available for incorporating into any future plans.

It is often said that no business can survive if it stands still, so a regular business review is an essential tool for setting goals and strategies for its future survival and growth

Future business strategy – be as bold as you like

striking a mtachJuly and August can be a time for reflection and for mulling over the future business strategy ready for testing, refinement and implementation.

It is a time for a business owner or CEO to explore their vision for the company’s direction.  It is a time to unfetter the imagination.

The chief executive of Google’s parent company, Alphabet, has been quoted as saying: “If you’re not doing some things that are crazy, then you’re doing the wrong things.”

He coined the term Moonshots to describe possibly risky concepts like the self-driving car, that have the potential to be highly lucrative in the future.

At this stage exploring future strategy is about being as bold as possible, ruling out nothing.

Refining the vision into a workable future business strategy

The strategy can be an innovative way of doing things rather than a completely new product.

There are some important steps to turning a bold vision into a workable strategy and they involve testing the hypothesis.

The question to ask is whether it is a pragmatic concept that can be made to work and in conjunction with this is it something customers or clients would actually want.  Even the simplest ideas may never have been conceived in quite this way before.

At this stage, it may be helpful to involve employees, asking for their ideas both in terms of other potential new strategies or products and in terms of how they can be made a reality.  After all, they are closer to the actual process of making things work and hopefully to the likely customer reactions to the idea.

Involving employees from the start may throw up other, equally innovative ideas you may not have thought of.  It also gives them a meaningful stake in the business by making them feel valued and recognising their expertise.  Google, for example, is famous for allowing employees a day a week to play around with ideas rather than focusing on their usual tasks.

Many business leaders are reluctant to revel new concepts to a wider audience for fear they will be “stolen” by rivals, but there really is no substitute for the next step of getting out and talking to clients and customers to test the water.

If the feedback is positive, or even enthusiastic, the next step is to think like a designer and produce a prototype of the idea or new product then run a trial with selected end users.

With careful testing and planning even the wildest of bold ideas can be turned into a reality that can take a business in a new, but possibly related, direction as part of continued growth.

There is a story attributed to Swan Vesta, that after years of making boxes of matches with strike strips on both sides, they removed a strike strip from one side. This simple idea by one of their staff saved them a fortune.

The business summer party – a social occasion with a purpose

say thank you to customersBusiness activity can slow down in the run-up to the summer holiday season, which makes it a good time to host a summer party for clients and suppliers or maybe more importantly your staff.

There are some considerations when hosting a business party.

Obviously, the first is the budget.  It is not necessary to break the bank.  For example, are there local small businesses that specialise in catering and would welcome the opportunity and exposure that comes from supplying snacks, finger food, canapes and drinks for the event? Another advantage of this approach is that it frees the hosts to interact with guests.

Are your business premises able to cope with an influx of visitors?  One particularly well-known company with a large office in Suffolk is fortunate to have not only an award-winning building in Ipswich, but a roof garden there for hosting its summer party.  But with a bit of ingenuity smaller businesses may be able to create a welcoming space outdoors for catering around its entrance from which you can take guests on tours around the building or factory.

The business summer party – a chance to say thank you

Hosting a summer party at the business premises can be a great way to say thank you, but a business summer party has other benefits.

A successful event can raise your business profile. For example, the party can also be used as an occasion to raise money for a local charity via raffles, tombolas, or perhaps a chance to win a particular product or service.

If, for example, the business has added new services or products, or has upgraded its equipment, the summer party can be useful for informing guests of new possibilities that may benefit them.  It is an excellent way of marketing the business and demonstrating that it is both agile, innovative and more importantly has confidence in its future.

It is also an opportunity for people to network and make new connections. New clients or suppliers may not have met each other and the relaxed, but focused, setting of a business summer party is a great way for them to make connections and perhaps inspire synergies and collaborations that they might not otherwise have come across.

Despite any reservations about clients meeting other clients or them meeting suppliers, they will see you as key in any relationships they form.

If the business premises cannot accommodate a party, you might be more adventurous than a meal or buffet at a local venue, consider a barbecue in the park, drinks at a local beer or music festival, or perhaps an activity day such as a game of cricket or paintballing.

You are only limited by your imagination and your guests will appreciate the effort you put in.

Big data, statistics and decision-making

big dataBusinesses should always be aware that statistics can be manipulated and that analysis of so-called big data sets is a complex process that produce highly variable results.

Big data is defined as enormous amounts of complex information that can only really be processed using extremely powerful software using multiple servers.

While it can, over time, reveal trends, it is also subject to variability as data flows can be highly inconsistent with periodic peaks and troughs.

Interpreting the data

Then, there is the problem, as with all statistics, of drawing useful conclusions that are not skewed by what is selected and what people want the data to show.

A good example is the acceptance that a majority of the UK, 52%, voted in favour of Brexit. Actually, 52% of those people who voted were pro Brexit equating to roughly a third of the population.

There is no doubt that the vast amount of information available from big data collection has the potential to offer businesses power full insights on behavioural trends that can help them to make decisions.

However, this is only helpful at a broad level, such as driving general policy.

Business decision-making also needs to be underpinned by a much more granular analysis and understanding of its sector and its customers’ behaviour and desires.

Here, such factors as location, average income in that location, attitudes, personal tastes and preferences, are likely to play a significant part and are crucially important in determining how to pitch the marketing or sales messages at a particular target audience.

For example, US consumers appear to have no problem with repetitive, lengthy and “shouted” messages from businesses trying to market their products or services. In the UK, however, such tactics are seen as intrusive or even bullying and likely to have a negative effect.

Successfully integrating the broad brush of big data trends with the more granular and specific data collection is the key to business success, particularly for SMEs.