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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

The pros and cons of an infrastructure boost post pandemic

infrastructure boostThe UK Prime Minister has signalled a massive infrastructure boost to help the country’s economy to recover post pandemic.
The details and plans for allocation of money are likely to be fleshed out in the autumn but in a speech at the end of last month he indicated that more than £5 billion would be spent on infrastructure projects, many of them in northern and central England as part of his pledge to tackle the imbalance between London and the South and the more deprived regions.
The projects will include spending on hospitals, roads, railways and schools, including what are called “shovel-ready” projects to help businesses and individuals to recover and address the expected mass unemployment.
Business directors should be planning now to take advantage of the proposals, especially those in the construction and tech sectors that are likely to be recipients of the government money.
I know of at least one company, supplying a unique range of thermally efficient, environmentally-friendly products to house builders, which is already well-placed to grow post-Coronavirus to supply its Passivhaus compliant insulated foundation and walling systems.
The government initiative does however highlight some issues that are associated with ambitious plans that are announced without thinking them through.
In his speech, the Prime Minister promised to simplify the planning system and regulations to speed up the process.
Unless some thought and care is put into how the infrastructure boost is carried out there is a risk that the initiative will undo what little progress has been made to reaching promised environmental targets.
For example, while improving the road infrastructure is needed in some parts of the country, it is likely to increase the numbers of vehicles on the roads and in turn will contribute to an increase in CO2 emissions and global warming.
In fairness, the PM did also promise to “build back greener and build a more beautiful Britain” with a commitment to plant approximately 75,000 acres of trees every year by 2025. He does like his promises.
It may also be the case that ambitious infrastructure plans fail to meet the objectives of creating a large numbers of jobs. It is likely that businesses will be looking to find ways of reducing their dependence on labour investing in and more automation and technology-driven ways of working.
These are points highlighted by the economist Joseph Stiglitz who argues that there are infrastructure spending risks but also acknowledges that “well-directed public spending, particularly investments in the green transition, can be timely, labour-intensive (helping to resolve the problem of soaring unemployment) and highly stimulative”.
It is clear, however, that directors will need to find innovative ways of delivering the proposed infrastructure while at the same time also promoting their “green” credentials.
#infrastructureboost #economicrecovery #construction #techinnovation

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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

Is commercial property investment no longer a safe haven?

commercial property a safe investment?Commercial property pre-pandemic was considered one of the more secure options for money by investors, particularly by pension fund managers.
But the consequences of changing consumer behaviour, the aftermath of the pandemic lockdown and the retail High Street revolution would suggest a pause for thought and perhaps a rethink.
While the most obvious sector of business related property to be in trouble is retail it may prove not to be the only one.
Retail has been hit by a significant move to online shopping that has been building for several years, but it is also beset by what has been called an archaic rental collection system, whereby rents are payable quarterly.
The most recent Quarter Day was on 24th June (Midsummer Day) and it has been estimated that in the region of just 14% of retailers were paid their rent that day.
It was no surprise, therefore that Intu, owner of some of the UK’s biggest shopping centres, such as Lakeside and Manchester’s Trafford Centre called in the administrators the day after the Quarter Day.
Intu had been struggling even before the lockdown as a result of a list of store closures announced throughout the year so far, including well known names such as Warehouse, Oasis, Monsoon, Quiz, Pret A Manger and others. It has been estimated that in excess of 50,000 jobs have been lost in the sector so far.
The lifting of lockdown in retail is not likely to help to restore the High Street’s fortunes given the restrictions and limitations shops have had to impose to ensure customers are safe from infection.
But commercial property is not only about retail.
Lockdown meant that many businesses had to close their offices and again, they have only been able to re-open amid considerably changed circumstances for safety reasons.
Not only this, but many previously office-based businesses have discovered that their employees can work efficiently and often more productively from home and have therefore they have been reviewing their business models to enable employees to carry on working remotely.
Where they have a need for some employees to be in the office at least some of the time, they have introduced rigorous sanitisation measures, abandoned such practices as hot desking, installed safety screens at more widely-spaced desks and introduced flexible working so that employees no longer have to arrive or leave at the same time. Much of this is aimed at helping staff avoid travelling on crowded public transport but it is  also a recognition that flexibility is benefitting both employers and employees.
The trust issue assumed by management has also largely been allayed; indeed staff have tended to work harder at home than they did in the office with few companies experiencing any loss in productivity. I would argue that requiring staff to work in the office was never a trust issue but more one related to the egos, status and security of managers who need the reassurance of having staff on hand; nothing to do with employees’ ability to work.
Inevitably, the successful experiment will mean that many businesses no longer require such large commercial premises and will terminate leases as soon as possible to downsize the space needed.
Indeed I know of two large professional firms who were about to move into larger offices in the City when the lockdown hit, fortunately for them they hadn’t signed the lease and have since decided then no longer need larger premises since everyone has worked perfectly well from home.
Furthermore less space will be needed as the recovery to pre-lockdown levels is looking unlikely.
Earlier this year McKinsey produced a paper full of advice for private equity and investors in commercial property about the radical changes they would need to consider for the future.
“Many will centralize cash management to focus on efficiency and change how they make portfolio and capital expenditure decisions. Some players will feel an even greater sense of urgency than before to digitize and provide a better—and more distinctive—tenant and customer experience.”
And this was just the start!
It went on to suggest that commercial property owners, especially in B2B environments, will have to change their behaviour and “engage directly with tenants. They should follow up quickly on the actions they have discussed with tenants. Not only are such changes the right thing to do—they’re also good business: tenants and users of space will remember the effort, and the trust built throughout the crisis will go a long way toward protecting relationships and value.”
However, the report does suggest there will be some commercial property niches that could benefit from the pandemic upheaval, such as commercial storage, and in time there may be others.
There is no doubt that the nature of the commercial property market is changing, but it is perhaps premature to predict its demise.
#commercialproperty #safeinvestmnent #propertymanagement #commerciallease
 

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Business triage involves allocating limited resources to achieving realistic outcomes

Business triage prioritises the most urgentBusiness triage refers to the process of prioritising work in a crisis when there is more work to do than resources available to do it. The aim of triage is to maximise the outcome and minimise the damage by being realistic about what can be achieved with limited resources.
It is more commonly understood in the medical context, usually in response to prioritising treatment of casualties following disasters or other emergencies.
According to Investopedia, in a business context, “Triage helps companies by enabling them to attend to emergencies quickly, but it also poses risks, as it tends to involve the elimination of certain time-consuming steps that are normally part of the workflow”.
While business triage is normally associated with decision-making and action a crisis, its principles can also be applied to all forms of transformational change.
In my last blog I advised directors that now is a good time to conduct a strategic review of businesses in order to prepare for a resumption of activity as the Coronavirus lockdown eases.
The review may well have revealed processes, and products or services that are no longer viable as well as potential future opportunities and you may be considering re-organising your business to reflect this.
For some of you this may be urgent and you will be embarking on the business triage process to determine the changes you need to make to reduce overheads, perhaps your workforce, and to re-organise the whole business process.
The warning about the risks involved is therefore timely.
If cash flow has plummeted and staff have been furloughed your business may have been relying on reserves, CJRS (Coronavirus Job Retention Scheme) and CBILS (Coronavirus Business Interruption Loan Scheme), but reserves may be running down and furlough schemes are being phased out. And, sooner or later the loans will have to be repaid.
These are all important considerations for business triage as you prioritise cash flow by reducing overheads, perhaps by make some staff redundant much of which may be necessary to survive. Once survival is guaranteed then you can consider future plans but for the moment it is important to be mindful of the costs involved, particularly, but not only, of redundancy.
The aim of the business triage process is to emerge as a leaner and fitter organisation, more resilient and more efficient, with processes targeted on the most profitable parts of your business.
Many directors have some tough decisions to make and these will require judgement about priorities and affordability such that they may need to bring in others with the experience of making such decisions.
Both a failure to make decisions early and a failure to make the right decisions may mean that your business won’t survive.
#Triage #Businesstriage #Decisionmaking

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

What lessons can be learned from the 1930s New Deal for post pandemic recovery?

New Deal and unamploymentThe New Deal was a series of measures introduced by President Franklin D Roosevelt to help the US economy recover from the Wall Street Crash and subsequent Great Depression.
It introduced a string of measures to better protect workers from ill-treatment and the consequences of unemployment and to better regulate banks and financial institutions.
As noted in the Encyclopaedia Britannica “Opposed to the traditional American political philosophy of laissez-faire, the New Deal generally embraced the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests”.
Perhaps one of the best-known Acts was the Glass–Steagall Act of 1933, which separated commercial from investment banking.
But the New Deal measures were also designed to stimulate and revive economic activity in agriculture and business, founded on the economic theory, as propounded by the UK economist John Maynard Keynes, that massive Government spending should be used to promote recovery and that spending cutbacks only hurt the economy.
Over the 20th Century the economic theory pendulum has swing back and forth between government regulation and a market driven laissez-faire economy with the later particularly being adopted by Margaret Thatcher.
The economic response to the Coronavirus pandemic and its consequences have opened the taps to flood cash into the market in a way that even Keynes would be impressed. Chancellor Rishi Sunak’s initiatives to protect businesses, employees and other vulnerable groups are similar to the measures introduced in the early days of the New Deal.
But as lockdown measures are eased what other measures might the Chancellor adopt to stimulate the economy?
Similar to that adopted in the 1930s, the Government is considering a spending spree on what are called “shovel-ready” projects, particularly the construction of infrastructure (roads, railways, internet, schools, hospitals and other projects) that will get some people back to work quickly.
Other ideas used then and being considered now are how to get consumers to resume spending, although this should be more than just re-opening retail, leisure and hospitality businesses.
With so many people losing their jobs or worried about their economic future, there is a real concern that consumers won’t spend. Perhaps despite other short-term initiatives that were not used in the 1930s such as a reduction in VAT (Value Added Tax) on consumer products, a reduction in NI (National Insurance) contributions for employers and employees, and training people for the future.
For businesses, particularly, some reduction in Business Rates, or even a revamp which has long been called for, and more flexible repayment of the Coronavirus loans (CBILS) may help but the landscape has changed and it would appear unlikely that we shall return to a pre-Coronavirus level of business. None the least due to the number of redundancies that are coming, and perhaps just as bad, the likely prospect that the purchasing power of fiat currencies will reduce significantly despite any artificial manipulation of inflation data.
While it is often said that a recession can be the best time to start a new business, as companies ranging from General Motors, Burger King, CNN, Uber and Airbnb did, it is arguable that the post-pandemic economic damage will be so severe that more even more radical New Deal-type of measures will be needed.

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Business Development & Marketing Finance General Turnaround

Tech offers growth opportunities post lockdown

groth opportunities post pandemicIt is likely that there will be many growth opportunities for companies to embrace the use of technology after the Coronavirus lockdown.
Many organisations and businesses have had to switch to a remote way of continuing to provide their goods and services and this has affected everything from medical consultations to teaching, even more online shopping and whole offices now remote working.
Having discovered that it is possible to function in this way it is likely that many will carry on doing so when restrictions are eased and this will provide growth opportunities for tech companies.
Among the beneficiaries already have been providers of online tools including conferencing facilities, such as Zoom, Microsoft Teams and Skype, productivity and project management tools like Asana and Trello and online collaborative and co-creation tools like Miro and MURAL.
But for all their benefits there are also caveats in terms of speed and reliability of broadband, security and protection from intrusion or hacking.
Particularly in the area of providing public services such as health care or education there are also concerns about democracy and the uses to which authorities could put all the data that is gathered, as the writer and activist Naomi Klein has pointed out in a recent article
Security is also likely to be an issue for businesses, not only regarding online financial transactions but also in building resilience into their supply chains.
Ernst and Young has identified growth opportunities in a recent report that also advises directors on how to address some of the potential concerns.
It identifies opportunities for companies to embrace technology:

  • New and more efficient ways of working and living means growth opportunities for companies including the tech companies that provide improved and more secure infrastructure for customers;
  • Retrofitting by design for those organisations that have adapted during the pandemic but plan to continue using their new working processes in the future;
  • Reimagining the seemingly impossible, such as the provision of robotic support to the healthcare sector.

But for the most innovative companies there are likely to be growth opportunities for updating business processes in some instances in products using technology, some of which have yet to be imagined.
The EY advice to directors of all businesses when planning the way ahead is:

  • Challenge all legacy technology, frameworks, infrastructure and how things have been done in the past;
  • Encourage new ways of technology-driven work to drive flexibility, efficiency and productivity;
  • Invest in both personal and business research and development, innovation and learning about technology;
  • Hire people with technology skills, including software engineers, developers and data scientists;
  • Grow the organization’s ecosystem and establish alliances with innovative companies, entrepreneurs and start-ups;
  • Innovate and automate now for the future.

All of the above should provide growth opportunities for imaginative companies in the years ahead.
 

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

Directors should plan for innovative UK manufacturing to revive their businesses post-Coronavirus

UK manufacturing innovation UK manufacturing was in dire straits even at the onset of the Coronavirus lockdown, with the CBI (Confederation of British Industry) reporting output dropping at its fastest pace since 1975 in the first quarter of 2020.
As it progressed the pandemic and lockdown revealed many weaknesses in the global supply chain, most notably in the availability of PPE (Personal Protective Equipment) for frontline health and care workers.
However, it is often said that in disaster there are also opportunities and many businesses demonstrated their agility in switching their usual production to manufacturing both PPE and sanitising equipment, for example.
But, as attitudes change, so the opportunities for innovation increase and it is a good time for directors to start planning strategies for not only producing essential supply chain elements within the UK but also for devising new products to fit the new agendas.
The UK Government has announced two initiatives aimed to protect UK business and promote innovation, Project Defend and Project Birch.
Project Defend aims to identify and protect vulnerabilities in business supply chains, with project leader Liz Truss recently describing three aims: reducing the use of suppliers from countries seen as “unreliable partners”; encouraging UK manufacturing; and, stockpiling key items such as medicines and components.
Project Birch is a short term initiative whereby the Government will “temporarily guarantee business-to-business transactions currently supported by Trade Credit Insurance, ensuring the majority of insurance coverage will be maintained across the market” potentially until the end of the year.
Meanwhile support for a recovery plan with projects that support the environment has been given added impetus with a letter to the Government from 200 businesses urging it, among other things, to drive investment in low carbon innovation, infrastructure and those industries that support sectors covering the environment, increase job creation and recovery.
All this should encourage UK manufacturers to think in terms of innovation rather than striving to recover their existing operations.
A report by McKinsey in 2019 in the context of post-Brexit UK business and supply chains identifies several key issues directors should consider when planning their strategy for the future. Their findings are relevant in the current post-Coronavirus recovery context.
The key issues for directors, it says, will be to: redefine their sourcing strategy; revisit their footprint; review inventory build-up; and, crucially adjust their product portfolio to exploit their capabilities and experience.
I know of at least one company, supplying a unique range of insulated, environmentally-friendly products to the construction industry, which is already well-placed to grow post-Coronavirus as the Government seeks to stimulate the economy, jobs and housebuilding. Build Homes Better proposes to use its technologically advanced products to build environmentally and energy efficient housing based on its rapid building system. Check them out at https://buildhomesbetter.co.uk/
The time has never been better for a revival in UK manufacturing with innovative solutions for both new products, developing a greener economy and for strengthening the in-country supply chain.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

The latest insolvency statistics for the first quarter of 2020 don’t tell the whole story

insolvency statistics not the whole storyAstonishingly given the news coverage of a financial fallout due to the Coronavirus pandemic, the latest insolvency statistics for Q1 January to March 2020, show a decrease both when compared to the previous quarter and to the same quarter in 2019.
The figures, published by the Insolvency Service yesterday, showed a total of 3,883 company insolvencies with the majority again being in CVLs (Company Voluntary Liquidations).
This was a decrease of 10% compared with the last quarter of 2019, October to December, and of 6% when compared to January to March quarter of 2019.
Construction continued to have the highest number of insolvencies, followed by the wholesale and retail trade and accommodation and food services.
While these insolvency statistics cover the period before the lockdown due to the Coronavirus pandemic was imposed a drop in insolvencies is still surprising given that economies in the UK and EU had been slowing in previous months.
There is more clarity, however, from the latest Begbies Traynor Red Flag alert figures published on April 17.
They reported their highest-ever numbers of businesses in significant distress at 509,000 with the impact of the lockdown showing 15,000 more businesses in significant distress (3%) compared with Q4 2019. The vast majority of these, they found, were SMEs with under 250 employees.
There is even more concern in the Red Flag figures for businesses in critical distress, which Begbies Traynor regards as a precursor to falling into insolvency. They reported a 10% increase in the last quarter alone, although, as they note, “creditors have been held back from taking court action due to the lockdown”.
The most notable increases, they report, are a 37% increase in bars and restaurants, 21% increase in real estate and property, 11% increase in construction and 8% increase in both general retail and manufacturing.
All this is despite the various financial support measures of grants and loans announced by the Chancellor who has sought to help businesses survive the pandemic.
Having said that, loans need to be repaid and many are concerned about the future prospects for businesses and for some industries that may take some time before they return to normal, not least the Banks who understandably might be reluctant to lend to those who are unlikely to repay their loan. This might explain the numbers of businesses that have been turned down.
In the middle of an unprecedented situation like the current pandemic it is difficult to draw conclusions from trends or make meaningful assumptions about the future number of insolvencies but there is no doubt they will rise significantly.
Historically the rise has been an indicator of the country coming out of a recession although most recessions have been ‘V’ shaped where some are predicting a ‘U’ or even an ‘L’.
Clearly much will depend on for how long the lockdown continues and we should prepare for many companies, particularly those relying on travel, events, hospitality and an already-struggling High Street, to disappear altogether as Warehouse and Oasis have most recently done.
Much will also depend on consumer confidence and spending power – and how many people have lost their jobs but clearly economic and business recovery will be prolonged and painful.
 

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General Turnaround

To Pay or Not to Pay Quarter Day Rent & Business Rates – the latest

Quarter Day RentAs if the pressure and worries SMEs are facing due to the Coronavirus pandemic were not enough, yesterday (Wednesday) was when Quarter Day Rent was due to be paid.
For many, it was also a payment date for business rates although the government has suspended these for a year.
While SMEs may be eligible for suspending the payment of business rates as announced by the Chancellor in his first set of measures to help businesses survive the pandemic, little had so far been said about rent.
However, yesterday, the Government published details of three months’ protection for businesses from eviction for failure to pay rent. While is included in the emergency powers legislation that is due to be given Royal Assent today but we are still awaiting confirmation. There more details here.
Some businesses had already declared their intention to miss paying their Quarter Day Rent, like, for example Burger King, whose CEO Alasdair Murdoch announced on Tuesday that the company would not be paying the rent due on its UK restaurants this week.
According to the BBC, it seems that “Banks have been told [by the government] to be supportive as long as landlords act responsibly.”
It also reported that the government has said shops will not forfeit leases if they do not pay but will have to pay arrears in the future.
This may be the case, but many smaller SMEs have been unsure about what they are supposed to do given the latest set of restrictions enforcing the closure of non-essential businesses and the virtual lockdown of the population. Presumably more details will emerge once the emergency powers legislation has been published.
For many withholding rent may be necessary but there are consequences and you should speak with your landlord since the pain needs to be shared between both of you if you are both to survive. If however you are being pressurised by your landlord, there are a number of surveyors who specialise in negotiating rent reductions. It is wort remembering that your landlord won’t be finding a new tenant in the near future.
Meanwhile, the suspension of business rates is helpful as will be the grants to smaller SMEs.
On top of this bank branches are closing, there are two hour waits on hold in telephone queues and most systems seem to be overloaded.
It is admittedly a massive task to roll out so many measures to help and support SMEs but if you are a business worrying about protecting its future it is very hard to be told to be patient.
To provide more information about business rates and grants, I am maintaining an update on the support available for SMEs in my guide at onlineturnaroundguru.com.
At the current moment on business rates this is the situation:
A one-off grant of £10,000 is available to eligible businesses to help meet their ongoing business costs and applies to those businesses that occupy property that is eligible for small business rate relief or rural rate relief.
There will be cash grants to retail, hospitality and leisure businesses, based on the rateable value of your business property. Those with a rateable value of under £15,000 will receive a grant of £10,000. Those with a rateable value of between £15,001 and £51,000 will receive a grant of £25,000.
All retail, hospitality and leisure businesses in England including covers shops, restaurants, cafes, drinking establishments, cinemas and live music venues and premises used for assembly and leisure. It also covers hotels, guest & boarding houses and self-catering accommodation. Will be given a one-year business rate holiday.
Administering all these will be the responsibility of your local authority and while you do not need to do anything to claim them it may be wise to register your business as paying by direct debit so that your bank details are registered with the local authority  and you should keep an eye on the situation with your relevant authority.
Please be assured that as more details on the various Government measures to support businesses emerge or if anything changes I will update the information as soon as possible.
For more business help please go to onlineturnaroundguru.com.
Above all, if you need help and support I am here for you.
 

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Accounting & Bookkeeping Cash Flow & Forecasting Finance Turnaround

Key Indicator: is the global supply chain too vulnerable to shocks?

global supply chainFor years, businesses have seen the global supply chain as a means of keeping down costs through sourcing goods and services from low-wage countries and importing them often from across the globe.
This may work as a business model for manufacturers seeking to keep their prices as low as possible, and for retailers’ cash management where payment terms and just in time delivery often meant only having to pay for goods after they have been sold. Indeed, stock ties up cash in inventory and storage as well as incurring the cost of warehousing, storage and administering stock, the less stock needed then the less cash needed.
But what happens if events cause a disruption to the smooth flow of the global supply chain causing shortages of finished goods or the essential elements for their production?
The current Coronavirus outbreak that originated in China and is now spreading across the globe provides the perfect illustration of the knock-on effects of such disruption.
According to an Economist article this week, by using a just in time model “multinationals have left themselves dangerously exposed to supply-chain risk owing to strategies designed to bring down their costs”.
Furthermore, it argues that in the last 20 or so years, large multinationals have become much more reliant on China. “China now accounts for 16% of global GDP, up from 4% back then. Its share of all exports in textiles and apparel is now 40% of the global total. It generates 26% of the world’s furniture exports.”
Chinese manufacturing activity fell to 35.7 from 50 in January, according to the PMI index where above 50 is a measure of anticipated growth and below is decline.
Among the industries significantly hit by China’s containment efforts, from isolating regions of the country to closing down factories, have been the electronics, car and clothing industries but they are not likely to be the only ones.
Companies that have already reported significant negative effects have included Apple, Diageo, Jaguar Land Rover and Volkswagen. But the impact is not just on manufacturing but also is on services with BA owner IAG and EasyJet forecasting significant reductions in bookings and cancelling flights.
The reduction in manufacturing output will also hit freight with both shipping and airfreight experiencing lower volumes that in turn impact oil prices that have fallen significantly to below $50 a barrel for the first time since the summer of 2017, according to an article in the Guardian.
Efforts to restrict the movement of people have already caused the cancellation of the Motor Show in Geneva, the Mobile World Congress in Barcelona and MIPIM, the annual real estate jamboree in Cannes.
All this has worried investors with stock markets plummeting around the world, in the case of the FTSE100, down 13% by the end of last week – a decline only last seen during the Financial Crisis of 2008.
Is it time to rethink business’ reliance on the global supply chain?
The current situation with Coronavirus illustrates the vulnerabilities in an over-reliance on the global supply chain and particularly the disproportionate sourcing of inventory from East Asia and China.
However, there are other potential sources of disruption to the supply chain. They include the ongoing tariff wars between China and USA, extreme weather events such as the 2011 tsunami in Japan, and armed conflicts.
Notwithstanding all these factors, arguably the greatest factor is global warming and environmental damage. The mood around the world is changing and people are becoming increasingly worried about this.
The fall-out from Coronavirus may be heightening awareness but demands from consumers and investors for a more ethical and socially conscious sourcing is beginning to concentrate the minds of CEOs on their businesses’ vulnerabilities to the global supply chain.
Indeed a knitwear manufacturer based in Leicester, UK, is reporting an increase in orders from more local retailers in the wake of the coronavirus outbreak.
Will others follow suit?
 

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Business Development & Marketing General Turnaround

Learning to really listen can benefit your business

really listenHow many of us really listen to what is being said to us?
Listening is not the same as hearing and often we can tune out what is being said to us, either because it triggers an assumption or a prejudice, causing us to miss the real point of what is being said.
Being able to really listen, however, is crucial to both personal success and also that for a business particularly, but not only, for those in a customer services role, where it is crucial to really listen and respond appropriately to a customer’s concerns rather than parroting from a pre-prepared script.
How often are we frustrated by the tele salesperson who launches into their script without even pausing for breath.
Indeed, failure to really listen can have a serious impact on the reputation of a business with its clients or customers.
But the ability to listen well is equally important for a boss or manager wanting to communicate a change or an innovation, or to HR when dealing with issues with an employee. Both situations will invite feedback and this is where it is important that the person giving it is actively listened to.
Language can be a very imprecise tool. Every word is loaded with background information which to the listener can mean something quite different to how someone else would interpret the same sentence or word.
Arguably hearing is a passive activity whereas when you really listen to what is being said you are actively engaged in paying attention, considering and seeking to understand what is being communicated, both verbally and non-verbally.
It is possible to improve listening skills by doing some very simple things.
The first is to leave the ego at the door and demonstrate an open and welcoming approach, perhaps by using eye contact if possible and show that you are concentrating on what you are being told.
The second is to remind yourself to keep an open mind and allow other people to finish what they are saying rather than jumping in with a comment before they have finished. Not doing so will convey that you are making an assumption, perhaps based on something in their choice of words that triggers a reaction in you, that may be well wide of the mark and in so doing you are missing something that could be beneficial.
It helps to give feedback, especially if the conversation is on the phone, to ensure that you are clear about what they are saying. It can also help to make notes of key points so that you remember what was said, especially for your feedback and any future action.
Listening is an art that we are increasingly losing in a cacophonous age of social media and sound bites, where the emphasis seems to be on having one’s say and competing rather than really engaging with each other.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Running out of cash – crisis management, the first step in dealing with a cash crisis

crisis management when running out of cashCrisis management when a company is in financial difficulties is about quelling the understandable panic and taking a long, hard look at managing the business’ cash flow and the potential for action that makes the business viable.
Running out of cash is the cause of most business failures where the cash flow test of insolvency applies such that a company is insolvent if it is unable to meet its liabilities as and when they fall due. This doesn’t mean the business should be closed down but it does mean the directors should take clear steps to deal with the financial situation.
The first thing directors need to appreciate is that their primary consideration is to protect the interests of creditors rather than that of shareholders. This is where an insolvency or turnaround professional as an outsider can help by bringing an objective assessment of the personal risk when making decisions and the prospects that turnaround initiatives can be taken to restore the business to solvency.
Initial action by experienced turnaround professionals will focus on the short term cash flow while at the same time they will consider the medium and long term prospects for the business and whether the business model works or needs to be changed. This may be contrary to insolvency professionals who may be interested in justifying their appointment under a formal insolvency procedure.
Any review by professionals will consider how financial situation developed where it often the case that over time creditors have been stretched. Indeed, there are many reasons for the shortage of cash that often leads to a delay in paying suppliers whether this is due to a decline in sales, poor debt collection, bad debts, inadequate credit control, over trading, over stocking, funding investments and growth that doesn’t translate into sales or indeed myriad other reasons.
Guidance from the ICAEW (The Institute of Chartered Accountants in England and Wales) is that at this stage:
Getting cost controls properly in place, insisting all purchases (however small) are signed off centrally by the managing director or finance director, chasing harder to collect outstanding debts, or agreeing new payment terms with creditors can have a quick impact and help ease an immediate crisis.
The most likely immediate priority in managing a liquidity crisis is reducing costs while maximising income.
So, the first step in managing cash is to construct a 13-week cash flow forecast to help identify risks and actions that can be taken to reduce them. It should include income from sales and other receipts and outgoings, both to ongoing obligations such as rent wages and finance and to creditors.
The business also needs to control cash on a daily basis, with payments made on a priority basis with purchases approved by an authorised person who is aware of their impact on cash flow.
This will avoid the risk of returned cheques. It is also advisable to talk to the bank and keep it aware of what is being done to keep things under control.
This is the first step in crisis management when a company is having financial difficulties, but thereafter a restructuring adviser can be invaluable in taking a long, hard look at the business operations, its processes and its business plan to identify areas where performance is weak or unprofitable and whether and how the company can be returned to profitability if these elements are removed.
Getting external and objective help is likely to be necessary and my guide to running a business in financial difficulties is a useful reference.

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Banks, Lenders & Investors Business Development & Marketing Finance HM Revenue & Customs, VAT & PAYE Turnaround

Will SMEs get more help from the Government?

help from the Government?Business pages are always full of articles claiming that SMEs need more help from the Government.
But equally, there have been a number of upbeat and positive reports that suggest the opposite is the case, so what is the truth?
According to the business lender Iwoca, lending to SMEs in deprived areas has dropped dramatically, by 8% between 2014 and 2018. Iwoca CEO Christoph Rieche has said: “It’s concerning that, in many parts of the country, major banks aren’t serving small and microbusinesses with the funding required to help them thrive. SMEs are vital for the health of the economy.”
The figures are borne out by UK Finance, which has revealed that small business loans and overdraft balances from big banks fell by almost 16% in the North West between the end of 2014 and September last year, from £9.8bn to £8.2bn, while loans and overdraft balances in London fell by only 2.3%. Wales saw a 14.2% drop, while Yorkshire and the Humber posted a 10.9% decline.
The CEO of the British Business Bank has also argued that the Government should invest “billions” more in SMEs if it wants to deliver on its promise of levelling up all parts of the UK.
Earlier this month reports in the Financial Times and the Times criticised the Prime Minister for ignoring business groups such as the CBI (Confederation of British Industry), BCC (British Chambers of Commerce) and the IoD (Institute of Directors) in a speech he gave on EU trade negotiations.
An aide (unnamed) later reportedly criticised these business bodies for failing to prepare their members for “a Canada-style free trade deal” and said they were unlikely to get Government attention unless they fulfilled their responsibility to their members.
Another issue high on the SME agenda is the Apprenticeship Levy, which is failing SMEs, according to the FSB (Federation of Small Businesses) leading to a 24% drop in apprenticeship starts since the new scheme was introduced in 2017.
However, there has been some positive news for SMEs, the Ministry of Housing, Communities and Local Government has confirmed that a £1bn of new loans is to be made available to small construction companies, under a loan guarantee scheme.
Let us hope it is not like the Enterprise Guarantee (EFG) scheme that was introduced in January 2009 to replace the Small Firms Loan Guarantee (SFLG) scheme that was introduced in 1981.
While both provided for a government guarantee to underwrite bank lending to SMEs, the SFLG scheme was a key contributor to the grown of the UK economy under Mrs Thatcher’s government through encouraging entrepreneurs. The SFLG repaid the banks as lenders to companies upon insolvency of the but was very different to the EFG that required personal guarantees from directors and only repaid the bank lenders after bankruptcy of directors as guarantors. It is no wonder that the EFG failed. We can only hope that the new breed of young advisers to Rishi Sunak, as the new chancellor read history but I am not holding my breath.
In the meantime, there are other initiatives, many aimed at the regions such as the Midlands where FSE Group has been appointed by the Midlands Engine Investment Fund to manager an estimated £40 million fund for its region’s businesses.
An example of stimulus for SMEs was that reported by Civil Service World who found that the proportion of government spending going to SMEs exceeded 25% for the first time in four years last year, as smaller firms won an extra £2bn in Whitehall contracts.
There are without doubt burning issues for SMEs that need to be addressed, such as tougher action on late payments, reform of business rates and reliable, efficient broadband in rural areas and market towns, on which there has been little Government comment so far. We might however have found a champion in Philip King, the recently appointed Interim Small Business Commissioner, who is promoting the Prompt Payment Code (promptpaymentcode.org) to focus a spotlight on the payment record of large firms.
We shouldn’t ignore the positive signs from Government following its election with a clear mandate and a sense of purpose to make things happen which in turn will rely on a strong economy.
The budget on March 11, may yet contain some real help for SMEs and at least will let us know whether the Government is aware of SMEs and their concerns.
 

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Sector focus on the UK newspaper industry, regional, national and online

UK newspaper industryThe UK newspaper industry has faced multiple challenges for many years but somehow it manages to survive.
In many ways it is a good example of how agile a business needs to be in the 21st century if it wants to continue, to prosper and to grow.
But arguably the UK newspaper industry is more than simply a business albeit, like all businesses it needs to cover its costs and make a profit.
Relevance is critical to having and retaining readers as consumers of content in what might be assumed to be a traditional supply and demand business. At its most basic, news is about informing readers about what is happening in the world, and in the country and region in which they live and aspiring journalists in training were often told that their purpose was “to entertain, to educate and to inform”.
Nevertheless, to the accountants, newsroom journalists have increasingly been seen as a cost, a drain rather than a contributor to the business’ profits.
Indeed, relevance is often more than simply news or indeed information.
So, costs started to escalate in the early 1990s largely due to the increasing price of the paper, much of which is imported from Canada and to falling circulation.
The development of web offset printing had already eliminated the need for type setters and proof readers and increasingly the focus turned to how to get more from fewer journalists and a near-epidemic of redundancies began, with a shift in the news-gathering model from in-house employed journalists to a mix of less expensive, young trainee journalists in house and freelance columnists.
At the same time, in attempts to retain readership, many papers, particularly the regional and local ones, started to include a great deal more content that could be described as lifestyle, celebrity and entertainment-related, reflecting a perceived change in readership interests.
But it is a tough and competitive business and by March 2018 the UK Press Gazette was reporting a net loss of at least 30 local newspapers in the previous year, while many of the nationals were struggling to make a profit. It said that Trinity Mirror closed more titles than any other publisher, with 12 shut down in total over the year and the collapse of family-owned Observer newspapers had led to the closure of all of its 11 titles.
In the local market, it reported, “Trinity Mirror remains the biggest regional publisher, with a total circulation of 1,598,285 across its 129 local publications.
“Newsquest was the second largest publisher with a total circulation of 1,344,379 across its 118 publications.”
Arguably, the digital revolution has had the biggest impact on the UK newspaper industry.
The majority of a newspaper’s profits come from advertising, and as more and more advertisers shift to online promotion the print and distribution costs of newspapers are significantly impacting profits. Like retailers, the switch to online distribution is taking a long time and the rate of online growth in profits is not sufficient to offset the rate of print related decline.
Nowadays, we take it for granted that our daily, or weekly, paper whether it is local, regional or national, publishes an online edition, which can be updated frequently throughout the day given the intense competition to be first with news developments in an increasingly fast-paced world.
Many national UK newspapers, with the notable exception of The Guardian which relies on appeals for contributions from readers, have introduced a paywall, forcing readers to pay a subscription to read many of their online articles.
The Independent, launched in 1986, and sold to the Russian businessman Alexander Lebedev in 2010 went online-only in March 2016.
According to an article in PR week last year “the Financial Times hit its target of a million paying subscribers a year ahead of schedule … and The Times and Sunday Times have around half a million paying customers, with the majority now digital-only. After years of making substantial losses, the Guardian announced a small operating profit for 2018-19.”
By contrast, over the last 13 years, it said, there had been a net closure of 245 local and regional titles.
There is no doubt that the explosion of social media, has led to arguably shorter attention spans and more impatience generally, not to mention a greater dislocation between where people live and their attachment to the locality and changed attitudes to local and regional papers.
However, the rise in concern about “fake news” on social media and subsequent fact checking services offered by some papers, may well improve readers’ trust in what they read in reputable publications rather than on social media.
In my view it is too early to predict the total demise of the UK newspaper industry, certainly at national level, but I hope also at regional and local level, not least as an antidote to the early-morning commute or as a pause in the daily office pressure for a mid-morning coffee and a quick flick through the paper.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Dire insolvency figures for 2019 – and little respite in sight?

insolvency figures and lifebeltsThe final quarter insolvency figures for 2019 make grim reading, as does the regular Red Flag update from insolvency and recovery firm Begbies Traynor.
The main messages from the latest insolvency figures, published for Q4 2019 by the Insolvency Service at the end of January, were that in 2019 underlying company insolvencies increased to their highest annual level since 2013 driven by a by 8.2% increase in CVLs (Creditors’ Voluntary Liquidations) which were at their highest level since 2009 and by a 24.0% increase in administrations, their highest level since 2013.
Construction, the wholesale and retail trade and accommodation and food services suffered the most, as they had been doing all year.
Begbies Traynor’s Red Flag update published last week also piled on the misery, with findings that a record 494,000 UK businesses are now in ‘significant financial distress’ with property, support services, construction and retail businesses suffering the most. These figures were the highest-ever since the company began reporting its Red Flag research 16 years ago.
Julie Palmer, partner at Begbies Traynor, said: “Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.”
But, arguably, the worst insolvency figures could yet be to come.

Bellicose politicians and European stagnation

On Friday night the UK formally left the EU. While this has established a level of political certainty, for business the economic uncertainty continues for at least ten months before our trading relationship with EU has been negotiated.
The negotiation timetable helps us know when we might have certainty about our trading relationship. The first being the end of June as the last day by which any extension to the 11 month transition period can be sought although as things stand the PM has ruled that out. Without an extension the deadline for a Brexit trade deal is the 26th November as the last date for it to be presented to the European Parliament if it is to be ratified by the end of the year.
Notwithstanding the uncertainty of its trading relationship with the EU, the UK can now begin negotiating its own trade deals with other countries.
But whoever heard of a trade deal being formalised so quickly?
Furthermore, this will all take place in the context of stalling economic growth in the EU, particularly in France and Germany as revealed last week:
“Gross domestic product (GDP) in the currency bloc rose by just 0.1% in the fourth quarter of 2019 from the previous quarter, according to the EU statistics agency Eurostat.”
Stock markets were also dropping dramatically, which has been attributed largely to the spread of Coronavirus that has led to a lockdown of much of China.
All this, without taking into account changing consumer behaviour and confidence, partly due to increasing debt levels and to environmental concerns. Perhaps, given the 6% annual increase in personal insolvency figures over 2018, now at its highest level since 2010, there is also a degree of job uncertainty. In retail, for example, almost 10,000 jobs have been lost since the start of the year and 57,000 went in 2019, according to the Retail Gazette.
The Prime Minister and foreign secretary, Dominic Raab, seem set on taking a very hard line ahead of negotiations with the EU. While there are some that take the view that in negotiations it is best to start off taking as hard a line as possible then softening as they progress, given that the remaining countries in the EU clearly have their own problems that they will be seeking to solve the words “rock and hard place” spring to mind.
So, there is a distinct possibility of a hard Brexit, one without a deal although message spin is likely. If this is the case then the uncertainty for business will continue beyond the end of the year until a new normal is established.
We therefore endorse the advice of Eleanor Temple, chair of R3 (the insolvency and recue industry body) in Yorkshire:
“These insolvency figures should be a wake-up call to any director of a company which is finding it hard going at the moment. Anyone in this position should look to take objective advice from a qualified, professional source, to decide the best path forward – and the earlier this is done, the better.”

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Business Development & Marketing General HR, Redundancy & Trade Unions Turnaround

Emotional Honesty at work – mutual respect turns a negative into a positive

emotional honesty and conflict resolution There are many situations in our working life that have the potential to damage relationships with colleagues and managers and it takes emotional honesty to confront them.
Disagreements are inevitable especially where individuals are ambitious and want the best for the business and its goals. There are often many solutions to problems and teams need to learn how to share differing ideas without disagreements being seen as confrontation and in particular avoiding individuals being afraid of others in such a way that they don’t contribute.
Team decision making doesn’t necessarily mean agreement but is should be positive, especially when the team is needed to implement the decision. Sophisticated teams may explore decision making as a form of idea meritocracy by considering the knowledge and expertise of each contributor rather than team democracy where everyone is equal, or worse, where overconfident individuals, bullies or HiPPOs (Highest Paid Person’s Opinion) make the decisions.
Conflicts at work are often rooted in a lack of respect among colleagues. Conflicts are different to disagreements and can make the atmosphere toxic leading ultimately to bullying and other serious issues that damage a team’s ability to work together.
Another area of discomfort is giving feedback on someone’s behaviour or during an appraisal when the appraisee is under-performing. The intention is normally to invite a change in behaviour that leads to a positive outcome. But receiving such messages can promote rejection of the message or even anger hence the need to deliver such messages with both honesty and with emotional understanding.
Dealing with disagreements, a loss of respect and giving feedback all require a level of emotional honesty to confront the issue in a sympathetic way. In addition to individuals learning how to deal with difficult messages the culture of the company is also important. Culture can help avoid individuals being defensive and feeling victimised by removing blame and promoting honest engagement such that everyone moves on after the decision has been made or after a matter has been dealt with.
In an ideal world everyone at work respects each other and values the contributions of others. However, we all have quirks of character and mannerisms that can grate, which is why we need a level of emotional honesty to both acknowledge this to ourselves and to others. This acknowledgement allows us to be constructive when confronting issues. The key is to actively listen and seek to understand others and avoid letting our own emotion get in the way.
If it is necessary to resolve a problem with a colleague or manager, the first step is to remind ourselves and them of their good points and qualities and to start with these at the opening of any discussion.
Emotion should be firmly kept out of the discussion. Expressing anger or frustration makes it hard to really hear the feedback being given. So, an essential element when dealing with disagreement or a loss of respect is to maintain courtesy.
Equally, aggression, both active and passive, during a confrontation gets in the way by becoming a form of bullying; even disengaging from a difficult situation can be done in a way that is construed as emotional bullying when one party gives in or walks away without resolving the underlying issue. This is often how family members deal with conflict and is seen at work when people don’t know how to deal with issues.
It can be effective to establish a connection by sharing a situation where you may have made a similar mistake and not talking down to the person on the receiving end.
Humour and displacement topics can be useful tools for lightening the mood or changing the topic when dealing with awkward situations but it is often necessary to get back to resolving serious issues as burying them tends to fuel resentment.
It is important to remember, too, that people have personal lives outside of work and their circumstances may be a contributing factor where they may be concealing a personal or family situation that is affecting their behaviour or performance at work.
It is not unusual for people to keep outside problems to themselves, believing they have to conform, to be “professional” or to fit in with a so-called “macho” culture.
Whatever the situation or problem, time should be allowed for the person on the receiving end to digest and think about what has been said.
When on the receiving end we need to listen, take notes if necessary and may need time to consider the points made before responding.
Emotional honesty rather than confrontation is the best way to resolve workplace problems. Feedback should be constructive and dealing with disagreements and conflicts should be done in a way that looks for a positive outcomes.
Respect for others is key and if maintained then everyone can benefit from the experience.
 

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Banks, Lenders & Investors Cash Flow & Forecasting Insolvency Turnaround

Sector blog – The north of England and the future of the construction industry

construction industryThere is no doubt that the construction industry has been having a torrid time in the last couple of years, especially since the collapse of the contractor Carillion with debts of £1.5bn at the start of 2018.
The most recently published insolvency statistics, for the third quarter of 2019, showed a 55% increase in the number of companies falling into administration, continuing an upward trend that had been going on all year.
There is little doubt that the political uncertainty since the UK voted in June 2016 to leave the EU has been a contributory factor to the industry’s woes, which are compounded by a shortage of people with appropriate skills. The skills shortage in the construction industry and its reliance on labour, often as subcontractors, has for several years been mitigated by the use of EU labour, particularly from Poland, but this, too, has been disrupted in the aftermath of Brexit as attitudes to migrants have become less welcoming.
But there have also been knock-on effects from the collapse of Carillion, which are being attributed to the structure of the industry, where major contractors like Carillion were focused on winning projects and managing them, relying on subcontractors to carry not only the responsibility for doing the work but also for taking the financial risk based on exposure to fixed price contracts and poor payment terms.
Indeed, when they go bust there is little left for creditors which highlights the level of credit risk.

Is the situation for the construction industry about to change?

Now that the Election is over and that the Government has a solid majority, hopefully, it will focus on the many pressing domestic issues that had been overshadowed by Brexit, not least the economic imbalance between various UK regions and London.
Indeed, the Prime Minister has already been warned that unless more attention is paid to the North of England particularly, those voters who lent him their vote, they may well withdraw their support equally quickly if they don’t see tangible investment.
In late December and again this week there were some signs that the message had been received and understood.
The Prime Minister had already promised that their trust in his government would be repaid and both The Times and the BBC were reporting that there was the prospect of changes to Treasury rules coming that would allow more cash to be allocated to projects outside of London and the South East, notably on infrastructure, business development projects and schemes like free ports.
Then, on Tuesday, when March 11th was announced as the date for the Chancellor’s first budget, the predictions of Treasury changes were again emphasised:
“In the intervening two months, the Treasury will have to work up a new National Infrastructure strategy that delivers on the plan to rebalance regional inequalities, some of which stem from decisions made nationally on, for example, transport spending.”
While doubts have been raised about the viability of the proposed HS2 rail project to connect London to the North, said to be likely to cost almost three times more than predicted, should this radical rethinking of Treasury rules come to pass, hopefully it could open up opportunities for the construction industry to work on plenty of other big projects in the North and possibly also the Midlands.
The other area that is likely to benefit the industry is a massive house building initiative. While no policies have been announced, Dominic Cummings’ Alternative Civil Service may light a bonfire under planning restrictions that are often blamed as the impediment to achieving previous governments’ targets. I am also sure we shall see more financial stimulus aimed at new owners, again all initiatives that will benefit the industry irrespective of what happens to the economy.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

Key Indicator: no respite for the global economy as conditions get worse

perfect storm over the global economyAs we head towards the end of the year it is a good time to look at the current state of the global economy.
Trade wars and the threats of tariffs being imposed by the US on China have become a wearyingly familiar story as US President Donald Trump continues his policy of ‘putting the American economy first’ at all times. It is not just China in the firing line, the rhetoric has escalated with his threat made in October to introduce a series of 25% tariffs on a range of exports worth an estimated £5.8bn from the EU.
But this is not the only trade dispute in the global economy as Japan and South Korea’s disagreements threaten the production of smartphones, computers and other electronics, while yet another Brexit delay, and now a UK general election, all add to the uncertain economic outlook in both the EU and the UK.
Growth has been slowing in India, particularly in its automotive sector, and to an extent in China also.
At the same time there seems to have been an upsurge in popular political protests across the world with demonstrations taking place in Spain, Iraq, Lebanon, Chile, Venezuela and Hong Kong, to name but a few.
Arguably, political unrest, too, has consequences for the global economy, particularly in a place like Hong Kong, which has for years been a focus for dynamic business activity but is now in recession after five months of civil unrest. Unrest has also led to Chile having to cancel its hosting of the November APEC (Asia-Pacific Economic Cooperation) meeting at which the United States and China had been expected to sign a deal to ease their trade war.  As yet no alternative venue has been announced.
The growth in global trade may have slowed to 3.0% this year – the lowest since the 2009 recession – according to International Monetary Fund (IMF). Data provider Refinitiv has reported that Global deal making has eased to the slowest pace in more than two years, with activity falling 11% so far this year to $2.8 trillion.
Not surprisingly all this has prompted the IMF to predict that global economic growth will be just 3% this year, its lowest level since the financial crisis and a downgrade from the organisation’s April prediction.
Earlier in the year it also warned in its global financial stability report that the next major economic crisis would be similar to the financial crisis of 2008; while it didn’t say when it believed this is a likely consequence of the estimated $19 trillion corporate debt mountain in eight major economies. This warning was echoed by the Bank for International Settlements (BIS) in its annual health check of the global financial system.
The new IMF head Kristalina Georgieva has also warned that Brexit in whatever form will be “painful”, adding to the effects of a global slowdown.
Meanwhile with Germany in recession and the EU economy stuttering, ECB chairman Mario Draghi announced a cut in interest rates to a new record low at minus 0.5 percent as part of a broader stimulus package making it expensive for banks to hoard cash.
The signs are not looking good for improvements in the global economy in 2020 and it is becoming increasingly clear, in my view, that politics is contributing to and inextricably entangled with the stormy economic weather besetting business.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

Is the death of Thomas Cook a sign of more to come in the travel industry?

travel industry in trouble?Commentators have been quick to predict the death of the package holiday and in some cases of much of the travel industry following the demise of Thomas Cook in September.
But is this really the case?
Johan Lundgren, the chief executive of easyJet, argues that it is too soon to predict the demise of the travel industry, or indeed of package holidays.
In an article in the Daily Telegraph he says: “sales of holiday packages have grown faster than the economy every year for the past 10 years”.
There is no doubt, however, that technology has made a significant difference to the way people search, book and pay for their holidays.
Lundgren acknowledges that requirements and buying methods have changed significantly: “Rapid development in technology and AI, combined with a focus on data now allows the customer to find holidays suited to them online”.
Holiday companies, he said, needed to invest in technology to support customer interactions.
The tour operators trade body ABTA (Association of British Travel Agents) said 51% of people it surveyed in July had taken a package holiday in the past year, up from 48% in 2018.
According to statistics from the Office for National Statistics (ONS), the number of package holidays taken in the UK has been rising steadily since 2014, reaching 18.2m last year.
In its latest quarterly bulletin on overseas travel in general, published in September, the ONS results found that UK residents spent £4.5 billion on visits overseas in June 2019 (1% more than in June 2018), however, they made 6.8 million visits overseas in June 2019 (7% fewer than in June 2018).
There are also plenty of successful small, independent local travel agents offering tailored packages to fit customers’ requirements. We know of at least three in Suffolk alone and there are doubtless many more around the country.
So clearly once people have decided where they want to go and what they want to do, they still feel the need for someone to take care of the details and to have the assurance of having someone available should things go wrong.
Furthermore, the price paid by consumers and amount received by holiday providers might provide a clue to why travel operators and package travel companies ought to survive. Most online purchases, in particular for accommodation, are now handled by firms like booking.com, trivago.co.uk or tripadvisor.co.uk who charge hotels up to 30% of the package. This is a huge margin for travel companies to exploit.
So, what happened to Thomas Cook?
The company was launched in 1841 by a Derbyshire preacher, Thomas Cook, and became one of the world’s biggest companies to offer “integrated holidays” (ie package holidays).
The company issued two profits warnings in 2018 and in May revealed it was carrying huge amounts of debt – around £1.2bn. According to the Financial Times, many of its wounds were self-inflicted: “Successive managements allowed debts to balloon. The company revealed a debt pile of £1.2bn in May and recorded a £1.1bn write-down from its ill-fated acquisition of MyTravel, a UK rival. About one-third of Thomas Cook’s sales was spent just on servicing its loans”.
Generous remuneration to its executives, including an estimated £20m in bonuses and payment of more than £8m over the past five years to chief executive, Peter Fankhauser, have also been cited as excessive.
The company also received, and declined, five offers for its profitable airline operation and as if that were not enough, the FCA (Financial Conduct Authority) is investigating EY’s audit of the company’s accounts.
The German international broadcaster, Deutsche Welle, has speculated that opaque private equity deals amid low interest rates may also have played a part in its collapse.
Arguably an out-dated business model depending too much on high street retail outlets and a failure to adopt modern technology will have contributed too.
But while there will undoubtedly be casualties among travel firms that fail to adapt their business models and practices to modern consumer requirements, and, of course, the whole industry is vulnerable to the volatility of consumer confidence in the context of an eventual post-Brexit future with fears about job security, it would be unwise to predict the death of the travel industry as a result.
 

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

The state of manufacturing in the UK and globally – October Key Indicator

the state of manufacturing - redundant machinesThis month’s Key Indicator looks at the state of manufacturing in the UK and globally and by all indications, it is struggling everywhere.
While the proportion of manufacturing as a part of individual national economies varies all economies depend on trade with each other and in an interconnected world a slowdown in one place can have a significant impact on others.
China is currently the No 1 in the world in terms of manufacturing output valued at $2,010 billion representing 27% of national output. USA is second ($1,867, 12%); Japan third  ($1,063, 19%); followed by Germany ($700, 23%); South Korea ($372, 29%); India ($298, 16%); France ($274, 11%) and Italy ($264, 16%).  The UK trails these countries in ninth place with $244 billion manufacturing output representing 10% of national output.
Poland meanwhile has the highest percentage of its workforce employed in manufacturing, followed by Germany, Italy, Turkey, and South Korea.
In the UK, manufacturing makes up 11% of GVA, 44% of total UK exports and directly employs 2.6 million people. In fact, in August according to IHS Markit/CIPS the UK manufacturing sector fell to a seven-year low.
The CBI (Confederation of British Industry) monthly survey showed that manufacturing order books fell in September to -28 from -13, well below consensus expectations of -16%. While food, drink and tobacco and mechanical engineering drove positive growth, metal manufacture, metal products and textiles and clothing pulled in the opposite direction.
However, figures everywhere over the last few months make grim reading.
IHS Markit’s latest snapshot for September of Germany’s manufacturing growth, where a score under 50 signals contraction, slid to 41.4, the worst reading since June 2009. In fact, the entire Eurozone is experiencing a contraction, according to official data from Eurostat, the statistical office of the European Union in Luxembourg.
In China, Reuters reports that growth in industrial production in August was at its weakest in more than 17 years while in the USA, too, the New York Times reported that in August the manufacturing sector contracted again as it had in July, albeit manufacturing accounts for just 11-12 percent of the country’s gross domestic product.

What is causing the current state of manufacturing in the UK and globally?

In a word, uncertainty is the theme everywhere, but while the primary causes may differ around the world, in many ways the underlying reasons are politics and market economics.
There are two ongoing conflicts: 1. between those who advocate stimulating economies and those who believe we should live within our means; and 2. between those who believe in market forces and those who seek to control them whether by tariffs, duty, currency control or exchange rates.
In September the USA introduced yet another set of trade tariffs on Chinese imports as part of the ongoing trade war launched by US president Donald Trump. The question is what next as tariff talks between the two are due to resume in October.
In the UK, clearly, the ongoing uncertainty is primarily over when, if or whether the country will finally resolve its various dilemmas over leaving the EU at the end of October as Prime Minister Boris Johnson continues to promise.
Manufacturers anticipate that output volumes will fall briskly over the next quarter and that output price inflation will accelerate in the next three months, above the long-run average. Anna Leach, deputy chief economist at the CBI, said: “UK manufacturers have become noticeably gloomier in September.”
However, arguably the three-year Brexit wrangle has had its repercussions well beyond the UK as manufacturing supply chains are so closely interwoven across the EU. The effects of the reduced value of £Sterling against the Euro and other currencies has added significant costs to importing of raw materials and components, which has had a significant impact on the automotive industry particularly.
There is little sign that the politicians will shift their stance on the big issues but the one element that so far does not seem to have been factored into the arguments is the effect of climate change and the damage to the environment.
This is an issue that has become so pressing that it is just faintly possible that it could prompt a radical rethink in the way businesses trade globally, the way goods are manufactured and what goods will, or should, be made in the future, and above all on how national and global economies should measure economic success.
Perhaps this presents an opportunity for SMEs to come up with new and innovative ideas that will promote sustainable growth without the endless competition that currently seems to dominate the discussion?

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Business Development & Marketing Cash Flow & Forecasting Finance Turnaround

Ongoing carnage in consumer services sector as consumers reduce spending in restaurants and bars

consumer services struggle to surviveAs I outlined in my June sector blog, it is not only well-known shops in the consumer services sector that have been struggling.
The restaurant sector has also seen a plethora of big name closures, including Gourmet Burger Kitchen, Carluccios, Prezzo/Chimichanga, Byron, Cafe Rouge, Jamie Oliver’s restaurant group and most recently the Restaurant Group which has announced that it plans to close up to 100 of its Frankie & Benny’s and Chiquito branches.
A recent CBI poll has revealed that the whole of the consumer services sector, which includes hotels, bars, restaurants and leisure firms, has suffered its fourth consecutive fall in business activity with both profits and confidence plummeting.
Rain Newton-Smith, chief economist of the CBI, said: “The idea of a no-deal Brexit is clearly weighing down the economy and is affecting businesses both big and small.”
But, of course, there is much more to all this than Brexit uncertainty weighing on businesses and consumers, although the last week of febrile activity in Parliament on this seemingly now all-consuming issue will not help.

Is this a long-term change in consumer behaviour?

Clearly, worries about future job security after Brexit are playing into the declining numbers of people visiting restaurants, bars and hotels which will have contributed to the ongoing decline in the number of pubs and bars, down 2.4% to 116,880 over the past year.
Aside from the increasing numbers of people choosing to eat in, with ordering home-delivered food becoming more common as reported in my June blog, it seems that dining preferences and tastes are all factors.
A recent analysis in the Guardian newspaper revealed that restaurant numbers had fallen by 3.4% in the year to June. It also suggested that our tastes are changing, so that consumers are moving away from Indian, Italian and Chinese establishments in favour of Middle Eastern, Caribbean and specialist vegetarian rivals.
Perhaps, though, among the most significant long-term trends is the shift in demand towards vegan and vegetarian food, as highlighted by the Verdict analysis of restaurants in their 2019 food trends report.  It said: “The country is ever more aware of the amount of food that is wasted and the effect food and packaging has on the planet”.
The other big issue, plastic use and waste, has also grabbed consumers attention as reported in research by RG Group that highlights this as a significant influence on consumers going forward.
Sustainability, transparency and trust are likely to become ever more important in the choices that consumers make, says RG Group: “Consumers today expect brands to be much more accountable when it comes to whether or not they remain loyal. And frequently, perceived accountability comes in the form of commitment to transparency and more socially responsible values and processes.”
Clearly, it is not enough for the High Street and the consumer services sector as a whole to focus solely on providing a “destination experience” as many have promoted in their quest for relevance.
Businesses in this sector, but also in many others, are likely to have to pay a great deal of attention to consumers’ socially responsible values if they want to retain customer loyalty, to survive and grow.

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Banks, Lenders & Investors Finance Insolvency Turnaround

Q2 insolvencies offer no sign of economic storms easing

rising insolvencies indicate continued stormy ecoomic weatherThere are no signs of the pressures on businesses easing off as insolvencies in the second quarter of 2019 (April to June) continued to climb, according to the latest figures released by the Insolvency Service.
While the number of compulsory insolvencies fell, there was a significant increase in the number of CVLs (Company Voluntary Liquidations), which showed a 6.9% increase, an increase of 2.6% in the total numbers of insolvencies compared to the first quarter of the year.
Compared to the same quarter in 2018 the numbers of insolvencies have risen by 11.9%, the highest underlying rate of insolvencies since 2014 according to the Insolvency Service.
It reports that those businesses that have fared worst in the second quarter have been “the accommodation and food service industry with 74 extra cases compared to the 12 months ending Q1 2019 (an increase of 3.4%) and the construction industry with 37 additional insolvencies (a 1.2% increase)”.
The latest Red Flag Alert for the second quarter of 2019 from Begbies Traynor also emphasises an increase in businesses in “significant distress”, to 14% of all UK businesses while the average debt of insolvent companies has more than doubled – from £29,873 in 2016 to £66,226, it says.
Set this against a backdrop of a weakening global economy, as reported by the World Bank in June, in part thanks to business uncertainty because of international trade tensions.
In the UK context, the future for the economy remains completely unknown given the new Prime Minister’s Brexit strategy. This is evident from the factory output figures for July that reported the lowest levels for six years, slowing consumer borrowing, and this week the value of the £Sterling dropping to its lowest level for two years.
While low exchange rates may be a positive for UK businesses involved in exporting, making exported goods and services cheaper, they will also add to business costs on any supplies and materials imported from outside the country where the net result is that we are worse off given the UK trade deficit which was £30.8 billion in the 12 months to April 2018.  Another factor is consumers who are continuing to spend but may prefer to stay at home instead of having more expensive holidays abroad.
Given also the ominous noises about continued UK-based car manufacture, most recently from Ellesmere Port, depending on the post Brexit conditions here, not to mention the continued carnage in High Street retail, more people will also be worrying about their future job security.
It would be great to be able to say that the end is in sight but sadly, with so many “known unknowns” the economic weather outlook has to remain stormy.

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Finance General Turnaround

Get independent advice before embarking on costly business litigation

Business litigation can be costlyIt is a sad fact that disagreements can arise in the best-run businesses and if they cannot be settled amicably they can result in costly business litigation.
It is also a sad fact that legal fees are often far greater than the damages awarded and. Worse, if you lose and have to pay those of the other side.
While most litigation involves a financial settlement, the underlying dispute can be for a myriad of reasons. Many disputes relate to the non-payment for goods or services that one party believes were provided while the other believes were defective or the terms were not observed. Others may be down to parties falling out or wanting to terminate contracts. Whatever the cause taking issues to court can be extremely expensive if the facts are in dispute.
Often when each side feels that it has much to lose emotions will run high and judgement may be less than impartial.
Very often, when the parties involved realise the length of time that may be involved and the escalation of costs starts to bite they end up agreeing to settle out of court. But before coming to terms with this reality they may have spent considerable sums that might not have been necessary.
So, it makes sense before embarking on costly business litigation for all parties involved to establish clearly and accurately the facts of the dispute and the realistic prospects for a satisfactory outcome.
Simply assembling all the relevant paperwork as evidence before appointing lawyers will save a lot of money and may even avoid an expensive mistake as it will highlight your ability to substantiate claims.
This may involve examining the terms of a contract to establish the nature of a breach such as non-payment for goods and services, not meeting deadlines, the definition of poor service or substituting a material with one of lesser quality.
It may mean establishing precisely what had been agreed by the partners or shareholders including whether there were any terms or conditions that should be referred to should either party wish to leave.
Partnership and shareholder disputes, like employee termination, may be cited as being down to a breach of duties or obligations or poor performance but all too often these are contrived reasons that are used to justify another reason such as a clash of personalities.
Service and contract disputes are rarely black and white matters and can result in lengthy court hearings, as also can breaches of confidentiality or copyright.
While you might think you are the best person to consider the merits of any litigation it makes sense to engage someone impartial to carry out this task as they will help you remove emotion and pride from any decision.
It is difficult to decide who to use since engaging the right person can also remove a procedural bias. There are likely to be a number of different ways of resolving the dispute where for example, some lawyers like the adversarial nature of the court room, others might promote mediation or arbitration as a form of dispute resolution.
Before engaging a lawyer, a trusted adviser may be useful. While they may not have the same insight as a barrister who might advise on the likely outcome in court, they can be objective and hopefully wise.  I have often simply picked up the phone to the other party and met them to resolve matters for clients long before they escalate. It is a tragedy that emotion and pride tend to be the real barriers to resolving disputes.
Whoever you get to advise you, assembling your evidence and getting an early independent perspective can help avoid fruitless litigation or at least identify the most appropriate procedure for resolving matters.

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

Can fashion retail ever be made sustainable?

fashion retail garment workersIt is no secret that High Street retail has been in dire straits for some time, and clothing and fashion retail have particularly suffered.
The most recent, and perhaps most high-profile example has been the struggles of Philip Green’s Arcadia Group, comprising the clothing chains Topshop, Topman, Evans, Wallis, Miss Selfridge, Burton and Dorothy Perkins, to use CVAs as a way of restructuring.
But it is not only physical fashion retail stores that are struggling. ASOS has recently issued its second profit warning in seven months, albeit blaming IT chaos in its overseas warehouses despite overall sales being up 12% in the four months to 30th June.
Obviously, cheap prices and turning around lines quickly, have been the two main things on which fashion retail has been relying. As a consequence, clothes are often made by low-paid workers in appalling conditions, in factories located in countries like Bangladesh.
However, for some years there have been demands from consumers for such workers to be paid fairly and treated better following revelations about their working conditions.
That did not, however, mean that consumers were prepared to pay more for their clothes or necessarily to wear them for longer.
Marketing plays a big part in this kind of consumer environment by encouraging shoppers to “be ahead”, “get the newest” and stay “on trend” in order to encourage them to buy and to do so often and repeatedly.
But as I said in my blog on Tuesday, corporate survival is coming increasingly dependant on a variety of demonstrably ethical behaviours, including protecting the environment and treating employees fairly.
It may be that we have reached a critical moment where the zeitgeist among consumers is changing in a way that is focussing fashion retail on the need to change its business model by marketing its ethical and sustainable credentials.

What would sustainability mean in fashion retail? 

Clearly, a recent initiative by Boohoo.com highlighted its ‘new’ sustainable credentials by the launch of its range of “recycled” clothes.
The collection, the company says, has been manufactured entirely in the UK to cut air pollution and its garments are made from recycled polyester, with no environmentally unfriendly dyes or chemicals being used.
It is not yet clear if this is marketing puff or a shift in values as the launch has been greeted with some scepticism, according to an article on the BBC news website.
It may be a start but the EAC (Environmental Audit Committee) argues that it doesn’t address other issues with clothing, including the fact that synthetic fabrics used to make such garments shed micro-fibres when washed, polluting waterways or that even those that are disposed of through retailer take-back schemes or in charity collection bins will eventually find their way into landfill.
The Independent recently reported that fashion retailer Net-a-Porter plans to launch a new platform, Net Sustain, to highlight brands meeting certain criteria regarding sustainability. Attributes will include “Locally Made”, when at least 50% of a brand’s products have been manufactured within their own community or country, and “Craft & Community”, where products showcase exceptional, artisanal skills. The platform will launch with 26 brands and 500 products.
However, other pressures are also having an influence, not least all the publicity about plastic waste littering the world’s oceans and land, which it has been argued is not helped by the rise in online shopping where packages generally use plastic materials.
Fair pay for overseas garment workers and the use of sustainably grown fibres, such as cotton are also factors.
Another is the popularity of new initiatives such as the decluttering movement started by Marie Kondo who has been encouraging us to hoard less “stuff”, or the Tiny House movement that is encouraging us to use less space.
One company in Suffolk has been in the forefront of fair trade and environmentally sustainable clothing production for five years.
Where Does it Come From, operates in both India and in Africa and offers a complete history of its manufacture with each garment. It has to be said their range is not as cheap as perhaps the fast-turnaround online and high street fashion retail can produce but its ethical, environmental and sustainability credentials are impeccable.
And this is perhaps the main issue for fashion retail, promoting their values as evidenced by their actions rather than by their marketing. Will consumers be willing to pay more and buy less frequently to satisfy their concerns?
The Suffolk business has clearly been able to survive and has some extremely loyal customers but whether its model can work in the mass fashion retail market remains to be seen.
 

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Banks, Lenders & Investors Business Development & Marketing General Turnaround

What are the prospects for UK manufacturing?

UK manuafacturing prospectsUK manufacturing output growth held steady in the three months to May, according to the Confederation for British Industry’s (CBI) monthly industrial trends survey.
In July, the CBI reported that in the three months to June UK factory output had turned in its slowest quarterly growth since April 2016.
Furthermore, the CBI reported that ten out of sixteen sub-sectors experienced growth with chemicals, food, drink and tobacco being resilient, while car manufacturing struggled.
Confusingly the CBI also reported that order books deteriorated in the quarter.
By comparison the monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed that activity levels in the UK manufacturing sector in June had dropped to the lowest level since February 2013.
IHS Markit/Cips found that high stock levels, ongoing Brexit uncertainty, a deteriorating economic backdrop and rising competition contributed to the drop in output. Weak export demand amid a faltering global economy also had an impact.
These figures, while confusing, support the hypothesis that UK manufacturing prepared itself for Brexit in March by building up stock levels and in doing so increased output. However, since then much of this productivity has been ratcheted back.
So where are we?

What is the true state of UK manufacturing?

The publisher, The Manufacturer, takes an up-beat view.
It argues that “Contrary to widespread perceptions, UK manufacturing is thriving, with the UK currently the world’s eighth largest industrial nation. If current growth trends continue, the UK will break into the top five by 2021.”
In their annual manufacturing report for 2019 they argue that there is a “surprisingly resilient mood among manufacturers with 81% saying they are ready to invest in new digital technologies to boost productivity.
But they do not deny there are challenges.
Of course, Brexit and ongoing uncertainty, is having an effect on strategic-planning and business prospects with 51% arguing that the Government should be doing more to promote exports, especially given the currently favourable exchange rates from an export perspective.
Among the challenges the 2019 survey identifies for UK manufacturing is the need for a clear strategy and strong leadership when introducing smart technology into the processes, citing lack of coherent digital strategies and in some cases an inability to understand the practical applications that technology can offer.
Another issue is the lack of skilled engineers. Some respondents argue that the education system and the Government’s approach are both failing. The survey reports that some companies are now establishing their own training schemes and academies because the situation is so bad.
However, I would argue that while the mainstream education system undoubtedly plays a big part, there is actually no reason why businesses should not be doing  so as well. After all, they are in the best position to know precisely what skills they need in a way that schools and colleges perhaps cannot.
On exporting, there were some in the survey that argued that Brexit might be a good thing in stimulating more UK manufacturing rather than being locked into and dependent on complex transnational supply chains.
One manufacturer in Cheshire is reported as saying in a Guardian article in June this year: “We are under the threat of closure all the time.”
But the article goes on to describe how this particular manufacturer is fighting back: “If we didn’t have a drive on productivity we wouldn’t be in business.”
Their solution has been to drive forward with robotic technology and with the support for their proposed changes from their workers. They have involved everyone in the process, mocking up robotic workstations in cardboard to see how they fit in with the workforce, with the result that “while robots have replaced some jobs new ones have come and staff have been trained up along the way”.
All this is without considering the opportunities for completely new businesses that will arise from the growing drive to clean up the environment and make activity more sustainable which will no doubt create opportunities among the more innovative producers for new processes and ways of doing things.
Perhaps we should not write the obituary for UK manufacturing quite yet.
 

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General Turnaround

How much can businesses realistically plan for no-deal Brexit?

no-deal Brexit amid Global economic slowdownClearly businesses are operating in very uncertain economic times with no-deal Brexit having become a game of political football and with such an unpredictable outcome.
While a degree of uncertainty is a fact of life in business, which is why I strongly recommend regular and at least monthly scrutiny of management accounts, the current situation is arguably unprecedented.
We are in the midst of a global economic slowdown, with UK manufacturing activity at its lowest level for six years and the economy stagnating according to the British Chamber of Commerce (BCC) latest quarterly report published last Monday, much of this being self-inflicted following the Brexit referendum.
And worse, the UK is now beset by a contest to elect a new leader for the “governing”, Conservative party in which only a small group of party members have a say, and seemingly with both candidates adopting increasingly intractable positions on leaving the EU by the end-October deadline and even worse with the prospect of leaving with no deal in place.
It was alarming for UK businesses to hear the most recent comment, from the previously moderate and supposedly business friendly entrepreneur, Jeremy Hunt, that he would be willing to tell business owners that they should be prepared to see their companies go bust in a no-deal Brexit as a price worth paying to fulfil a “democratic” promise to voters.
Meanwhile his opponent, and the alleged favourite to win, famously used a four letter word to dismiss business concerns and, more recently, according to his colleague, the International Trade Secretary Liam Fox, has failed to grasp that leaving with no deal actually precludes the UK relying on a 10-year standstill in current arrangements using an article of the EU’s General Agreement on Tariffs and Trade (article 24 of the general agreement on tariffs and trade) which actually only applies if there is an agreement in place.
Amid this turmoil the Governor of the Bank of England, Mark Carney, has urged businesses to prepare properly with the relevant paperwork for a no-deal Brexit to allow them to continue to export to the EU.
Furthermore, in the last few days it has been announced that around £96 million has been paid to consultants helping the Government to prepare for departure, while Tom Shinner, the top government official in charge of no-deal Brexit planning has resigned as has his colleague, Karen Wheeler, the HMRC official in charge of “frictionless” Brexit border planning.
How on earth can businesses be expected to make realistic and achievable plans for an unknown future against this backdrop?
Well, there is some help to be had, courtesy of the BCC, which has issued its own Business Brexit Checklist, divided into nine sections of some detail about the areas businesses should be looking at.
They include assessing their Labour and Skills needs for the next few years, Cross border trade and the paperwork that will be needed in the event of no-deal, Currency/intellectual property/contracts, Taxation/insurance, Regulatory compliance/data protection, European funding and a link to a Government’s online support called ‘The Business Preparation Tool’.
To be fair, UK businesses, particularly manufacturers, did their best to prepare for the March Brexit deadline, stockpiling essential parts, materials and the like to be able to ensure continuity in the expected aftermath but it would be unreasonable to expect them to continue to tie up capital indefinitely in this way.
Indeed, most UK car manufacturers brought forward their annual shutdown to coincide with the March deadline as a means of preparation. There is no doubt that the further delay and continuing uncertainty is a major factor that is causing our largest export industry to struggle.
At the other end of the scale I believe that UK SMEs are among the most resilient and innovative in the world and will find ways to survive come what may and in spite of whatever economic damage is caused by the politics of Brexit.
But for the time being the sensible strategy may be to hold off on any major investment, to focus rigorously on management accounts and cashflow, and to ensure strategy and business plans are as flexible as possible to cover a range of eventualities. If necessary contact a rescue and turnaround adviser.
As for current political announcements, they might be taken with a large spoonful of salt.

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Banks, Lenders & Investors Business Development & Marketing Finance General Turnaround

June macroeconomic snapshot of UK regional economic inequality

UK regional economic inequality snapshotWe hear a lot about UK regional economic inequality, so as part of our series of macroeconomic snapshots we’re taking a look at some of the data.
These are just a few examples of recent announcements of businesses facing closure or insolvency in the immediate or near term: British Steel, Scunthorpe (c.3,000 jobs), Honda UK, Swindon (3,500 jobs), Kerry Foods in Burton-upon-Trent (900 jobs). What they all have in common is that they are situated in the regions outside London.
Then, of course, there is the ongoing carnage in the High Street retail sector which according to the British Retail Consortium’s calculations has cost 75,000 jobs since the first quarter of 2018.
The long decline in UK manufacturing, initiated in the 1980s Thatcher era, has hit the regions of the north and Midlands, and S. Wales, particularly hard.
In January this year NIESR (National Institute for Economic and Social Research) calculated that since the mid-1990s regions that now have reduced shares of the national economic pie are the North West (-1.8%), West Midlands (-1.4%), Yorkshire and the Humberside (-0.8%), and the North (-0.4%).
The ONS (Office for National Statistics) list of the top 10 most deprived UK towns and cities are Oldham, West Bromwich, Liverpool, Walsall, Birmingham, Nottingham, Middlesbrough, Salford, Birkenhead and Rochdale. In their most recent report, they took into consideration metrics like low incomes, levels of employment, health, education and crime.
By contrast, real output rose twice as fast in London as in other regions over the 10 years to 2017. The “the Golden Triangle of London, Cambridge and Oxford that attracts over half of all research funding – more than £17bn” while just £0.6bn goes to the north east, according to Newcastle on Tyne MP (Lab) Chi Onwurah.
Also, according to the 2019 Global Cities report released today by consultancy firm A.T. Kearney, London has been ranked as the top city in the world for future business investment.
Of course, none of this disparity is a revelation. The 2010-15 Conservative/Liberal Democrat coalition prioritised cutting public spending in the short term over all other objectives, including regional equality and long-term social cohesion. One of their first acts was to abolish the regional development agencies. But in 2014 the then chancellor, George Osborne coined the phrase Northern Powerhouse, a recognition, and arguably a u-turn, that action was needed on UK regional economic disparity.
There is some evidence that the north’s economy has strong foundations, with productivity growing at a faster rate than in London between 2014 and 2017 and jobs being created at a greater rate than the UK average.
According to new report from TheCityUK, the trade body says the number of people employed in the financial services sector in Wales has jumped by over 20%, about 11,000 people. There has also been a 10,000 rise in the West Midlands, 12,000 in the East of England, and 24,000 in Yorkshire and Humber. Conversely, the number of financial workers in London has dropped by 10,000 since 2016, and by 32,000 across the South East of England.
However, with a £3.6bn cut in public spending in the north of England since 2009/10 and 37,000 fewer public sector workers, there is also evidence, reinforced by IPPR figures in May, that the Northern Powerhouse has been “undermined” by austerity, with power and resources “hoarded in Westminster.”
There is clearly a long way to go before the UK’s regional economic disparities are anywhere near to being reduced.
 

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Business Development & Marketing Cash Flow & Forecasting Finance Turnaround

Price and environmental pressures in the cargo shipping sector – stormy waters ahead?

cargo shipping on stormy seaIn early April a national newspaper published a report on the captain and crew of a cargo ship who had been stranded in the Persian Gulf off the UAE for 18 months without pay or food.
The cargo ship, said the report: “became a floating prison from which he and his 10-man crew could not escape without losing their claim to thousands of dollars in unpaid wages.” The ship’s owners had got into financial difficulties but would not sell the ship because they “would not get a good price”.
This is becoming an all too frequent story and in 2018 alone according to the IMO (International Maritime Organisation) an estimated 791 sailors on 44 ships had been abandoned in this way as a slump in orders led to overcapacity in cargo shipping and took its toll on owners.
Over the last couple of years, a global economic downturn has been gathering pace exacerbated by Trade Wars between the USA and China leading to lower demand on trade routes between Asia, the USA and Europe.
Demand has also been affected by rising costs including for fuel, port handling, insurance and security. These have increased significantly over the past few years, not least due to piracy off Somalia and the recent threat by Iran to block the Straits of Hormuz.

Will 2019 bring any relief for cargo shipping?

Growth in the first 11 months of 2018, was the slowest recorded in the past decade for intra-Asia at 3.8% and the predictions are that European containerised imports may be stuck at a demand growth of no more than 2% for the foreseeable future.
Rates have been relatively steady for a couple of years but, it has been argued, they are barely recovered from a loss-making, low-rate 2016. For some charter cargo shipping companies rates are expected to remain loss making, leading to numbers of idle ships.
While there is some potential for demand from South America and Africa to grow, the outlook is very uncertain.
An added complication is that the IMO has introduced a mandatory cap on the amount of sulphur in ship fuel starting form 2020. Lower sulphur fuels are expected to be more costly than the current Heavy Sulphur Fuel Oil (HSFO).
The increased emphasis on climate change and environmental protection will play an increasingly important role in the cargo shipping sector as it will in other sectors and it will not escape from the geopolitical pressures of trade wars, rising populism and uncertainty over regulation due to these, Brexit and other issues.
It will be some time before there is any relief for the cargo shipping sector.

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Finance Insolvency Turnaround

UK business insolvencies and distress indicators continue to rise

UK business in stormy watersAn alarming number of businesses are in either significant or critical financial distress, according to the latest Begbies Traynor Red Flag Alert, issued just the day before the Insolvency Service revealed the figures for Q1 (January to March) 2019.
484,000 UK firms, or 14%, are in “significant financial distress” while the numbers of those in “critical financial distress” have risen by 17% in Q1.
Begbies Traynor partner Julie Palmer said: “Many UK businesses are currently in limbo and deferring major investment decisions. This combined with consumers holding back on big ticket purchases has resulted in increasing significant distress across many sectors.
“Capital intensive sectors – such as construction and property – are suffering as both business and consumers have taken a cautious approach and limited their exposure.”
These figures would seem to be borne out by the Q1 Insolvency statistics, which showed a continuing upward trend, primarily in CVLs (Company Voluntary Liquidations) and CVAs (Creditors Voluntary Arrangements). Administrations, too, had reached their highest quarterly level since the same quarter in 2014.
CVLs increased by 6.2% compared to Q4 2018, administrations were up 21.8%. and CVAs increased by 43.1%.
Top of the list, as they have been for some time, were the wholesale and retail trade’s repair of vehicles industry sector, which saw the largest increase in underlying insolvencies, with 67 extra cases compared to the 12 months ending in December 2018. This was closely followed by the administrative and support services sector. Next highest were Manufacturing and accommodation and food services.
However, it is possible that the pressure to meet rent and rates, and the continued struggles of High Street retailing account for some of the significant rise in CVAS in the first quarter of 2019 when compared to the last three months of 2018.

No end in sight to the pressures facing UK business

While it would be easy to blame the continued uncertainty over Brexit, Begbies Traynor executive chairman, Ric Traynor, said although this was “the main driver” there were other factors involved, including the combination of faltering European economies and a potential trade war between the US and Europe.
To this list I would add the decline in trade with China which is down to these same factors combined with last year’s slowing growth there.
With the economy being predicted to flatline for the rest of the year and investment sluggish, it seems that UK businesses are facing a perfect storm in their struggle to survive and grow.

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Cash Flow & Forecasting Insolvency Rescue, Restructuring & Recovery Turnaround

UK business rescue culture isn’t working and new proposals won’t work

Rescue culture is surely preferable to the grim reaper of insolvencySince the Cork Report in 1982 that led to the Insolvency Act 1986 (IA86) there have been a number of initiatives that have led to legislation aimed at promoting a rescue culture in UK.
The shift was from a penal approach to insolvency one based on a belief that saving insolvent companies by restructuring offers a better outcome for all concerned than the alternative of simply closing them down.
This can be achieved by putting the company into Administration, where an IP (Insolvency Practitioner) takes over the running of the company, including negotiating with creditors with the aim of saving the company or at least saving the business by selling it to new owners. In addition to benefitting secured creditors Administration also helps save jobs.
The alternative is a CVA (Company Voluntary Arrangement) where the directors effectively reach agreement with creditors for revised payment terms such as “time to pay” and sometimes for a write down of the debt as a condition for the company surviving. A CVA is supervised by an IP but the directors remain in control providing they meet the revised terms.
There are problems with the current regime as both cases require an IP to be involved and both are enshrined in the IA86 which means that they are tarnished by the reference to insolvency. While this might be the case, it encourages a self-fulfilling prophesy and all too many companies fail again shortly after going through Administration or a CVA which might suggest the restructuring measures were not sufficient when perhaps other factors might also contribute to the restructuring not being successful.
One provision that is missing from insolvency legislation in the UK, when compared to the USA’s bankruptcy protection (Chapter 11) and Canada’s Companies’ Creditors Arrangement Act (CCAA), is some breathing space, or moratorium, that works in practice to allow time to develop and agree a plan before entering any formal procedures.
A moratorium would provide for a temporary stay of action by creditors and suppliers while a rescue plan is devised, and it is argued, would encourage directors to act earlier when their business is in difficulties.
Indeed, there are current provisions for a CVA moratorium as a 28-day period to allow for preparing CVA proposals but it doesn’t work and is rarely used because IPs as supervisors of the moratorium have been advised by their lawyers that they could be held liable for credit during the moratorium period. It is logical therefore that IPs prefer Administration which gives them the control necessary to manage any such liabilities.
This has been ignored during the latest initiative by the Insolvency Service who, as part of efforts to improve the UK rescue culture, have consulted on proposals for a different moratorium period, presumably one that that would allow for a broader breathing space than the current CVA moratorium.
While new legislation has not yet been enacted, it would appear that the consultation has resulted in plans for a 28-day moratorium with scope for a 28-day extension. This proposal on the face of it would appear sensible but like the CVA moratorium it won’t work in practice for the same reasons: it must be supervised by an IP and it could expose IPs to liability to creditors.
Further confusion on behalf of those proposing the new moratorium relates to proposals that a business may only apply for a moratorium if it is still solvent and able to service its debts. This makes no sense, why would a business that is able to pay its debts risk damaging its credibility and ability to operate by advertising the fact that it is heading into difficulties by appointing an IP as supervisor of a moratorium that is part of insolvency legislation?
This is surely counter-productive to any attempts at saving a business since the moratorium would cut off its credit.
In my view, rescue legislation should be part of the Companies Act and if supervision is deemed necessary, then a broader range of professionals ought to be approved, not just IPs.
Furthermore, it is hard to see why an IP would not push for Administration instead of a moratorium and taking on the related liabilities; turkeys don’t vote for Christmas.
The credit for the prospective and in my view flawed legislation goes to R3 whose lobbying on behalf of IPs has captured the turnaround space and in doing so has helped kill off initiatives to develop a rescue culture.

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Banks, Lenders & Investors Finance Turnaround

Can zombie and critically distressed businesses be resurrected from near-death?

zombie and critically distressed businesses - can they be rescued?More than one in ten (11%) UK businesses is a zombie business at the start of 2019, according to the Business Distress Index produced by the insolvency and restructuring trade body R3.
The figure rises to 16% of businesses in the North East, according to the Newcastle Chronicle, and the state of many more UK businesses is graphically illustrated by research from Begbies Traynor’s most recent Red Flag Alert, which showed that the number of businesses in “critical” distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in “significant” distress remained roughly flat year-on-year at 481,000.
A zombie business is generally defined as one that is only able to pay the interest on its debts, not repay the principal debt.
As such, economists argue, these businesses act as a drag on investment, productivity and the economy, because they do not have the available capital to invest in new operations, products, or services, while the investment tied up in them is denied to other, nimbler companies.
Also, it is argued, many of them are only surviving because of the continuation of the very low interest rates that Central banks put in place in the wake of the 2008 Crash. Indeed, the BIS (Bank for International Settlements), the umbrella organisation for global central banks, has argued that the steep increase in the numbers of zombie companies has been “one of the dangerous by-products” of persistent low interest rates.
Is there any point in trying to rescue zombie and critically distressed businesses?
Inevitably all this supports the doom and gloom merchants who are predicting an imminent recession exacerbated by Brexit uncertainty, a decline in globalisation and ongoing trade wars.
Ric Traynor, executive Chairman of Begbies Traynor, suggests that in today’s world businesses need to be able to change direction quickly.
“Far too many companies have been caught out by an unwillingness to rapidly evolve and adapt to the new climate we are in,” he says.
We would argue that before such businesses throw in the towel completely it is worth getting help from a turnaround and restructuring adviser.
They will conduct a thorough and in-depth review of the state of the businesses and identify its weaknesses and strengths and may be able to offer solutions, some of which may involve radical restructuring and reorganisation to fundamentally change the business.
This may involve slimming down the business to a core activity that is profitable in a way that justifies investment in a new strategy that becomes the foundation for future growth.
We have some Guides that might help here such as a Guide to Productivity Improvement. Do look up our library of Guides at:
https://www.onlineturnaroundguru.com/knowledge-bank
 

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Business Development & Marketing Cash Flow & Forecasting Insolvency Turnaround

How to make failure your first step towards business success

failure is just one step on the road to successNone of us is perfect.  Perhaps that is why we admire so-called successful people so much.
But behind almost every business success lies a series of failures. Just ask Thomas Edison, inventor of the electric lightbulb, or Richard Branson, who has made no secret of his past business failures, or even Luke Johnson, investor in and chairman of the recently-failed Patisserie Valerie and business blogger who has written extensively about failure and pertinently for him how to spot and prevent it.
Edison said of previously unsuccessful attempts at his invention: “I have not failed. I’ve just found 10,000 ways that won’t work.”
He also said: “Our greatest weakness lies in giving up.” This along with learning the lessons from failure is the key to understanding how successful people approach failure.
Failure would be better rebranded as a trial and error approach to achieving goals where essentially each instance of failure is primarily a learning experience. Each failure simply requires humility that recognises our fallibility and a degree of honesty, thought and a willingness to learn.

Converting failure to success is all about attitude

A business failure can be a devastating experience but the worst things you can do are wallow in self-pity, sink into a depression, give up or, even worse, blame others. These characterise the behaviour of a victim.
There are plenty of business gurus with advice about dealing with failure, and most will start with advising you to accept that you may have been to blame, but the key is to move on by analysing what, precisely, went wrong and to then try again, differently. Trial and error.
Firstly, you should resist the urge to repeat past mistakes by trying the same thing again, only bigger or cheaper. For example, if your customers aren’t buying your products or services you need to give careful thought to whether your business offers something they want, in the way they can buy it, rather than something you thought was a great idea but they don’t want or don’t know about. How much market research did you actually do?
Secondly, how competent are you at running a business?  Did you have a business plan? Did you regularly check cash flow, produce management accounts and so on?  Did you put in place robust credit control and other processes? We cannot all be good at everything so if you feel you do not understand any of these subjects properly you should have the humility to get in expert help and be willing to act on it.
Were you sufficiently passionate and committed to your business? It may have seemed like a sure fire way to make a lot of money, but that, on its own, is no guarantee of success.  It is also important to be emotionally invested in what you are doing and committed to making it work.
There are plenty of inspiring examples of people who have become successful after multiple failures but what they all have in common is an ability to be honest with themselves and to learn from others, to be passionate about their idea and to never give up.

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

The state of UK exporting – our February 2019 monthly Key Indicator

UK exporting on the rise?The health, or otherwise, of UK exporting is perhaps an obvious focus for my monthly Key Indicator as the deadline for the UK’s exit from the European Union moves inexorably closer.
Firstly, some positive news; according to the ONS (Office for National Statistics) the number of British firms trading internationally rose by almost 16,000 last year, an increase of 15,900 last year to 340,500, which now represents 14.3% of total non-financial businesses in the UK. Non-financial services made up 53.1% of Britain’s international traders.
On a trade mission to China in November which was focused on the food and drink industry, Government Minister David Rutley was reported to have said the sector’s exports had doubled in the last three years.
Meanwhile in December the CBI (Confederation of British Industry) reported that factory orders for exports had increased for the second month in a row. Production expanded in 15 out of 17 sub-sectors, led by food, drink, tobacco, mechanical engineering and chemicals.

Which countries are UK exporting’s largest trading partners?

Wikipedia has a useful list, showing that the top five of the UK’s trading partners are, in first place “non-EU partners”, then the EU as a whole, followed by Germany, The US and China. Japan comes in at number 17, India at 20 and Saudi Arabia at 23.
While Wikipedia’s information depends heavily on the knowledge and accuracy of its voluntary contributors, some of this is borne out by ONS information in a 2017 paper that also indicates that the UK is seeking to strengthen trade with non-EU countries like China, India, the United States, Australia and New Zealand.
Nevertheless, the EU countries remained at the top of the list, according to the most recent ONS figures: “In 2016, the EU accounted for 48% of goods exports from the UK, while goods imports from the EU were worth more than imports from the rest of the world combined.”
According to the ONS, in 2016 Exports to the rest of the world were worth £284.1bn while to the EU it was £235.8bn which represents a decline in the share of UK exports of goods and services to the EU from 54% in 2000 to 43% in 2016.
The special relationship with the USA remained important, said the ONS paper, with UK exporting in surplus and valued at £100 billion, “more than twice as much as exports to any other country”.

So what of the future of UK exporting post Brexit?

There are inevitably many uncertainties about the future.
The Financial Times, for example, reported in mid-January that a Whitehall memo had revealed that Britain has so far failed to finalise most trade deals needed to replace the EU’s 40 existing agreements with leading non-EU economies.
Also, in contrast to the optimistic indicators above, the December 2018 IHS Markit’s industry survey on manufacturers reported that while only one in ten were expecting a contraction in the early months of 2019, less than half were expecting output to be higher over the year ahead.
The survey also reported that new export orders had slowed for a second consecutive month with fewer customers from overseas being interested in business, although the consumer goods sector was the one exception.
Perhaps the major factors that will determine UK’s future level of exports are the China/US trade war and China’s growth slowing. Certainly, many UK businesses are spending money on stockpiling parts, raw materials and goods to protect their just in time production processes and in doing so they are not investing in growth, which makes predictions for the future very difficult.
 

Categories
Cash Flow & Forecasting Finance Insolvency Turnaround

Sharp rise in personal insolvencies in 2018 – what might it mean for your SME?

Personal insolvencies - counting the penniesClearly many individuals are finding it hard to cope with rising prices, low wages and ongoing austerity given the latest personal insolvency figures published by the Insolvency Service this week.
Personal insolvencies in 2018 totalled 115,299, a 16.2% rise on 2017 and the highest level since 2011, according to the Insolvency Service.  The majority of these were IVAs (Individual Voluntary Arrangements) which hit 71,034, a record level and an increase of 19.9% on 2017.
Company insolvencies also continued to rise; at 16,090 in 2018 they were their highest level since 2014. The majority, 63.9%, were CVLs (Creditors Voluntary Liquidations).
The top three business sectors for insolvencies were construction, wholesale and retail trade, accommodation and food services.

What does the rise in personal insolvencies mean for SMEs?

The knock on effect of personal insolvencies is consumers reining back on their spending, as they have clearly been doing for some time and most noticeably for retail over the Christmas period. Other types of business will also be impacted.
Given the dire warnings about prices depending on the outcome of Brexit, consumers’ confidence is looking unlikely to improve any time soon.  This is not helped by the week’s announcement by Tesco of a possible cut of 9,000 jobs and worries in parts of the country about the future of employment such as in the automotive industry and for SMEs within its supply chain.
It is also likely that the changes in retailing will continue with more High Street shops closing.
For SMEs, especially those dependent on consumer spending, the likelihood is that they will have to not only scrupulously manage their cash flow and planning but also ensure their invoices are paid on time. They may also be well advised to strengthen their marketing initiatives and those “extra services” that serve small, independent businesses so well by retaining loyal customers.
In these difficult circumstances, to borrow a well-known phrase, “every little helps”.

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General Turnaround

Are we facing recession in 2019 and is it time to redefine growth?

the effects of a recession can be devastatingThere is no doubt that uncertainty and pessimism are dominating predictions for both global and national economies at the start of the year.
The question is whether this uncertainty will develop into full-blown recession
The official definition of a recession in Investopedia is “a significant decline in economic activity that goes on for more than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP).”
The whole definition is based on the definition of GDP and what is continuous economic growth. While implied, there is little about living standards, getting people out of poverty or growth of employment.
By many measures there are worrying signs of a slowdown. However as noted by the IMF (International Monetary Fund) at this month’s Davos meeting of the WEF (World Economic Forum) a recession is by no means certain.
The IMF predicted global growth of 3.5% in 2019. In October, it forecast 3.7% and for the UK, growth of about 1.5% this year and next, but it also says there is substantial uncertainty around the figures, given uncertainty over the Brexit outcome and ongoing trade wars particularly between China and the USA.

Are there pointers towards recession in the UK?

In some sectors, notably retail, house price growth and motor manufacturing, the trend has been inexorably downwards.  Consumers, too, have been reining in both their borrowing and their spending.
However, while stresses in the economy may be building, they are not at a critical point yet. In manufacturing as a whole, the IHS Markit/ CIPS UK Manufacturing PMI increased to 54.2 in December 2018 from an upwardly revised 53.6 in November.
Employment, another critical recession indicator, is also at an all-time high. But with businesses already announcing job cuts or moves to Europe ii there is no Brexit deal, and an estimated 70,000 retail jobs lost in the past year it will be interesting to see how the employment figures hold up over the coming year.

How will a switch to sustainability impact on traditional measures for recession?

The urgency of tackling climate change has never been greater, nor the time shorter, and there is increasing awareness that economic models based on perpetual growth, especially in those countries reliant on consumer spending, are going to have to be replaced by models that embrace sustainability.
It is possible, therefore, that the idea of recession as defined at the top of this article, will carry significantly less weight in any sustainability model.
The question is whether we need to think more radically to find a new and more appropriate definition of an economy’s health and success rather than using some theoretical construct if we do move to improve the future for everyone.

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Banks, Lenders & Investors Business Development & Marketing General Turnaround

New Year, new start – a good time for some SME forward planning

SME forward planning problem solverThe end of last year was a time that most businesses would prefer to forget given the continuing uncertainty after the Government postponed a parliamentary vote on the Brexit withdrawal bill.
Members of both the BCC (British Chamber of Commerce) and FSB (Federation of Small Businesses) were reportedly “horrified” by this development and it is unlikely that many will have been impressed by subsequent reported Government contingency planning for the UK leaving the EU with no deal.
The eventual outcome is so difficult to predict that much business planning is on hold. This is supported by research by the BoE (Bank of England) who canvassed 369 companies about their pre-Brexit planning and found that the majority had made no changes to their business plans for the coming year.
However, this is a new year and hopefully the December shambles may have a positive side if it stimulates more SMEs to realise the need for planning.
The New Year is in any case a time when it is traditional for SMEs to refresh their business and marketing plans and while the uncertainty over the future has to be acknowledged, especially for those SMEs involved in Europe-wide, just in time supply chains, I would argue that this is a perfect time to accentuate the positive and focus on innovative thinking in SME forward planning. I would also argue that the world won’t collapse whatever the outcome and while most SMEs will be affected by Brexit, there will still be business to do.

Accentuate the positive in SME forward planning

It is often said that there are opportunities in the most negative of situations if only you look for them.
In December, the BCC issued a Brexit Business Checklist, which local Chambers have issued to their members as a downloadable PDF.
The checklist covers all the aspects that a business needs to consider in preparation for March 2019, but while it is prompted by the current uncertain situation it is also a comprehensive guide to all those aspects of a business that should be a part of SME forward planning at the start of the year.
It includes future staffing needs, issues with cross-border trade, including potential border delays and tariffs, taxation (particularly VAT), intellectual property, reviewing existing contracts, regulatory issues (such as GDPR) and competition.
So, for example, if business growth is part of your business plan and you know you may need more staff, perhaps rather than put off plans because you are uncertain about whether suitable people will be available when you need them, think about whether you can introduce systems such as automation or AI to work smarter rather than relying on finding more people.
Alternatively, how about taking on apprentices and training them for your needs.  While reliance on short-term labour can provide flexibility and help deliver short-term profits, well trained and reliable employees are valuable when building a business that has a future.
Similarly, when reviewing contracts can you find suppliers of locally-sourced components or raw materials that do not depend on cross-border supply chains?  Could you source supplies from outside the EU? Could you modify essential ingredients in your products that make you less reliant on overseas supplies?
UK businesses have historically been some of the most inventive in the world. Perhaps the ongoing political shambles will provide the stimulus for them to return to the forefront of innovation.

Categories
Banks, Lenders & Investors Cash Flow & Forecasting Finance General Turnaround

January Key Indicator – exchange rates and their impact on SMEs

exchange rates are no longer measured by goldThe exchange rate is the value of a country’s currency against those of others and the factors affecting this are many, especially in a volatile political climate, both globally and locally.
Among the influences are the interest rates set by central banks, inflation, a nation’s gross domestic product and trade balance, its debt and to a significant extent, the behaviour of politicians and governments towards both their own and competing economies.
Significant fluctuations in exchange rates, as has been seen over the last couple of years, then start to affect the confidence of investors, currency traders and businesses, increasing the volatility of currency values and stock exchanges.
Two obvious examples have been the plummeting value of £Sterling since June 2016, when the UK voted to leave the EU, despite occasional upticks as the negotiations over the withdrawal agreement dragged on.
Similarly, the engagement of the US President, Donald Trump, in imposing tariffs and instigating trade wars with other competing economies, particularly China, has arguably had a negative impact on both the value of the US Dollar and the performance of its own stock market.
Economic recovery, particularly in the UK and USA, has, in any case been sluggish in the decade since the 2008 global economic meltdown, which prompted central banks to set interest at very low rates in an attempt to protect their countries’ economies by stimulating investment and business activity.

A little history on exchange rates and currency values

Until the early 1930s, countries’ currencies were valued against the value of gold – the gold standard.
The quantity of gold held by a country determined the value of its currency and under the gold standard trade between countries was settled using physical gold. So, nations with trade surpluses accumulated gold as payment for their exports. Conversely, nations with trade deficits saw their gold reserves decline, as gold flowed out of those nations as payment for their imports.
The UK abandoned the gold standard in 1931 and the US in 1933, moving instead to the current fiat system, where currency values fluctuate dynamically against other currencies on the foreign-exchange markets. Fiat money is the currency that a government has declared to be legal tender, setting it as the standard for debt repayment. Essentially its value is based on market perception.
It has been argued that moving off an actual physical commodity like gold has made currency values and therefore exchange rates more vulnerable to manipulation by politicians and central banks, and therefore created a more volatile and vulnerable economic climate. This is where the market’s interpretation of politicians and central bankers is fundamental to currency values.

The effect of exchange rates on business

It is not only exporting businesses that are affected by exchange rates and currency values.
A good recent example has been the benefits to some UK SMEs, particularly in the service and hospitality industries, which during the summer of 2018 experienced something of a boom in tourism from a combination of a long season of good weather and the decline in the value of £Sterling making it cheaper for foreign tourists to visit the UK.
On the other hand, even small local SMEs whose businesses depend on selling goods and services where parts, components, food ingredients or raw materials come from overseas saw their costs rising because £Sterling’s buying power had been reduced in comparison with currencies in other countries.

Can SMEs protect their businesses from exchange rate fluctuations?

It can be harder for SMEs to protect themselves than it is for larger businesses, but the essentials for any business survival and growth are based on managing their costs and expenditure with strict and careful attention to cash flow which is best achieved by close scrutiny of monthly, or more frequent, management accounts.
If it is at all possible to manage cash flow in a way that a business can create a contingency reserve this will provide some measure of protection to a downturn in the exchange rate.
For those that have to source supplies from overseas, hedging against cost increases due to exchange rates can be done by negotiating a forward contract in your own currency based on a set price with the supplier or at least fixing the price with purchase of a forward exchange rate. This may mean missing out on future changes in the exchange rate that might benefit the SME buyer, but will provide some degree of certainty when planning ahead.
Another option may be to include clauses in your contracts which allow you to renegotiate prices should the exchange rate change significantly within an agreed period of time.
Wherever possible try to avoid the transaction fees charged by banks for making international payments. Some money transfer specialists offer an alternative, FCA regulated, service in a free multi-currency account that lets businesses hold over 40 currencies, and switch between them using the mid-market exchange rates to make payments.
While the risks of fluctuating exchange rates can be greater for SMEs with fewer reserves to fall back on planning and good communication can help to mitigate at least some of the risks.

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Business Development & Marketing General Turnaround

Corporate boardrooms – a hostile environment for female executives?

Rani Lakshibai - a woman taking on a hostile environmentDespite the depressing picture of a decline in the number of women holding senior executive positions in FTSE companies, there have in the past been many impressive female leaders such as Rani Lakshmibai, the Queen of Jhansi in India, who led her troops in battle (with her baby son strapped to her back) during the Indian Mutiny/First War of Independence in 1857.
In July this year the UK’s Cranfield Institute published the results of its 20th FTSE Women on Boards Report which reported a marked drop in the numbers of female CEOs (chief executive officers) and CFOs (chief financial officers) and other executives on the boards of FTSE 250 companies and that the numbers had remained static for FTSE 100 companies.
It found that there were 30 women in full-time executive roles at FTSE 250 firms, down from 38 last year, equating to just 6.4% of the total, and of these there were just six female CEOs and 19 CFOs.
Although the numbers of female executives in FTSE 100 companies had risen from 27.7% in October 2017 to 29% by July 2018, the women recruited were largely in non-executive director roles.
All this is despite a drive to reach a target of 33% of female executives on FTSE 100 boards by 2020, set by the government-backed Alexander-Hampton review.
At the moment just four FTSE 100 companies – the retailer Next, the online estate agent Rightmove, the financial services provider Hargreaves Lansdown and the builder Taylor Wimpey – have 50% or more women on their boards. The CBI (Confederation of British Industry) director general is also a woman, Carolyn Fairbairn.
Among the USA’s Fortune 500 companies, analysed by the Pew Research Centre, it is much the same story. Just 10% of 5,700 CEOs and CFOs in Standard & Poor’s Composite 1500 stock index companies are women.
There have been some high-profile female CEO resignations too, including Indra Nooyi, from PepsiCo, Denise Morrison, from Campbell Soup, and Meg Whitman, from Hewlett Packard.

Changing the boardroom culture to a less hostile environment for female executives

There is some evidence that the way female executives are treated is different from the way male executives are.
In an article in the Evening Standard recently the writer Anthony Hilton cited the treatment of top 10 accountancy firm Grant Thornton’s female CEO Sacha Romanowich, who he said was “effectively forced to resign” after three years.
An anonymous memo was sent to the press, he says, raising concerns about Romanowich’s alleged “socialist agenda”.  She had talked about social mobility, capped her own remuneration to well below that of other Partners in Grant Thornton and introduced a scheme to give all the staff a share of the company’s profits. Some of the company’s rivals spoke out about the brutal treatment she had been subjected to.
It was a similar story of rumour, innuendo and gossip, he says, that led to the eviction of Barbara Judge last year as chair of the IoD (Institute of Directors).
The question is whether such tactics would have been used against male executives.
On Tuesday this week, the Guardian reported on a call from Sir Philip Hampton, chair of the Hampton-Alexander Review referred to earlier, for consumers to boycott the firms that are “so clearly out of touch”.
This was after it was found that Five British companies have failed to appoint a single woman to their boards two years after the target set by the Review.
Sir Philip, who is the CEO of pharmaceuticals company GlaxoSmithKline, said: “it would be good to see pressure from the media, politicians, ourselves [as business leaders] and consumers” put on companies that are clearly out of touch with the 21st Century.
There is a theory, called the Glass Cliff, that says that women (along with other “minorities”) are more likely than white men to be promoted to CEO of weakly performing firms or during times of economic decline. Arguably, therefore, they are being set up to fail. If true this is appalling.
Historically, we are not short of examples of able female leaders, from the Rani of Jhansi mentioned above to Boudica or Boudicca, a queen of the British Celtic Iceni tribe who led an uprising against the occupying forces of the Roman Empire in AD 60, to Queen Victoria, who ruled over the vast British Empire, to two female leaders of the Tories, Margaret Thatcher and Theresa May.
It is true that female politicians are subject to some appalling bullying, insult and harassment particularly on social media.
It is also not unusual for male executives to explain the lack of female executives with excuses such as a shortage of suitably able female candidates, or that women are temperamentally unsuited to the cut and thrust of the boardroom.
Is it any wonder that in such a hostile environment for women the 19th and 20th Century attitudes of the male dinosaurs in many boardrooms are so hard to change despite the fact that they are limiting their businesses to a narrower pool of available talent than they otherwise might have?

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Debt Collection & Credit Management Finance HM Revenue & Customs, VAT & PAYE Insolvency Turnaround

Why is this Tory Government intent on destroying SMEs?

Wrecking ball destroying SMEsAt the October 2018 Tory party conference, the Prime Minister reiterated her support for businesses, calling them “the wealth creators, the risk takers, the innovators and entrepreneurs …. who generate jobs and prosperity for our country” yet the Government’s actions seem set on destroying SMEs and entrepreneurial initiative.
Whenever a SME encounters financial difficulty that make it difficult to keep up to date with its VAT and PAYE payments, it is invariably HMRC (Her Majesty’s Revenue and Customs) that is criticised for its heavy-handed and unsympathetic behaviour in recovering monies owed.
There is some truth to this given recent revelations of a surge in HMRC action to seize assets, which had risen by 45% in the tax year to March 2018, following a 23% increase in asset seizures the previous tax year. It is debatable whether asset seizure is an effective arrears-gathering measure, given that the seized assets are often then sold at auction for little value and the seizure effectively prevents a business from continuing to trade in a way that can pay off arrears.
It is worth remembering that HMRC does have discretionary powers, such as to agree Time to Pay arrangements to help businesses in arrears to settle their outstanding taxes over time although it is not obliged to offer this facility and no doubt is reluctant to do so if previous arrangements have failed.
Crucially, it must be remembered that HMRC is a tool of Government such that if HMRC is increasing its pressure on businesses, whether via asset seizure or by resorting to litigation, as I have reported in several previous blogs, then surely it is because the pressure is coming from the Government to improve its collections and recoveries.
However, the recent changes to HMRC’s creditor status and to directors’ liabilities in the October 30 Budget are telling.
Firstly, the Chancellor announced a restoration of HMRC’s status as a preferential creditor albeit behind employees unlike its pre Enterprise Act 2002 status of ranking pari pasu (equally) with employees. This means that the recovery of unpaid PAYE, CIS and VAT as any other taxes collected by businesses on behalf of HMRC will rank ahead of suppliers and unsecured creditors in insolvency.
Secondly, the Chancellor announced a measure in the Budget that has so far provoked little comment; he proposes to make directors and advisers jointly and separately liable for the preferential tax liabilities in insolvency. The details no doubt will clarify the nature of any actual liability such as if the insolvency is deliberate or not but this will effectively allow the appointed insolvency practitioners to hold directors to ransom by threatening expensive litigation against the directors personally.
This second measure is likely to be a significant deterrent to anyone becoming a director and also to entrepreneurs and indeed anyone wanting to set up a new company.
Since there also seems to be a disparity between HMRC enforcement action towards SMEs when compared with the seeming light touch on larger enterprises, it is reasonable to conclude that this Tory Government has abandoned entrepreneurs and is intent on destroying SMEs.
Who will become a director once they know what potential liabilities they are taking on?
As ever, government actions speak louder than words.

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Cash Flow & Forecasting Finance Insolvency Turnaround

Is the insolvency of your business a failure?

business failureLike old buildings that are decaying or no longer fit for use, businesses often need to be pulled down and rebuilt. Should this be regarded as failure or renewal?
There are three definitions of failure in the Cambridge Dictionary:
Someone or something not succeeding;
Not doing something that you must do or are expected to do;
Something not working or stopping working as well as it should.
Much has been written about the role of directors and how it contributes to the failure of a business but less about the lessons that can be learnt and how they contribute to the future success of entrepreneurs.
Failure is something the business writer and chairman of Risk Capital Partners, Luke Johnson, has written about and must have had further cause to reflect on following his injection of £20 million into Patisserie Valerie, which recently announced that it was in danger of imminent collapse after what may turn out to have been the subject of accounting and auditing irregularities that are currently being investigated.  Johnson was one of the company’s founders and main investors and it is perhaps no surprise that his blogsite and website that cover matters such as prudent financial management and spotting fraud have both been offline since the announcement.

Contributors to business insolvency

The potential causes of a business becoming insolvent are many but the most common is simply running out of cash which can be the result persistent losses, non-payment by customers, over trading and the consequential inability to meet liabilities. These are often attributed to the economy, market conditions and increased competition but essentially derive from decisions by directors or more specifically indecision by directors.
Changes in market conditions, or indeed in the wider economy, are arguably outside the control of the directors, although even here, it could be argued that they should have seen these coming and taken steps to protect it by focusing on shoring up profitability and cash flow.
However, the essential point is that any business failure is down to the actions or non-actions and the mindset of the directors.
How? Here are some human traits:
A lack of reality: this might be down to over optimistic assumptions, over confidence or excessive hubris. This can lead to insolvency following a failure to monitor the situation and take the necessary action to make appropriate changes.
Other, equally understandable and human emotions that can lead to inaction by directors are guilt and shame about their business being in financial difficulties.
Business restructuring advisers often cite these factors as the reason why they are called in too late, since all too often the situation has escalated beyond one which they believe can be recovered.

Where is the blame for failure?

Failure of systems and processes: a good example is the tracking of invoicing and payment processes to protect a business from late-paying customers.  If a business does not have robust systems in place and key people to monitor and act on them, it can quickly find itself in financial trouble.
Failure to carry out sufficiently regular reviews of Management Accounts or to identify warning signs of something going wrong:  this is something I have covered in depth in other blogs but essentially without a regular review of such elements as cash flow, profit and loss and success in meeting targets management will potentially miss early warning signs of something amiss and therefore fail to take appropriate action.
Failure of cash and credit management including debt collection, over trading and non-payment by clients.
These are some of the factors that are attributed as the causes or reasons for an insolvency but ultimately it is down to directors as the decision makers.
Insolvency, I would argue, is therefore a consequence of poor judgement and decision making.
However, this is how we as humans learn, indeed the only people who don’t fail are those who don’t try. Failure is necessary for us to make progress. The only issue is whether we heed and learn from our past decisions and from those of others.
 

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Cash Flow & Forecasting Finance Turnaround

September Key Indicator – energy and fuel costs

energy and fuel costsWhile the biggest overheads for industrial and manufacturing businesses are generally staff, equipment and premises costs, energy and fuel costs also have a significant impact on profitability.
Indeed, for those in the transport industry, the cost of fuel can make the difference between profit and loss and is often difficult to pass on to customers.
UK businesses are particularly vulnerable to rising energy and fuel costs for several reasons.

Electricity and gas

Approximately 50% of the UK’s electricity is produced from fossil fuels, mainly natural gas and coal, most of which are imported.
21% comes from nuclear reactors however the UK’s nuclear power stations will close gradually over the next decade, with all but one expected to stop running by 2025.
24.5% of electricity currently comes from renewable sources, mainly wind farms.
As backup the UK imports electricity but it also exports some.
Gas, on the other hand is mostly imported.
Energy companies buy supplies many months ahead on the wholesale market. The UK’s six largest suppliers, nPower, British Gas, EDF Energy, Eon and Scottish Power have announced at least one price rise this year, by an average of 5.3%, and some have also announced a second rise. They are blaming these rises on higher wholesale and policy costs (such as Government requirements for the installation of smart meters).
According to most analysts the price trend is inexorably upwards and likely to remain so. It is not helped by the reduction in the value of £Sterling following the 2016 EU referendum outcome, which has made importing anything, from raw materials to goods and services considerably more expensive.

Petrol/Oil

Oil prices are vulnerable to supply and demand but here, too, there has been a steady upward trend, certainly for the last two years.
Brent Crude (from North west Europe) has risen from a per barrel price of $48.48 in July 2017 to $74.25 in July 2018. This is the source of much of the UK’s petrol and diesel. OPEC oil prices have also risen from a 2017 average $52.52 per barrel to an average of $69.02 in 2018.
Some analysts are predicting that world prices will start to reduce into 2019, but the Brexit impact on exchange rates may mean UK still having to pay more for oil. In addition, geopolitical uncertainty such as the change in the US attitude to Iran and the threat of sanctions makes a drop in prices less certain.
This is easily monitored at the petrol pump which has seen a steady rise in the prices of both petrol and diesel, currently as high as 133.1p per litre in some petrol stations.

How can SMEs reduce their energy and fuel costs?

Each company is different and much will depend on how many vehicles you need, how many and how large your buildings are and how much energy is required to run your production processes and offices.
While domestic consumers are constantly exhorted to switch energy suppliers to reduce bills, much less attention is paid to business customers doing the same. According to the website Money Saving Expert, which also provides advice for businesses, it is possible to make substantial savings through switching and negotiating with suppliers, also through collaborating with others to achieve volume discounts.
It claims: “On average small businesses spend approximately £5,100 on electricity and £4,100 on gas per year” and shopping around can save £1,000s. There are a number of buying clubs and membership organisations that are negotiating volume deals for members which again can achieve significant savings.
So, it can make sense for a business to shop around for the best deal, albeit that dual energy tariffs are not available to businesses. It is, however, possible for businesses to get one to three-year fixed rate deals.
Similarly, it makes sense to ensure vehicles and buildings are as energy efficient as possible where there are a number of grants available, although many are EU grants so don’t delay if you want to take advantage of these. Useful sources of information about grants can be found at the Energy Saving Trust and from your local authority where the development officer is normally the best person to contact.

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Business Development & Marketing Cash Flow & Forecasting Finance Turnaround Uncategorized

SMEs, cash flow forecasting and resilience

cash flow forecasting in stormy weatherThe CEO of a business finance provider, Richard Pepler, of Optimum Finance Ltd was recently reported by the publication Business Matters Magazine to have suggested that entrepreneurs should take a business competency test similar to the driving test before being allowed to set up and run a company.
In fairness this was in the context of his stressing that cash flow forecasting and up to date management accounts were essential documents for a business to produce and monitor regularly.
This makes sense given that a recent survey of SMEs by American Express revealed that 46% of “senior decision makers” had reported that cash flow issues were distracting them from focusing on elements of business growth such as product development and marketing.
As my regular readers will know, I, too, emphasise that regular preparation and scrutiny of management accounts and cash management schedules are fundamental to business survival, resilience and business growth.

Why cash flow forecasting and control are more crucial than ever now

The latest Markit/CIPS service purchasing managers’ index for the services sector showed a reading of 53.5 in July, down from 55.1 in June – the slowest rate in three months.  It has reportedly also slowed down in the Eurozone services sector.
This should sound a warning note given that despite the UK decision in June 2016 to leave the EU, the services sector has remained resilient so far when compared to manufacturing, which has been much more volatile.
This year, at a time traditionally called the “silly season” by the media when politicians are on holiday, there appears to have been no let-up in the flood of Brexit-related noise from both sides of the divide.
In just the last few days we have had Mark Carney, Governor of the Bank of England warning that the chances of a “no deal” Brexit are uncomfortably high and Overseas Trade Minister Liam Fox putting the odds of this happening at 60:40.
The pro Brexit side seeks to play down the fears of lorry parks outside Dover, food and medicine shortages etc as absurd, with Sir Bernard Jenkins this week comparing such warnings to the fears over the Millennium Bug that turned out to have been fruitless and Jacob Rees Mogg asserting that the UK would thrive by trading under World Trade Organisation (WTO) rules while the EU would lose out.
With a global trade war in the background as well, is it any wonder that organisations like the FSB (Federation of Small Businesses) and the IoD (Institute of Directors) are complaining about an “information void” that is making contingency planning near-impossible. An IoD survey of 800 business leaders showed fewer than a third had made any Brexit contingency planning because of the uncertainty.
In my view it is precisely at times of extreme uncertainty that SMEs most need to be building their cash reserves and closely monitoring their Management Accounts.  I recommend that holding a surplus of cash offers a safeguard against any unexpected and unwelcome surprises as well as having the resources for what may be some stunning opportunities.
Now, more than ever, businesses need to build resilience into their finances and protect themselves from potential economic storms if they hope to thrive and eventually grow sustainably.

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Business Development & Marketing Finance General Turnaround

Leaders: Can you imagine turning off your phone when on holiday?

enjoy this tropical sunset more by turning off your phoneIt is well-known that a third of SME business owners take fewer than 10 days off per year and on average work at least 50-plus hours per week compared with the average of 37 hours for employees.
Even those who do manage to take a holiday often keep in touch with their offices and would not dream of turning off the phone.
This is hardly likely to please your family or whomever you are holidaying with, but have you thought about the damage it may be doing to you and your business?
 

Why you should consider turning off your phone on holiday

The most obvious reason is that you need time to relax and recharge your mental batteries. You are hardly likely to be able to do this if you are constantly attuned to the possibility that you need to be available to answer questions by phone or email.
Many business owners also suffer from a need to be constantly in control of every aspect of their operation and find it hard to delegate to others in their organisation. This means that too many are working in their business rather than on it and may be missing out on opportunities and ideas for growing and developing the business.
This focus on maintenance instead of strategy can lead to stagnation instead of growth.
This relates to the main reason why you should consider turning off your phone. You can relax properly. An uncluttered brain thinks subconsciously and can bring a perspective to problems. It affords you the time to reflect and through the process of reflecting on past successes and failures you come up with new ideas for the future.
You really ought to have the systems in place and sufficient back up to allow yourself to switch your phone off without anxiety. You should be able to reassure yourself that the business will continue without you, albeit only for a few weeks.
If however it really is impossible to be completely cut off from your business while on holiday, there are several things you can do to better manage that contact and carve out time to relax, refresh and reflect.
You can engage a call handling service that you can brief properly so that they can handle your calls in a way that only critical ones are passed on. Another option is for you to receive a daily report with details of anything that needs your urgent attention. You might schedule a daily 15-30 minute time slot to deal with anything that emerges knowing you can switch you phone off outside here calls.
If using a virtual assistant/ call handling service is not right for your circumstances you can identify someone to whom you can delegate to operate a similar system.  It may be that this will also help to identify areas that can be perfectly well handled by another member of your team in the longer term and free you from the need to control everything as well as from the fear of letting go of at least some control.
If you are planning a holiday and are willing to risk turning off your phone for most of the time it is wise to make some simple preparations such as informing all clients that you will be away and giving them the name of a person to contact with anything urgent in your absence. You will also need to explain to that person what they need to know about any current issues clients are facing.
Consider such preparations as business continuity planning just in case you need to take time off. What happens if you are ill?
If you really want to, you can resolve to take your break and relax reassured that it will be in the best interests of your business to do so.

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Business Development & Marketing General Turnaround

Apply the insights from business anthropology to your company

business anthropology and the evolution of human behaviourHaving introduced business anthropology in a blog last month, now is a good time to start applying what you have learned.
To remind you, business anthropology looks at the relationships and interactions between people working with each other. It looks at the relationships and motivations of individuals and teams and how you might ‘press the right buttons’ to improve productivity.
Great insights cam be gained by observing people and how they behave with others. This can be difficult for leaders as it involves watching and listening objectively and not interfering while carrying out their research. It raises their level of awareness.
It can also be used to look at clients and consumers whether looking at their interactions with your products and staff, or at your staff and how they deal with customers, rather like a secret shopper.
Essentially business anthropology insights can be used to make improvements to your business.
There are three areas where you might consider applying such insights. These are in changing the corporate culture, refining relationships with customers and clients, and in developing new or improving existing products/services.

Business anthropology and corporate culture

In a situation where the age profile of the workforce may be changing as new, younger employees join your business and have to learn to interact with older employees it may be that you should pay some attention to understanding the differences in approach and work style of the two groups and introducing ways of encouraging greater integration.
There will be many more areas to look at but the approach begins with awareness of a need to change and is implemented through engagement with those affected.

Business anthropology and customers

This is about listening for unmet needs, pain points and challenges.  It is also about how your employees interact with customers.
It can be helpful to go through the process of buying and using a product yourself and this can often feed in to developing a new product or service.
An illustration of this is from 1999 when Procter & Gamble, suppliers of cleaning products, engaged anthropologists who watched people cleaning their floors. They noticed that the process also involved a significant amount of time spent cleaning the mop itself.  The result was the development of the Swiffer, floor cleaning equipment that came with a handle/applicator and a collection of disposable pads to attach and use for wet or dry cleaning.  This remains one of the company’s most popular products.
It worked because the observation of the process identified a “pain point” and provided an adaptable solution that cut down on the amount of time needed to clean a floor.
Please let me know if you have applied business anthropology methods to your business and what insights you gleaned from your observations.

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General Rescue, Restructuring & Recovery Turnaround

Why whistleblowers can be a force for good in your business

not whistleblowersMany people are afraid to speak out when they discover wrongdoing or questionable behaviour in their workplaces for fear of the damage they may do to their careers and employment prospects since all too often they are often regarded as outcasts.
The recent high-profile revelations by whistleblowers in the Cambridge Analytica and Brexit campaign organisations have shown that, in these days of ubiquitous social media, those who were brave enough to speak out became the target of some high-profile abuse and attacks, some of them personal.
But if your business is one where a culture of speaking out is either frowned on or not encouraged it may well be missing out on information that could help it to improve not only its operations but also its values and reputation.

Make your business safe for whistleblowers

Employees are often in a better position to see when something is going wrong than its board members are.
So how can you ensure that you are alerted to behaviour or practices that could damage your business?
You need to make it clear that revelations of malpractice or ineptitude are welcomed and that your business culture is transparent and open to people being able to voice concerns in a responsible and effective manner.
Malpractice can cover a wide range of situations from bullying, theft, bribery, fraud and corruption to endangering people’s health and safety to misuse of company property as well as any attempts to conceal such misdeeds.
Ineptitude becomes a whistleblowing matter if it has an adverse impact on people and the business or if it relates to breaches of company policies.
It is therefore good practice to have a clearly-defined whistleblowing policy and to let everyone know it is safe to raise any concerns they might have and that allegations will be treated as having been made in good faith.
The policy should clearly state the procedures that should be followed when anyone identifies something that they feel ought to be reported. It should also set out the procedures for managers to deal with the matter and cover confidentiality and protection for everyone involved.
Confidentiality is an issue that is also covered by privacy law. Those making allegations should be encouraged to put their name on record although disclosure needs to be managed carefully. You should also identify an investigating director within your business with whom concerns can safely be raised.
If the whistleblower feels that they need it, it should be made clear that your business is happy for them to be accompanied by a trades union or other representative at all meetings and hearings.
The investigating director should be required to fully investigate the allegations and prepare a written report of the allegations, their findings and their recommendations, preferably with the involvement of your HR department.
The whistleblower must be kept informed of progress as should the person about whom allegations are made, especially if they are an employee.
If necessary, it may be appropriate to involve relevant outside authorities, such as the HSE or the company’s auditors and if necessary the police.
While the company culture should be one of trust such that employees who report a matter as a whistleblower should be believed, you should also be aware of their agenda. The investigation may reveal that the whistleblower is in fact the problem which is one reason why the investigations should be discreet and the confidentiality of all parties preserved. If a whistleblower does turn out to be the problem or they are using the procedure to pursue their own agenda then they should be dealt with under the company’s disciplinary procedure.
Whistleblowing is, however, essential when some people are wilfully blind to behaviour that ought to be addressed. An open and constructive approach to confronting and dealing with such behaviours is essential to a company’s values, culture and reputation.
A properly constructed whistleblower policy can encourage people to act in the best interests of your company and ultimately ensure your business reputation is not compromised.

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General Insolvency Rescue, Restructuring & Recovery Turnaround

How do you resolve a boardroom conflict?

boardroom conflict like two rhinos going head to headIt is not unusual when I am called in to advise a SME in distress on restructuring its business that I find that there is a conflict among directors.
Perhaps it is no surprise that in today’s trading environment there should be disagreements at board level about how to proceed, particularly during financial difficulties when people are under stress.
However, a successful turnaround plan depends not only on my thorough investigation of the state of a business, in terms of the numbers and the business model, it also needs the support of the board, suppliers as creditors and other stakeholders, not least the employees.
While a conflict among directors has the potential to undermine, damage and disrupt a business at any time, this is more so in a tight corner when leadership and a united team is needed to execute a turnaround plan.

Tools that can help to resolve a boardroom conflict

While every business, and every conflict, is likely to be unique there are some tools that can help when seeking an acceptable resolution.
Does your company have a shareholders’ agreement or articles of association that lay out an orderly board process when dealing with disputes? Does it have a staff handbook that deals with behaviours that can get in the way of conflict resolution such as bullying and abuse? Are you familiar with board governance and protocols for dealing with issues and majority decisions?
A suitably drafted shareholders’ agreement can be particularly useful to set out those decisions that can be taken by directors and those that require shareholder consent. They can also be used to set out circumstances that require directors to refer matters to shareholders such as when directors disagree.
Does the business have a chairperson who is familiar with governance and their duties as well as knowing and understanding the characters of those involved in the conflict? They need a level of self-awareness in addition to people and communication skills and ought to remain neutral when meetings become heated.
Has the dispute been subjected to a Root Cause Analysis (RCA) to identify where and how the dispute has arisen?  The origins of a dispute in a RCA can be classified as coming from a physical cause, such as a machinery breakdown; human causes, such as personality clashes, not everyone pulling their weight or perhaps making mistakes; organisational causes, such as hidden flaws in a system or process that are likely to lead to misunderstandings; or financial and strategic disagreements such as over investments or the direction of the business.
Whatever the root causes, their appearance may well need engagement by shareholders or even secured lenders concerned about how the company is being managed. It can be important to distinguish between frustration and under-performance or whether there is a fundamental disagreement since the process and outcomes will be very different.
Conflicts of interest among directors are also an issue and should be transparent since directors often have several roles with different stakes in the outcome, whether as employees, minority shareholders, majority shareholders, creditors, guarantors, opportunist, or they are passionate about the business at a level that can make them blind to reality. Whatever their other roles, as directors they have a primary duty to the company including its shareholders and employees when the business is solvent, and to its creditors when it is insolvent including when there is the slightest prospect of creditors not being paid.
Most conflicts can be resolved through listening, understanding, empathising, negotiating and compromise to reach a consensus, and this is where external advisers such as a restructuring adviser can help.
Deadlock situations such as between two directors who each own 50% of the shares tend to be the most difficult to resolve. This is where trusted parties such as friends representing each director can be useful to help the disputing parties distinguish between emotion and practicalities. Some form of mediation or dispute resolution process is also often necessary to manage the process as well as find a resolution.
The courts also offer a useful backstop although it will be necessary to show that alternative dispute resolution options have been explored before seeking judgement.
As an aside, deadlock situations can be avoided by having a simple agreement at the beginning of the relationship. One I introduced years ago as a 50/50 shareholder setting up a business was with a co-director where at the time we both attended the same church. We agreed with the vicar that if ever we had a dispute we would seek and be bound by his adjudication. The vicar understandably didn’t want to take sides but agreed for his part to appoint an appropriate expert who would pursue a process and if necessary recommend a resolution. We agreed that this would be binding on us since we both trusted the vicar and his desire to ensure a fair outcome in the event of a dispute. Fortunately, we never had to call on his wisdom to rule ‘the Judgement of Solomon’.

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Banks, Lenders & Investors Business Development & Marketing General Turnaround

What is business anthropology and how useful is it?

business anthropology and the evolution of human behaviourAnthropology is the study of humans and human behaviour and societies in the past and present and business anthropology applies the same methodology to the business world.
It can therefore focus on a wide range of business behaviours, including management, operations, marketing, consumer behaviour, organizational culture, human resources management and international business.
If you read my blogs regularly you will know I am a firm advocate of knowing, understanding and monitoring every part of your business, from operations and processes to cash flow and profitability and of regularly reviewing your management accounts.
These are all very practical and crucial aspects of a business’ performance, but I would argue that no business can hope to sustain its success and profitability without also understanding the human beings with whom it engages.

So how and where is business anthropology most useful?

Understanding the interactions and likely behaviour of the human beings with whom your business is involved is important to many aspects of a business if you want to increase profitability and grow.
It can be especially important if you have identified a problem that needs to be addressed.
Employee engagement is crucial to sustaining and improving productivity, whether it is in developing new and more efficient processes or simply increasing sales. Issuing instructions is not enough.  Productivity initiatives are unlikely to yield results unless people are well-motivated and feel valued and it is therefore important to understand what matters to them and what is likely to motivate them. This is where business anthropology can be a useful tool.
Another aspect of business anthropology that can add to your insights is how the workforce communicates with each other and with external stakeholders such as customers; essentially this is its corporate culture.
Crucially, your behaviour as a leader and that of your managers defines the workplace environment and over time embeds the business culture. But if you want everyone to buy in to the business’ vision and culture you need to understand how to “press the right buttons” and again business anthropology can bring insights into this.
Knowing the causes of and how to manage performance and stress alongside profiling staff and customers to understand how they are likely to react can be helped by using business anthropology’s insights to improve the success of growth and productivity plans.
And finally, in an increasingly global culture where it is likely that once the UK has left the EU businesses will have to redouble their efforts to build trading relationships with many other countries the insights found in business anthropology can help to understand and apply the conventions found in other cultures and countries.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Turnaround

K2 Key Indicator: is the UK construction industry in terminal decline?

construction industry at workThere is no doubt that the UK’s construction industry is facing a number of pressures including a lack of funding, inadequate planning approval processes and a severe skills shortage.
In this first of a monthly Key Indicator series that looks at major industries and their future, this month I look at the construction industry.
In the November 2017 Budget, the Government set a target to build 300,000 new homes per year to address the country’s chronic housing shortage. This has been estimated by the lender Urban Exposure as requiring £20 billion-plus of new funding.
In January this year, the Government launched a new national housing agency, Homes England, in order to help achieve this target. Its aim is to bring together existing planning expertise and new land buying powers.

Financing new housing development

There is a distinction to be made between the smaller house-building companies (those building 100-150 homes per year) and the relatively small number of large concerns.
Despite the controversial profits made by some larger house builders from the Help-to-Buy scheme, the House Builders Federation (HBF) estimated that between 2007 and 2009 after the 2008 Financial Crash one third of smaller companies stopped building homes. This equated to a loss of 25,000 homes per year being built.
Since then, of course, a combination of massive losses post-2008, consequent risk aversion and the tighter Basel 3 regulations on bank lending to what are termed High-Volatility Commercial Real Estate Loans (HVCRE Loans) has made borrowing by developers much more difficult.  Basel 3 means that banks are now required to set aside 18% of capital as a buffer for these loans compared to buy to let property loans of just 4%.
Consequently, lending to developers by the big banks, particularly to the smaller construction companies, who cannot access the bond markets direct, has plummeted. In 2016, CityAM reported that UK banks had halved their lending to property developers, down from £32.5bn in April 2014 to £14.9bn in April 2016.
The lending policies are clearly daft given that Loan-To-Value (LTV) on development property is typically 60% whereas the LTV on buy-to-let can be 95%
This has led to the growth of specialist property lenders such as Shawcross, Close Brothers and Paragon, the first two of which won top awards in this year’s online publication Moneyfacts awards. None of these specialist lenders has incurred any losses for some years which begs the question about the banks’ understanding of the market.
As yet, however, these specialist lenders, along with newer entrants such as HCA, Titlestone and Urban exposure, have not filled the funding gap.
In the meantime, according to a Reuters report on a survey mid-2017, the directors of small British construction businesses have been plugging the funding gap with their own resources but this has been limited and not at the amounts required, hence a significant scaling back by small builders.
Still, UK Finance reported in February 2018 that while, manufacturers’ borrowing had expanded slightly, the construction and property-related sectors had contracted.
Meanwhile despite the 300,000 target and the new Government agency, the Government continues to push its Help-to-Buy scheme that has improved the profits for larger firms by pushing up house prices due to limited supply.

The construction industry, planning, Brexit and the skills shortage

It would be impossible to fairly assess the future of the UK construction industry without considering planning, Brexit and the industry’s skills shortage. I make no apologies for calling it a crisis, not least because that is what the Federation of Master Builders (FMB) called it earlier this year.
This was after its quarterly survey into skills revealed that companies are particularly struggling to recruit bricklayers and carpenters, but that demand for skilled plumbers, electricians and plasterers is also outstripping supply.
This is also pushing up wages, thus adding to the costs being borne particularly by the smaller businesses many of which are losing staff to larger firms.
It has been estimated that one in five construction workers in the housebuilding sectors is foreign-born with 17.7% from EU countries. Across the country, Romania is by far the most common country of origin, followed by Poland, Lithuania and Ireland.
There has been plenty of evidence that EU nationals including construction workers have been leaving the UK in large numbers, while fewer have been coming since the June 2016 decision to leave the EU.
A combination of rising hostility towards migrant workers, the tediously lengthy and uncertain process of agreeing the status of migrant labour during the Brexit negotiations and more recently the revelations by the Home Office of a “hostile environment” for immigrants despite them having lived and worked in the UK for years are not helping the UK plug its construction skills gap.
Planning consent has been for some time an issue causing delay by depleted departments drowning in applications and appeals. This along with the system of local and regional planning committees staffed by inexperienced councillors dealing with NIMBY local inhabitants and the lack of local and regional frameworks to identify land for housebuilding are all contributing to a sclerosis in the planning system.
Myopia and an absence of joined-up thinking seem, sadly, to have been the characteristic features of Governments for some time and despite the rhetoric it continues, which bodes ill for the future of the construction industry.
I am not however yet willing to drive the final nail into the industry coffin.  There is a chorus of voices from many sectors of UK industry warning against the foolishness that characterises much of the Brexit negotiating stance, and the volume of noise is rising as the consequences emerge.
Being an optimist, I hope that they will be listened to and sanity will prevail before it is too late.

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Banks, Lenders & Investors Finance General Turnaround

SMEs demand fair treatment from their High Street Banks

High Street banks sharkEver since the eruption of the 2008 Financial Crisis there has been a seemingly never-ending series of revelations about the way the big banks have treated their SME customers.
Perhaps the most high-profile of these has been RBS (Royal Bank of Scotland) and the devastation it has allegedly wreaked on approximately 16,000 small businesses through GRG, its so-called restructuring division.
Its behaviour was first highlighted in 2013 by the Government’s then business advisor Lawrence Tomlinson, suggesting that GRG applied higher interest rates, extorted high interest rate swaps, pressured customers to sell assets to repay loans, took equity stakes in businesses and pushed them into administration and in some instances bought their former client from their appointed administrator.
Eventually, after considerable lobbying, the situation was investigated by the Financial Conduct Authority (FCA), which published a summary of its findings earlier this year, although it took pressure from the Treasury Select Committee to get it published in full. RBS had a lot of dirty laundry that they wanted to hide from their clients.
However, RBS was only the most high-profile of such scandals, with HBOS, since acquired by Lloyds, also being exposed for its treatment of SMEs. HBOS Reading between 2003 and 2007, referred distressed clients to Quayside Corporate Services, a consultancy that in collusion with the bank plundered the clients’ assets. In this case, six people including bank managers have been jailed for fraud.
Lloyds seems to have done a good job with affected clients, either settling claims or at least managing its PR. RBS, however, has been publicly criticised for its poor progress in compensating the small business owners mistreated by GRG.

The UK’s future economy will depend on SMEs being able to trust their High Street Banks

It should be no surprise, therefore, in the light of such scandals and given the regular reports of the big banks’ inadequate support for their clients in difficulties and their lack of lending to SMEs, that trust among small firms in banks has been undermined and has resulted in SMEs feeling exploited.
Nor should it be surprising that many SMEs are not seeking finance from banks, and if they are seeking finance they are turning to alternative finance providers to fund their growth plans.
Indeed, the FCA’s report into GRG recommended that the turnaround units in all banks should be reviewed, as well as how banks interact with insolvency practitioners who generally act as their advisers when dealing with clients in difficulties. It also recommended enforceable standards of conduct for turnaround units.
There have been calls from the All Parliamentary Group on Fair Business Banking (APPG) for tougher action to protect SMEs from bullying by banks.
The Treasury Select Committee has also launched an inquiry into the whole issue of finance for SMEs, which will consider banks’ duties when dealing with SMEs as well as avenues for dispute resolution and redress.
It has taken 10 years to get to this point.  How many more years will it take before SMEs, the backbone of the UK economy, see effective, concrete action? And how many more for them to trust their bank?
Given the UK economy’s reliance on SMEs, when will banks support them and treat them fairly?

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

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.
 

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Business Development & Marketing General Turnaround

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?

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Finance General Turnaround

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.

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Business Development & Marketing Finance General Turnaround

The pros and cons of Brexit for British farming

where next for British farmingWhile Britain is not self-sufficient in food, 60% of the country’s food supplies does come from British farms.
In terms of the country’s economic output farming accounts for just 1%, but from the farmers’ perspective the EU is its biggest market. Food and farming provide about 475,000 jobs in the UK.
Having said that, it is argued that much of the UK’s farming would not be viable without the subsidies provided by the CAP (Common Agriculture Policy), first introduced in 1973 when the UK joined the then European Economic Community.
Indeed in 2016, Government payments to agriculture totalled £3.1bn, more than half of overall British farm income, and yet in that year 26% of farms failed to break even.
There are those who argue that the subsidy has acted as a brake on innovation, preventing some farmers from getting out of the business and others from entering it. It has also, allegedly, inhibited what some see as necessary structural change and diversification.

Could Brexit provide a much-needed shake-up in British farming?

The negatives for farming of the decision to leave the EU have been well-rehearsed. Already there have been reports that the negative attitude to EU migrant labour has had an impact particularly on fruit and vegetable farmers’ ability to recruit enough seasonal workers to pick and pack crops when they are ripe, forcing them to leave produce rotting in the fields.
At the same time, farming faces constant pressure when selling in to the food production supply chain and to the supermarkets whose purchasing power keep prices down, almost to the point of being unable to make a profit on their efforts.
Equally, farmers argue that their current tariff free trade with the EU needs to be preserved if they are to survive.
There have been some initiatives to diversify the rural economy, to the extent that it is now not uncommon to see redundant barns on farms converted in to business centres for SMEs, some farmers have capitalised on the movement for fresh, chemical free and organically grown produce and plenty have set up their own farm shops. But the inadequacy of rural infrastructure, from reliable broadband to inadequate rural roads acts as a brake on such initiatives.
Similarly, there are other vested interests, such as those who want to preserve “the countryside” and regularly oppose planning applications for a change of use to rural buildings, that act as an inhibitor to innovation.
One thing is for sure and this is that there needs to be a new vision and more joined-up thinking about the countryside, especially as the CAP will be scaled down and eventually discontinued in the transition to Brexit.
The Government produced a Command Paper in late February with proposals on what next for the rural environment and its economy. Given its impact the consultation period seems limited with input required before May ahead of a new Agriculture Bill.
Under the proposals, up to £150m in support payments could be shifted from the richest farmers to environmental schemes after Brexit.  There are also suggestions for various ways of phasing out the CAP.
The aim, according to Environment Minister Michael Grove, will be to shift the balance between the environment, its protection and farming. But it also includes proposals for a national food plan, something that the NFU (National Farmers’ Union) has welcomed and incentives to farmers to pilot schemes to improve both animal welfare and to trial new technology.
Perhaps this is one case where Brexit will provide an opportunity for some innovative thinking that is arguably sorely needed.

Categories
Accounting & Bookkeeping Banks, Lenders & Investors Finance Turnaround

What is a company audit and why is it important?

audit seal of approvalFollowing the collapse of Carillion in January this year with over £900 million of debts, a £590 million pension fund deficit and uncalculated £millions in uncompleted contracts several investigations were announced into what went wrong.
Among these is a probe, by the independent accountancy regulator, the Financial Reporting Council (FRC), into the company’s audits for the years 2014, 2015 and 2016 by auditors KPMG, to identify any breaches of regulatory requirements “in particular the ethical and technical standards” required of auditors. This week the FRC also announced inquiries into two of the company’s former financial directors.
This is not surprising given that Carillion was one of the UK Government’s largest contractors for outsourced services and building projects, but it is often the case that where businesses collapse one of the spotlights invariably falls on the auditors.

Why focus on auditors when things go wrong?

The Institute of Chartered Accountants in England and Wales (ICAEW) is one of the bodies appointed to approve and register auditors, as required by law, and defines the purpose of the audit as follows:
“to provide an independent opinion to the shareholders on the truth and fairness of the {company’s] financial statements, whether they have been properly prepared in accordance with the Companies Act and to report by exception to the shareholders on the other requirements of company law”.
Audit reports are filed with Companies House and used by suppliers and other interested parties to make decisions about their trading relationship with the company concerned, not least how much credit to extend.
Auditors therefore are the public scrutineers and should be held to account if they are found to be complicit in any deceit through concealing problems that ought to be highlighted.

Who is required to have a statutory audit?

While there are some exemptions covered below, in principle, any public body or business above a defined turnover and size, as well as any business of whatever size that comes under FCA regulation, such as those involved in banking and insurance, must have audited accounts.
In addition, a business, whatever its size, must have an audit if shareholders who own at least 10% of its shares request one at least one month before the end of the financial year for which the audit is being requested.

Who is exempt from a statutory audit?

Subject to the above, businesses and organisations qualify for exemption if they can satisfy at least two of the following three conditions: an annual turnover of no more than £10.2 million, assets worth no more than £5.1 million and/or 50 or fewer employees on average.

Who can carry out an audit?

Accountancy companies containing suitably qualified individuals and which are registered with a recognised supervisory body, such as the ICAEW, are empowered to carry out audits.
To qualify they must be and be seen to be independent, to comply with auditing standards and ensure that all their employees are “fit and proper persons” competent and qualified to carry out the work.
Equally important is the code of ethics to which auditors must conform, which includes behaving with integrity, and being objective, only accepting work the member or firm is qualified to do and maintaining standards of professional knowledge. The auditor must also maintain confidentiality and must not use information about a company it is auditing for their own professional gain.
Another requirement for auditors is for them to demonstrate that they do not have any conflict of interests with the company they are auditing. This can be an issue for large complex companies but essentially the auditor ought not to have any relationship or be doing any work that might be used to influence the outcome of an audit.
Plainly, it is important for there to be some proper scrutiny of a business’ accounting and handling of its finances, for the sake of creditors and those people who have a stake in its survival and this is why the role of auditor in the event of a collapse is inevitably going to be a focus of investigation.
 

Categories
Banks, Lenders & Investors Finance Turnaround

The relationship between banks and SMEs would appear to have fundamentally changed

are banks still sharks?Perceptions are hard to shift once they take root and the SME perception of mainstream banks’ willingness to lend to them is a case in point.
Is this a lending issue or a trust issue?
According to Richard Davies, the commercial banking director at TSB writing in the Daily Telegraph in January this year: SMEs are “a group that has been under-served, under-valued and over-charged for two decades – neglected by the big banks”.
He argues that SME confidence in their ability to raise finance is low such that many no longer talk to their bank and attributes this to both the after-effects of the 2008 financial crisis and the fact that the big banks have removed the personal relationship between banks and local clients, opting for an impersonal one size fits all service rather than catering to the diverse needs of local SMEs.
According to UKFinance.org, a trade association which was founded in July 2017 to represent the finance and banking industry, the value of new loans to SMEs in the final quarter of 2017 in Great Britain was approximately 11 per cent lower than in the same quarter of 2016.
The question is whether SMEs are applying for loans and then being refused or whether many are no longer applying for loans.
The 2008 financial crisis and the Brexit decision have both contributed to greater uncertainty over the future which has resulted in businesses of all sizes holding back on their investment decisions. This would suggest fewer loan applications as would a reduced confidence in any ability to repay loans.
However, there is also some evidence that SMEs are both aware of and approaching alternative sources for finance.
The rapid rise in loans by alternative lenders such as peer-to-peer lender Funding Circle would suggest they are no longer the alternative but the first choice. It will be interesting to see what happens to them if the banks turn the taps on.
Asset finance providers also have been reporting a growing recognition and awareness among SMEs about alternative sources of finance. “We have seen an increase in alternative funding solutions,” says Conor Devine, Principal at GDP Partnership.”
It is a view supported by the OECD (Organisation for Economic Co-operation and Development) which in its February report observed: “Small and medium-sized enterprises (SMEs) are increasingly turning to alternative sources of financing, while new bank lending is declining in a number of countries.”
But there is a long way to go according to Mike Cherry, national chairman of the FSB (Federation of Small Business) who recently said that only one in 10 small firms was applying for external finance.
Trust takes years to build and is easily damaged.
Whether or not the banks really are more willing to lend to SMEs is still unclear, but it seems that the relationship has changed with many not even speaking to their bank in the first instance. Instead SMEs are looking elsewhere for their funding requirements. Will the search for banking services follow?

Categories
Cash Flow & Forecasting Finance General Turnaround

Why do you need regular Management Accounts?

regular management accounts reviews are your business map and compassWhen setting out on a car journey you need a destination, map, and ought to check the traffic and weather reports, so you can choose the optimal route. You also need to have enough fuel and money to buy more if needed. Indeed, there are many aspects of the planning that are taken for granted for regular trips that you will think about for a holiday or long journey.
Along the way, you will check where you are on the map, monitor traffic and weather conditions and make changes accordingly. You will also monitor your fuel and refuel as necessary. You might even monitor fuel efficiency and adjust your speed to reduce consumption.
This analogy can be applied to running a business. It can be difficult enough to keep a business on track to meet its goals and forecasts, even without the external effects of ups and downs in the economy and, currently, the uncertainty being caused by the ongoing Brexit negotiations.
Therefore, a business needs to be able to assess at regular intervals how it is performing as well as being able to spot early warning signs that something may be going wrong or veering off track. This is where monthly Management Accounts are so useful.
The components of monthly Management Accounts, as outlined in our blog of February 13, 2018, would ideally include an up to date Balance Sheet, a detailed Profit and Loss statement, a Trial Balance and summaries of Aged Debtors and Creditors.
These are the business equivalents that allow you to check where you are on your route map. They provide an indication of the state of your business, its continued health and its ability to reach its destination as defined by the goals you set and forecasts you prepared as part of your planning.
The Balance Sheet, for example, shows the company’s assets and liabilities and more importantly how much money is has in the bank, how much is due and how much is owed to suppliers and others such as HMRC. These are key to monitoring short-term cashflow, which needs to be well-managed if the company is to avoid running out of funds.

Regular Management Accounts are your early warning system

Ideally Management Accounts should be reviewed monthly, or at the very least quarterly.
They will tell you how well sales and margins are doing and how they compare with forecasts and targets. Organising them to provide detail can allow you to see performance by product line or by market segment, even by customer if you have some large accounts. You can also monitor costs which can also be reported in detail so in turn margins and profit contribution by product line or market segment can be monitored.
The information will allow you to adjust the business goals and forecasts as appropriate. If costs are rising, it may be time to review which suppliers you use, perhaps also staff overheads.
You might also monitor the cost of repairing and maintaining machinery or equipment and use this to assess when it should be replaced,
If there are financial anomalies, they may indicate fraud or other malpractices that need to be investigated and dealt with.
Above all, a regular review of Management Accounts will allow you to stay in control of your business and provide you with the information to make early decisions that move it forward in the best way possible.

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Business Development & Marketing Finance General Turnaround

How to protect your business reputation in a crisis

self protection in a crisisFew high-profile businesses will avoid encountering a problem that exposes them to scrutiny.
How that business and more pertinently its leaders then deals with the crisis may determine whether its customers remain loyal, and ultimately whether it can survive.
The recent problems KFC met after changing suppliers, which resulted in their having to close the majority of their UK units for a few days due to an absence of chicken, is a good example of how to respond well.
Firstly, they posted notices at the closed units apologising, but with a touch of humour, explaining that while the chickens may have crossed the road, they had not arrived at KFC.
Secondly, the company was open about the cause of the problem, a change to a different logistics company.
Thirdly, they took out full page advertisements in some national media, apologising and cheekily including a picture of their logo, but with the KFC changed to FCK, into which, of course, most people were able to insert the missing letter and to which the reaction was a smile.
If anything, the company will not have lost customers. In fact, it has been speculated that it may have gained some as occasional customers realised how much they would miss the product’s easy availability.
The KFC approach illustrates several elements a business needs to get right if it is to avoid reputational damage. It put customers first, apologised and gave an explanation, rather than an excuse.  Above all, it was brave enough to use humour in a way that people instantly connected with.

How to get it wrong when reacting to a crisis

By contrast, in the same week, MPs released the full version of an FCA (Financial Conduct Authority) investigation into the behaviour of RBS and its restructuring arm GRG, which has been accused of acting in its own profit-making interests at the expense of thousands of SMEs, many of which it is accused of having forced out of business rather than helping.
The report had been previously released in summary, in which various points from the full report had not been included or arguably had been “watered down”. RBS Chief Executive Ross McEwan was then interviewed by various news media and appeared before the parliamentary Treasury Select Committee.
The general consensus from commentators was of an inflexible and defensive tone and a failure to acknowledge discrepancies between the full and summary reports or any RBS responsibility for what happened.
While, as Ross McEwan has said, a system for SMEs to claim compensation had been put in place, the compensation process has been questioned by Mike Cherry, chairman of the FSB (Federation of Small Businesses), who said: “What really matters now is that GRG victims receive the compensation they’re due. Amid concerning reports about the scope of RBS’ £400 million compensation scheme for those affected, it’s encouraging to hear that we will receive quarterly updates on how the redress process is progressing.”
It may be understandable that companies want to minimise potential liability for past behaviour but a failure to take responsibility means that a line cannot be drawn between past mistakes and their rectification. All too often a morally bankrupt culture persists when executives seek to defend or cover up reprehensible behaviour. Lawyers might advise that you should never admit liability but too frequently executives forget lawyers are simply advisers giving advice from one perspective.
Sincere regret, humility and genuine concern for those damaged also goes a long way to helping reassure others about taking responsibility as does demonstrable action to address the causes.
Is it really true that there is no such thing as bad publicity?

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

Why Stakeholders’ co-operation is vital to successful business restructuring

Restructuring needs supportRestructuring a business can involve significant changes that can have an impact on all its stakeholders.
Usually, restructuring is associated with both financial restructuring and reorganising operations because a business is no longer viable. It may be that it is experiencing cash flow problems and heading for or deemed to be insolvent.
The wise business will act as early as possible once problems are identified and may call in a restructuring and turnaround adviser who will conduct a deep and thorough review covering its processes, products or services, its accounts and forecasts and its business model before suggesting a strategy that will allow it to continue trading and recover its position.
This may involve closing loss-making product or service lines, outsourcing some processes, renegotiating terms with suppliers, possibly reducing the workforce or the hours worked and, in some instances, changing the business model. The financial restructuring may involve rescheduling debts and in extreme cases using a formal process like a CVA (Company Voluntary Arrangement).

Who are the stakeholders in business restructuring?

Stakeholders are people and organisations whose interests are affected by the restructuring, or those who can influence them.
They therefore include a wide community including banks, creditors, credit insurers, directors, employees, owners (shareholders), landlords, new investors, suppliers, unions, and arguably customers. In some instances, the government, public and press might also be regarded as stakeholders, as is the case when the company is a large employer or a critical service provider.
For a restructuring to be successful the response and support of these people and organisations is likely to be critical to both approval of proposals and future success.
Directors need to speak with a united voice and be transparent with everyone if they are to get the trust of stakeholders for their proposals. They also need to find a balance between humility, taking responsibility for past failings, while at the same time providing leadership and direction for the proposed changes. If the company is facing insolvency as directors also need to subordinate their own self interests in favour of those of creditors and the company.
Rescheduling debts normally needs the approval of each and every creditor although a minority of dissenting or ransom creditors can be bound by using a CVA.
More important is to ensure ongoing supplies and support will be necessary. This support includes employees who might be poached or look for alternative employment, suppliers who might be wary of extending further credit, trade insurers, asset-based lenders who finance critical equipment, even customers who can take their business elsewhere.
The support of employees should not be taken for granted. While they may be fearful of losing their jobs and may be asked to accept some alterations to their remuneration, hours of work or the work they do, negotiating this can be fraught with complications since you will not want to demotivate them in the process. Notwithstanding the potential loss of morale and survivors’ guilt felt by those who keep their jobs when others are made redundant, employment legislation needs to be observed if costly tribunals are to be avoided. This is where employees’ union(s) or representatives can be useful and should be brought into the discussions as early as possible. Employees’ co-operation and support can make all the difference to success or failure.
The critical argument that should enlist the support of all stakeholders is that it is in their interests to support the business through the process of restructuring, however uncomfortable it might be in the short term.
The justification is likely to be survival, recovery and eventual growth of the business for the benefit of everyone in the medium and long term.

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Business Development & Marketing Finance General Turnaround

How do we fix the UK’s IT skills shortage?

women and IT skills shortageThe shortage of people in the UK with IT skills is hardly news. For several years now, the sector has been relying on international workers to fill the gap.
However, the continuing uncertainty over the outcome of the Brexit negotiations has been compounding the recruitment problem as some overseas workers leave the UK and fewer are willing to come to the country.
Surveys in the tech sector have found that 50% of respondents have reported the skills shortage as a serious problem, of whom 25% said recruitment was a major challenge.
It has been calculated that UK digital sector will need nearly 300,000 new recruits by 2020 if it is to reach its full potential.

Are there any short-term fixes for the IT skills shortage?

Given the implications for business growth and development, the problem is becoming urgent.
However, increasing the numbers of well-qualified UK IT professionals is likely to take some time.
The most immediate actions businesses can take may be to look at some of their current processes and the skills profile of their existing employees.
There may be processes, particularly in manufacturing, that can be automated or others that could be outsourced. This would free some of the existing workforce for re-training and re-deployment. Of course, the results would not be immediate, but it could yield hitherto unsuspected benefits.
There may also be people in the existing workforce not currently employed for their IT skills but with some knowledge already that can be built on. Equally, offering employees further training has other benefits and not least their feeling valued and more secure in their employment.

Long-term solutions

Research has shown that women are under-represented in the IT sector. By challenging stereotypes businesses can encourage more girls to consider this as a future career. This should therefore start in schools.
Employers can help with this by getting more involved with universities, training colleges and local schools, perhaps simply at the level of encouraging school visits, holding in-school workshops and activities and by publicising the range of their activities in the workplace that need IT skills.
Inviting promising students into their businesses for work experience and to help with projects to give them a wider range of IT experiences may also help.
Sponsoring graduates or technical courses is another initiative worth considering.
Developing an apprenticeship scheme is something that more businesses need to do. This need not be limited to school leavers but can be offered to graduates, people looking to change career and indeed those who have retired but want to return to work.
Businesses may argue that they do not have the time or capacity to get involved in these initiatives, but there is a balance to be struck between the present and the future and if the shortage is impeding on their plans for development and growth then it makes sense to invest time, money and effort now rather than watch competitors take over.

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

Are managers redundant?

managers redundant to corporate structureAll four of the UK’s big superstore chains, Sainsbury, Tesco, Morrisons and Asda, have announced plans to make significant changes to their staffing structures, mainly affecting store managers.
Department store, Debenhams, has also announced plans to cut its store managers by a quarter.
All the retailers said they were facing a more challenging environment, not only because of intense competition from budget retailers, Aldi and Lidl, but also because consumers were becoming more price conscious as well as changing their buying behaviour.
Sainsbury’s hope to save £500 million over three years, but, in common with the other retailers mentioned, also said the changes will introduce “a more efficient and effective structure”.
Stripping out layers of management is nothing new. It has been used as a favourite cost-cutting tool by businesses in the past, most notably in the 1990s.
In some instances, no one notices when a layer of management is removed, but in others it can leave a void, especially in those where staff have not been empowered to make decisions.

Removing layers of management can improve productivity

One of the most significant organisational differences between SMEs and large corporations is their flexibility and ability to communicate throughout the organisation.
On the whole, SMEs have fewer layers of management and this enables them to adapt more quickly to change and to discuss and communicate plans to all their employees. This flexibility can attributed to everyone feeling part of a team, and where necessary doing each other’s job. There is often no need to defer to a manager for a decision.
Larger organisations, on the other hand, tend to have much more complex structures with more rigid procedures. Communication normally passes from the top down, from senior management through numerous layers to the workforce. Where decisions have to be made this is still down to managers or decision-making committees. Everyone simply follows procedures.
This makes it hard for initiative and feedback up through the layers of management. The focus is on lean structures and optimal efficiency. However, this runs the risk of suppressing initiative and reducing scope for employee consultation. As a result, larger businesses are often unable to react swiftly in a world where the pace of change is accelerating.  
A flatter structure assumes even more rigid procedures albeit ones increasingly being overseen by workers instead of managers.
The challenge is to improve productivity while at the same time empowering staff by giving them scope for taking their own initiative. Or is the next step automation and self-service retailing?

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

Conflict of interests for insolvency practitioners doing restructuring & turnaround work

conflict of interestsWhen a business is either in financial difficulty or heading that way, I would always advise getting expert help and the earlier the better.
Leave it too late, to when the business is formally insolvent, and the opportunity to restructure and survive becomes much more constrained.
But insolvency, whether actual or approaching, is characterised by a cash flow problem and advice doesn’t come cheap.
This is because advisers need in-depth knowledge and experience in a wide variety of disciplines. They include experience of business processes and finances including the ability to analyse accounts, cash flow forecasts as well as know the various legal compliance issues including HR and redundancy, insolvency law and litigation. They also need to be familiar with options for restructuring and negotiating them with stakeholders including banks, shareholders, HMRC, creditors and enforcement officers.
While restructuring and turnaround advisers and insolvency practitioners generally have this knowledge and experience, their approaches are very different.
Insolvency practitioners are appointed by creditors and work for their interests, while restructuring and turnaround advisers are appointed by the company and primarily work for its interests.
When a company is insolvent all board advisers essentially become shadow directors and as such their advice should be in the creditors’ best interests, however this does not mean the company should be liquidated, which is the normal outcome that follows the appointment of an insolvency practitioner.
Consensual restructuring with the approval of creditors should offer them a far better outcome providing the underlying causes of the financial situation are addressed – hence the need for turnaround alongside any financial restructuring.
The crucial difference between the two is that the restructuring and turnaround adviser will have your company’s best interests at heart. Their fees ought to be success based and linked to their ability to save your business and their rates are generally far less than those for insolvency practitioners. Call them in early enough and let them carry out an in-depth investigation of all aspects of your business and they will identify what, if any, parts are unprofitable and should be discontinued as well as ways of restructuring debt that can save the company, albeit in a modified form.
Although a business in difficulty can enlist the services of an insolvency practitioner as an adviser, their focus and experience are more likely to have been on recovering creditors’ money at the earliest opportunity. They may not, therefore, be open to options that could lengthen the time it would take for creditors to be satisfied and their focus is more likely to be on realising the value of your business’ assets and preventing further losses, therefore the likely outcome is liquidating the assets of the company rather than saving it.
While insolvency practitioners claim to do restructuring and turnaround work I believe this is a conflict of interests since they cannot serve two masters: creditors and the company. If they do restructuring and turnaround work, they should not take formal insolvency appointments.
It would be better, therefore, for restructuring and turnaround advisers to be entirely separate from insolvency practitioners.

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

Are businesses waking up to the positive benefits of early restructuring?

Are businesses waking up to the positive benefits of early restructuring?
a building in need of restructuringIn the weeks since the collapse of the facilities management and construction company Carillion, there has been a noticeable increase in companies announcing plans for restructuring.
Capita, the outsourcing company frequently used by local and national government, whose shares have recently dropped by over 50% has just appointed a new CEO to turn it around after finally admitting that it was in financial difficulties.
Other businesses that have come under the spotlight include M & S, which is to close up to 14 of its stores, the burger chain Byrons closing 20 of its branches as part of a CVA rescue plan, House of Fraser looking to negotiate rent reductions, New Look is working on a store closure plan, B & Q axing 130 head office positions, Jamie’s Italian that is doing a CVA and there are employee changes under way at Sainsbury’s, Tesco and Morrisons.
While the majority of recent announcements have been in retail, they are not exclusively so.
What is perhaps more interesting is that efforts to restructure large businesses seem to be happening earlier.
This can only be welcomed as the earlier a business realises that it is, or could be, heading for financial difficulties or insolvency, the greater the likelihood that it will survive, albeit as a slimmed down business.
It is the job of a restructuring and turnaround adviser to carry out a thorough review of every aspect of a business, its products, processes, cash flow, business plan and overheads to identify those parts that are healthy and those that are draining cash or depressing profits.
She or he will make recommendations on anything that needs to change, including those products or services that need to go, as well as those that have potential to grow. Some of this advice may be painful, but it is in the interests of the business to be open to advice and to act on it.
Remember, the restructuring and turnaround adviser is looking to save the business and it is in their interests to help it to survive and grow. They are not insolvency practitioners whose role is to realise assets for creditors.
It goes without saying that the earlier the restructuring process begins, the greater the likelihood of success.
Once a company has appointed an insolvency practitioner its prospects of survival are reduced.
There is a lesson here for businesses of all sizes, from SMEs upwards, and this is to be proactive in monitoring business performance, enlist the help of an experienced restructuring and turnaround adviser at the first signs of trouble and be willing to take their advice, however painful, if the business is to survive and return to profitability.
It is to be hoped that those subcontractors affected by the collapse of Carillion will heed this advice and enlist support sooner rather than later.

Categories
Cash Flow & Forecasting Finance HM Revenue & Customs, VAT & PAYE Turnaround

The basics of Time to Pay for businesses struggling to pay their taxes

negotiating Time to PayTime to Pay (TTP) is a scheme run by HM Revenue and Customs (HMRC) to help businesses struggling to pay their VAT, PAYE, corporation or other tax bills.
It was first introduced in 2008 after the global financial crisis as a measure to help businesses experiencing cash flow issues as a result of customers extending their invoice payment times.
Not every business is eligible for the scheme and the first step is for a business advisor to thoroughly review the business and to help prepare a realistic forecast that allows for the TTP payments.
This is because HMRC will want evidence that the business can keep to an agreed payment schedule as well as pay all future tax liabilities on time.
Once a business is aware that it cannot pay a tax liability, it ought to contact HMRC early, if only to ask for time to prepare a forecast.
When speaking with HMRC you should be a director and know your VAT or PAYE or 10-digit UTR reference number so they can identify you and your business.
Be prepared to answer questions when applying, including:
* the amount of all HMRC liabilities due and how much you want to reschedule;
* the reasons why you are unable to pay;
* what you’ve done to try to get the money to pay the bill;
* how much you can pay immediately and how long you may need to pay the rest;
* your bank account details.
You are also likely to be asked to give details of income and expenditure, assets, such as savings and investments and what actions you are taking to ensure you will pay future tax liabilities on time.
The level of detail a business will have to provide is dependent on the level of the debt – below £100,000, from £100,000 to £1 million and for more than £1 million.
HMRC will also consider whether the business is one that cannot pay, or one that will not pay. They do this by looking at your history of payments, both in the applying business, personally and other businesses you are involved with.
This guidance is largely based on that given to HMRC officers and is a useful insight into how they assess TTP proposals.
TTP arrangements, once agreed, usually involve making monthly payments by direct debit over a period of less than one year. While payments from a personal credit card have been demanded and taken in the past, they should no longer be demanded from 13 January 2018.
Essentially a TTP should be regarded as a last chance where any late payment of the agreed amounts or of future taxes is a default of the agreement and most likely will result in immediate enforcement by HMRC or a winding-up petition.

Categories
Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Turnaround

The emphasis in turnaround should be on saving a struggling SME

turnaround advisors are like rescue dogsIt is surely preferable to try to turn around and restructure a business than allow it to fail, with the consequent financial and human cost to the business, to employees and to creditors.
This has been acknowledged by both the European Commission (EC) and the UK Government, both of which produced proposals last year that included a 90-day moratorium staying creditors’ action and extending the duty of essential suppliers to continue supplying the troubled business.
In both cases, the aim was to re-balance insolvency proceedings towards turnaround and rescue, while acknowledging the interests of creditors.
Yet, according to the findings of an independent review commissioned by the Financial Conduct Authority (FCA) into the behaviour of the Global Restructuring Group (GRG), the treatment of SME clients referred to GRG by its owner, Royal Bank of Scotland (RBS) hardly followed best turnaround practice.
The FCA’s interim report published at the end of October this year highlighted a number of GRG failures.

Turnaround should be a clear and detailed process for achieving a viable business

The review found that in its training material GRG had clearly recognised the need for careful assessment of a business’ viability based on a wide-ranging investigation, followed by immediate recovery action where it was deemed unviable.
If it had been judged potentially viable, GRG should support a turnaround plan, that was considered, documented and as far as practicable addressed the SME’s underlying issues.
However, in practice, the review found “frequent failures to pay appropriate attention to turnaround considerations.”
These included not carrying out adequate viability assessments and failing to implement and document viable and sustainable turnaround options for the medium and longer term, instead focusing on short term measures such as rescheduling the credit facilities on revised terms.
Nor, said the report, did GRG make adequate use of the broad range of turnaround tools or consider the impact of RBS’ actions in pressing for payment and withdrawing working capital facilities.
In short, GRG’s commercial objectives were prioritised at the expense of turnaround objectives, placing a disproportionate weight on pricing and debt reduction rather than the SME’s longer-term viability.
Some RBS SME transfers to GRG were too late for turnaround assistance, more than one in ten of those sampled were transferred directly to the GRG recoveries unit.
The inescapable conclusion was that RBS’ and GRG’s commercial considerations took priority over any serious efforts at turnaround.
The report, however did not address who should help everyone, the bank as well as the struggling SME it was dealing with. Most banks’ or their insolvency advisers’ review of a struggling SME owner’s ‘turnaround’ plans are likely to include that they are not viable. The underlying causal factors are rarely addressed with proposals for fundamental change in the SME’s plans. And forecasting such plans is something very few have done. Specialist turnaround help is needed as very few bankers, insolvency practitioners and SME managers have ever actually managed a business with the objective of turning it round.
The primary objective of the turnaround advisor and the turnaround process must be, and generally is, to help a struggling business to survive. This normally means initiating fundamental change to achieve a viable business model that can survive in the future, not just get through its immediate crisis.
This is achieved by a careful, detailed and systematic review of every aspect of the business to identify those aspects that are viable, and those that are not and to then come up with a workable plan that will not only save the business but will encourage creditor support, increasing the chances that, if patient, they will in time get their money back.

Categories
Cash Flow & Forecasting County Court, Legal & Litigation Insolvency Rescue, Restructuring & Recovery Turnaround

Insolvencies – the signs are not good for struggling SMEs

insolvencies signpostMore businesses have been declared insolvent during July to September, according to the latest statistics released by the Insolvency Service on Friday, October 27, 2017.
An estimated 4,152 companies entered insolvency in the third quarter of the year, an increase of 15% on the previous three months and of 14.5% compared with the third quarter of 2016.
Construction companies, Manufacturing and Accommodation and Food Service Activities topped the list of insolvencies, as they have in the previous two quarters, and, although final figures have not yet been released for the latest period, the trend is clearly upward.
The news comes as R3, the insolvency and restructuring trade body, released the latest findings of its long-running research into business health.
It revealed that more businesses were showing signs of financial distress increasing from one in five in April to one in four in September. Among the causes cited were decreased sales and increasing use of overdrafts with many reporting that they were at their overdraft maximum limit.
R3 President Adrian Hyde said: “Businesses have faced a number of fresh challenges over the last year. Increasing input costs caused by post-referendum inflation increases and a weaker pound, a rising national living wage, the added costs of pensions auto-enrolment, and, for some businesses, rising business rates will have hurt bottom lines.”
He said investment in new equipment had dropped between April and September from 33% to 22%, which suggested that concern over the economic prospects for the UK was prompting company directors envisaging trouble ahead and building up cash reserves to get them through tougher times ahead.
“The question of balancing competing needs – whether to prioritise solidifying their cash position or investing in their businesses, a key concern in the digital age – is more urgent than ever for many companies, especially with the economic landscape becoming more unsettled,” he said.

Time to revisit the business model?

It is, in our view, more imperative than ever that businesses retain tight control over their cash flow, revisit their business plans and have a close look at their operations to identify where savings could be made. Uncertain times only offer opportunities for those with deep pockets, for most businesses surviving them requires a focus on margins and hoarding cash until a more stable future can be predicted.
It may be a time, sooner rather than later to take a thorough look at the whole operation to identify whether it is time to restructure or pivot the business model to one which is more sustainable. This can involve some level of restructuring in order to be prepared for the possibility of worse to come.

Categories
Business Development & Marketing Finance General Turnaround

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”.

Categories
Cash Flow & Forecasting Debt Collection & Credit Management Finance HM Revenue & Customs, VAT & PAYE Turnaround

HMRC is dialling up the pressure to collect overdue tax

overdue tax sinking companiesMany of our new clients are contacting us after a visit from HMRC (HM Revenue and Customs) who are becoming much more proactive with businesses whose payments are overdue.
Non-payment and ignoring letters from HMRC in the past often meant they would leave you alone but this is no longer the case. They now have real time information about the payment of PAYE as well as knowing from the returns how much VAT and corporation tax is due. This information is making it easier for HMRC to track late payments. Whether a failure to pay on time or file returns on time HMRC are geared up for dialling up the pressure.
Despite an inability to pay, HMRC is supportive of those who contact them early and is still approving Time to Pay arrangements, but ignore them and expect a reaction.
In addition to letters and phone calls HMRC are increasingly using enforcement officers to visit the business’ premises to collect payment or seize goods.  Their schedule of fees is:

  • Notice fee of £75;
  • Visit fee to take control of goods £235 plus 7.5% of the tax owed that is over £1,500;
  • Non-payment removal fee of £110 plus another 7.5% of the tax owed that is over £1,500;
  • Interest may also be charged on the amount due.
  • £60k £4,700

The visit normally results in significantly increased costs with officers may are demanding fees of up to £2,000 for the visit or 7% of the amount owed in relation to an enforcement notice.
Despite a phone call from the collection officer fixing a week’s notice before visiting, a new client had just received a visit in respect of VAT arrears of £60,000. The client wasn’t able to pay so the enforcement officer distrained (seized) assets but didn’t remove them saying they would return a week later. The following day the director paid the bill which now included an additional £4,700 in fees. Having paid they contacted K2 to say they couldn’t now pay other bills, fortunately we were able to help.
Had the company known more about the collection process, they could have saved themselves £4,700 in fees.

HMRC powers and its collection options

When a business has reached this point, it has invariably failed to respond to a number of approaches from HMRC, starting from ignoring initial letters warning that payment is due.
The process from there on most likely will result in either a visit by an enforcement officer or a Winding Up Petition. It may also result in a demand for a security bond. While security bonds are rare for trading companies they are becoming increasingly common with new companies that have been started up following the insolvency of a company run by the same directors.
Enforcement visits are carried out by field agents who have the right to issue enforcement notices (also called distraint warrants) to seize assets for sale at auction. They don’t have to actually remove the goods when they visit but the notice has the effect of transferring control from the company to the enforcement officer such that they cannot be removed without committing pound breach, a criminal act which has been covered by other blogs.
As an alternative or a final stage after goods have been removed, HMRC tends to apply to the courts for a Winding Up Petition.
Businesses should keep track of cash flow and their ability to pay PAYE, VAT and corporation tax liabilities on time. Persistent late payment of these indicate that a business is in financial difficulties but in most instances any late payment is a one-off. If not then a time to pay arrangement with HMRC won’t solve the underlying problem and in such instances advice from turnaround or insolvency professionals most likely will be necessary.
In the hope that the problem is simply a one-off, the message is clear: respond to HMRC communications sooner rather than later. The problem will not go away and can only get worse the longer it is left.
HMRC’s collection processes were further strengthened in November 2015, by the introduction of the power to recover debt directly from cash held in bank and building society accounts in addition to existing powers to seize and sell assets.
In addition, HMRC has been increasingly outsourcing collection to private debt collection companies to recover overdue income tax payments and to claw back overpaid tax credits.
In March 2017 CityAM reported that HMRC’s spending on the use of these agencies had increased by 92% to £24 million in 2016. Since private companies can also charge debtors this will only add to the overall bill for those targeted.
 

Categories
Finance General Insolvency Rescue, Restructuring & Recovery Turnaround

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.

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Accounting & Bookkeeping Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

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.

Categories
Business Development & Marketing General Turnaround

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.

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Business Development & Marketing Cash Flow & Forecasting General Turnaround

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.

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

Businesses should beware of knee-jerk reactions

knee jerk reactionsBeing agile and responsive may be good business practice, but there is a fine line between this and knee-jerk reactions.
While the former can be described as considered responses to relevant data, the latter are more likely to be immediate, unthinking and emotional.
While some instant reactions may turn out to have been productive, overall the chances of such a decision working out well are not high and probably not the best way to run a business.

Knowing when prompt action is needed and when it is better to hold your nerve

Monitoring data on business performance, invoice payments, sales, responses to marketing initiatives and a wealth of other relevant information is, or should be, and integral part of running a business.
However, understanding what that data implies can be much trickier.
The key is to be aware of both the time frames and implications in order to draw reliable conclusions.
A good example is statistical information such as the monthly trends like the PMI/Markit index that reports on activity in the service, manufacturing and other sectors of the economy, or the daily ebbs and flows of the stock market.
Not only can statistics be selective, highly dependent on sample size and on the information selected for measurement, it can take several months before a trend becomes clear.
While some investors trade stocks on almost a minute by minute basis depending on the rise and fall of share prices for a company or commodity, this sort of short term approach to events is unlikely to work well for a business. Indeed, it is not the strategy pursued by investment guru Warren Buffet.
Another difficulty with the knee-jerk reaction is that it may rely on emotional factors, such as confidence or lack of it, panic, self-interest or a desire to win at all costs. This is when investors can lose by following the herd instead of holding their nerve and following the data.

The tools to use to avoid knee-jerk reactions

Any business that has done a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) to inform its business plan and goals will have some protection against unconsidered decisions. Although remember ‘SWOT SO WHAT’, the key to a SWOT analysis is use it as the basis for making decisions.
A second tool is the contingency plan that outlines possible actions and reactions for a variety of scenarios.
Using these in conjunction with analytical data gathered over a sufficient period, relevant to the nature of the business, will improve the chances of making decisions about change that will have the optimum outcome for the business.

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

Investing in a struggling business – is it ever worthwhile?

the uphill battle to save a struggling businessWhile many people are attracted by the low cost of buying a struggling business where they believe they can do better – and reap the rewards – there is always the risk they are deceiving themselves or being over-optimistic.
It may be that there is a demand for its product or service but if a business is struggling, it is struggling for a reason.
So, it is important for the potential buyer to look closely and with care at why the business is in trouble and to ask themselves whether they honestly have the knowledge, skills, stamina and enough finances to be able to bear the loss if a turnaround should prove unsuccessful.
While a degree of self-confidence is important, confronting the reality of the situation is even more so.

Are there issues the struggling business is hiding?

When reviewing the circumstances of a struggling business a degree of scepticism is likely to be needed.
There may have been problems that can be remedied, such as poor management, poor organisation, a lack of funding or lack of financial control.
On the other hand, there may no longer be a market for the product or service, such as when technology has changed as has been the case with the transition from cameras using film to digital photography, or it may be too competitive such as the van delivery market, or the company’s reputation is severely damaged. Often the mountain is too steep to climb and it may be better to walk away.
Are the directors being honest about what has been happening? Are the suppliers who may also be angry creditors likely to be supportive of a restructure attempt? How many employees will have to be retained by the new owner under the TUPE rules and will this place an excessive burden on costs going forward? Will clients stay with you or even come back?
The answers to these questions, and many more, are crucial when considering buying a struggling business.

Are there better options?

If they would be useful to your existing business it may be better to buy the assets of a struggling business, which will be handled by valuers and surveyors.
In this way buying the database of a struggling business may be a more cost-effective way of increasing the customer base of an existing business than marketing to entirely new customers.
It may be safer to pay more for a profitable business with growth potential where the reason for sale is clear such as someone wanting to retire.
There is always a case of “caveat emptor” (buyer beware) so this route isn’t for the feint hearted and you can afford to make costly mistakes.
Get it right and the spoils can be huge, but you are warned.

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Business Development & Marketing Finance General Turnaround

Experiences, not “stuff” – the High Street is not dead

High Street experienceThe death of the High Street as simply a shopping destination has long been predicted, first due to the rise of the out of town retail parks, then to the growth of online shopping.
While it is true that consumer buying habits and focus have been shifting, the fact is that humans are social animals and will always seek places where they can gather and interact.
However, with each generation, interests, tastes and behaviours change to reflect identity and priorities. These are influenced by social change and new developments such as those offered by new technologies, new ways for social interaction, allocation of time, travel, the way homes are designed, and even the changing weather patterns.

Misread signals and lack of agility

As early as 2013, in one of its regular assessments of consumer behaviour and the role of the high street, Deloitte found that while undeniably consumers were changing “the high street will continue to be an important place where innovative, consumer-focused businesses will grow and thrive,” despite the undoubted challenges.
Other studies have since sought to define more clearly what has been going on and why retailers have been struggling.
Kantar Worldwide identified two specific aspects in the UK, a decline in seasonal shopping and shoppers “waiting for the sales and buying things out of season”.
Some retailers, say analysts, have been far too rigid, in sticking to their seasonal buying cycles then having to constantly discount to shed surplus stock.  Essentially, they failed to get to know their customers well enough. Not only that, but there have been no significant changes in “must have” fashion so that people can keep on wearing and recycling what they already own – an example being skinny jeans, still ubiquitous in clothing stores a decade since they were first launched.
Arguably, a second factor has been the merging of the seasons in recent years, certainly in the UK, where there have been several years of only moderate temperature and weather changes over the yearly cycle.
There are other, generational factors at work. Millennials, who are IT savvy and habitually online shoppers, have been shown to value experiences, and showing them off on social media, more than shopping. Millennials also don’t want to be ‘marketed to’. Despite this they buy food, clothes and household products, the subtlety for the High Street is that they don’t want to feel they are being manipulated by powerful corporations, they want to discover rather than be discovered.
The desire for shopping as an experience rather than simply shopping to buy goods is not confined to millennials and offers a real future for the High Street, one that can compete with shopping complexes that are clearly aimed at ‘marketing to’ visitors.

Offering experiences – an opportunity for the Service sector

Walk around any provincial High Street and you will find a plethora of places to snack and chat (coffee shops, bistros, wine bars), estate agents and travel agents, interspersed with the remaining clothes and department stores.  The latter have arguably survived by becoming more agile in offering not only physical goods, but also click and collect destinations and the opportunity to order online in-store if a product is not available.
But you will also find significant numbers of independent small, specialist shops for cheese, coffee, craft ware, home ware, nail bars, tattooists and, above all books. Then there are the pop-up shops where new enterprises can showcase their ideas or merchandise for a limited time and get a feel for their potential market.
That there is still confidence in the High Street shows in Amazon’s move into physical retail space with the opening of its book store in New York and several more planned. Google, too, has opened pop-up stores and is said to be increasingly focused on physical stores.
So, the High Street is evolving, not dying, but those in the service sector who can see a thriving future there will also need to see more agility in support from civic planners and regulators, who will need to move away from their rigid structures of what is permissible in urban High Street buildings and from charging high business rates and rents for those spaces.
 

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

Why would a business leader need a business mentor or a consultant ?

Successful businesses need leaders who can make decisions. Input from others makes it easier to make the right decisions first time, instead of wasting time on rectifying the wrong decisions.
All the most successful business leaders, including Mark Zuckerberg, Elon Musk, Bill Gates and Warren Buffet reputedly practice what is called the five-hour rule, according to various articles on inc.com.
It was a practice started by Benjamin Franklin, one of the USA’s founding fathers and authors of its Declaration of Independence and its Constitution.
It involves spending an hour a day either reading, reflecting or experimenting in order to stay well-informed as a business leader.
While it is clearly a good habit for a business leader to follow, whether they are the head of a SME or a large corporation, it can be lonely at the top and there are times when it can be important to have another person with whom to explore ideas and perhaps refine them into something workable before making a key decision.

Which to choose – business mentor or a consultant

businessman with business mentorA successful business is never static so there will always be new problems or opportunities confronting the CEO and, no matter how much attention she or he pays to learning and developing their skills, knowledge and ideas, there will be times when it will help to get specialist expertise as well.
The business consultant is likely to be more focused on the business and its success. Their approach is likely to be more formal and structured so it is important to choose someone who understands or has worked in a similar business environment as well as someone you can be open with.
This means asking some pertinent questions before choosing a consultant who is right for you and your business, such as their experience in business, their experience of the issues you want to deal with, qualifications, and asking for examples of their work.
It is helpful to have a written agreement with a consultant that includes frequency of meetings, objectives, milestones with dates, confidentiality agreement, charges and payments and how either party can terminate the agreement.
Mentors tend to focus on the individual leader, on their wellbeing and personal development. An arrangement with a mentor can be less structured, although it is still wise to define the frequency of meetings and expectations of the relationship on both sides.  It could be someone you already know, whose expertise and judgement you respect and who is willing to act as a sounding board for ideas, or it could be a more professional business mentoring service. The good mentor asks questions and invites reflections.
Having a mentor can reduce risk when considering options and making decisions. Mentors tend to explore the rationale for any decision rather than giving advice in relation to the options or the decision.
Both mentors and consultants help focus a leader on the main issues to be addressed and bring clarity and process to decision making. Do you have one?

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Business Development & Marketing Finance General Insolvency Turnaround

We can learn a lot from China’s global business strategy

China and world mapThe business world has become a very uncertain place since UK voted to leave the EU, the election of Donald Trump as US President and now the UK’s impending General Election.
Yet, rather than actively seeking more widely for opportunities there seems to be a level of inertia, whether from complacency or frozen panic, among UK businesses.
We can learn a lot from the way China is pursuing its growth strategy across the world and creating links on multiple fronts with other countries.
These have included investing in massive infrastructure projects in Africa and central Asia including a rail link between China and London. The first return train from Yiwu on China’s East coast completed the 15,000-mile round trip two weeks ago.

The importance of having a vision

Only time will tell what the outcome of the Brexit negotiations will be but already the repercussions of the decision to leave are beginning to show in the UK economy.
Some companies have already announced plans to move some of their operations to other places, such as Ireland, France or Germany and the £Sterling devaluation has begun to feed through into food and other prices in the shops and into UK inflation.
This will add to the trading pressures on UK businesses.
It is well established that a business that stands still is one that will ultimately stagnate and is unlikely to survive.
So, adopting a “wait and see” approach will not do. UK business leaders need to be planning ahead and widening their horizons, at the very least by exploring options and making connections as a prelude to defining plans for the future.

Turning the vision into a global business strategy

Given the size of China and their increasing involvement and influence in the global economy, it might seem daunting to make approaches but they offer scope for developing a strategy that reaches out to the rest of the world.
A first step could be to establish links with Chinese people in London and work out opportunities for forging relationships and doing business with them. Not just buying from them but there are opportunities for collaborating with them, for providing the technology, skills, experience and even products to them as part of a strategy that might help UK reverse the decline of its global business interests.

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Banks, Lenders & Investors General Insolvency Turnaround

The corporate psychopath poses real dangers to a business

the executive hiding a knife behind his backMichael Douglas’ Gordon Gekko, Leonardo Di Caprio’s Wolf of Wall Street, or the late Mirror Group owner Robert Maxwell – what do these fictional and real characters have in common?
They are all examples of a corporate psychopath, the second category we are exploring in our look at  psychology’s Dark Triad (with narcissism and Machiavellianism) of personalities, and, say researchers, often over-represented at the top levels of the business world.
The US criminal psychologist Robert D. Hare called such people Snakes in Suits while both Oliver James, UK psychologist and author of Affluenza and Office Politics: How to Thrive in a World of Lying, Backstabbing and Dirty Tricks, and Clive Boddy, Professor of Leadership and Organizational Behaviour at Middlesex University, have suggested that the 2008 Global Financial Crisis was the result of a mass outbreak of corporate psychopathy.
So, what is it about such people that makes their behaviour potentially so toxic and ultimately damaging to business?

Corporate psychopaths, the good the bad and the ugly

As with the Dark Triad’s two other elements, narcissism and Machiavellianism, the propensity for damage both to colleagues, employees and to a business by a corporate psychopath is all a question of degree.
Typically, they are charming, intelligent, sincere and have powerful personalities, all of which arguably are needed to propel the individual to the top in their career. Often such people perform well at interview, appearing alert, friendly and easy to talk to. They seem to be able, emotionally well-adjusted and reasonable. All traits of a high functioning psychopath.
However, the negative qualities underlying these apparent positive qualities are callousness and insensitivity even if well hidden behind a smooth façade.
Clues to the corporate psychopath’s real persona emerge over time, however.  They may repeatedly humiliate colleagues or subordinates to get their way, perhaps regularly lose their tempers, take credit for others’ accomplishments and be “economical with the truth”, all forms of bullying and coercion with little or no regard for their victims.
They will typically set unrealistic goals for others to meet or come up with new ideas without properly assessing them or following through and this can be a problem when they are in positions of power, where they can issue directions for others to carry out, or try to, thereby setting their victims up to fail in a way that undermines them.
It is no surprise that the consequent working atmosphere for colleagues and its effects on business productivity can be dire.
Dealing with the toxic behaviour of the corporate psychopath means trying to anticipate their actions, documenting all instances of abuse, somehow not taking their behaviour personally and always having witnesses during confrontations; easier said than done but essential to prevent serious or even fatal damage to a business.
“Psychopaths loot corporations. They gamble with our money and then turn to the public to bail them out,” says Oliver James.

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Business Development & Marketing Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance Insolvency Turnaround

The Pitfalls of Overtrading

businessman turning out pocket empty of cashA business that is overtrading is one that is at risk of becoming insolvent.
Overtrading is when a company is growing its sales faster than it can finance them, in other words, spending money it hasn’t got by taking on additional orders when it can’t afford to service or fulfil them.
This relates to a lack of working capital to fund the business and the cash cycle of contracts where creditors are often paid before payments are received from customers.
In this way a company can be profitable and yet run out of cash.
While it is healthy for businesses to pursue growth, a lack of honesty with themselves and their situation and a lack of forward planning can put them in this position. The rate of growth needs to be realistic for several reasons, including resources and capacity, both of which normally require funding ahead of income.
While there may be a strong temptation to say “yes” to new orders, a business needs to be sure those orders can be fulfilled, not only to avoid damaging its reputation but also because ultimately it can lead to insolvency.

How can a business avoid overtrading?

When there are more orders coming in than there is capacity to cope with, one solution is to price work in a way that manages demand. This need not be simply by putting up prices but more by having a pricing strategy. It may be necessary to protect the relationship with long term customers by pricing loyalty and long term commitments. Alternatively, future orders or flexible delivery might be priced at a lower rate than late orders and short notice delivery rather like the airlines. It may be that there is scope for staff to work overtime and share the benefit of increased prices.
Another way of looking at demand is to sell capacity rather than goods and services. A well-organised business ought to schedule work and know when an order can be easily fulfilled albeit on its own terms. By managing customer expectations, such as for a longer delivery timetable, a business can establish a pipeline of future work to keep everyone busy, at a level that works for the resources and capacity.
Ideally, when a business is planning for growth, it should look carefully at its finances before it starts any marketing or sales activity with this goal in mind.
For SMEs, this could include looking at the possibility of accessing regional growth funds and other cash flow and asset finance options, providing they can meet the conditions. If more funds are available then a higher level of growth can be achieved.
Negotiating arrangements with suppliers may be another possibility, especially if the business has a long-standing and good relationship with them. They might value longer term commitments and provide extended credit terms.
Another solution is to manage trading terms with customers, for example by requiring the payment of a deposit up front, stage payments, payment on delivery or reduced payment terms.
Using factoring and invoice discounting as a means of freeing up finance to pay fund orders may also be a solution as this will provide access to cash before an invoice is paid.
Having a product or service for which it is clear there is a substantial demand is not enough.  To grow a business, resources and working capital are needed if it is to avoid the consequence of overtrading: insolvency due to running out of cash.

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

Could co-opetition be the answer to distressed supply chain business?

competing business people arm wrestlingEarlier this month we reported on significant increases in levels of distress in the consumer supply chain business sector.
This was particularly affecting Industrial Transportation & Logistics businesses, the wholesale sector and the Food & Beverage Manufacturing sector as identified by Begbies Traynor’s Red Flag Alert research for the first three months of 2017.
Among the steps we advised such businesses to take were getting timely restructuring advice, regularly monitoring cashflow to identify opportunities for cutting fixed costs and introducing efficiencies, such as outsourcing transport or automating activities like accounting and invoicing, improving cash flow by introducing more rigorous follow-up on late payments, invoicing as soon as possible and paying close attention to credit control and collaborating with other small suppliers to deal with larger customers in getting them to pay on time.
Another option is to explore opportunities for co-opetition

What is co-opetition and how can it be used?

Co-opetition is when competing businesses are engaged in both competition and co-operation.
They are said to be in co-opetition to gain an advantage by using a careful mixture of co-operation with suppliers, customers and firms producing complementary or related products.
So, in the supply chain example above fruitful areas of co-opetition could be in the areas of cutting fixed costs by outsourcing transport or collaborating with other small suppliers to deal with larger customers in getting them to pay on time.
But there are other benefits to be found in co-opetition as long as businesses are mindful of some simple principles of what could be called moderation in all things, as outlined by V. Frank Asaro, author of A Primal Wisdom: Nature’s Unification of Co-operation and Competition, in an online article for Smart Business.
They include not being too greedy, not burning bridges by being over-competitive, never becoming complacent and keeping the balance between co-operation and competition ethical.
The idea is to use complementary strengths to fashion a situation that allows competitors to benefit from working together which in turn can lead to each party thriving and growing their own business.
An example quoted in an article in the Harvard Business Review illustrates this. LinkedIn relies on recruiters to use its platform but, as it says: “while each group would surely like a greater percentage of the recruitment pie for themselves, the pie as a whole is larger because of the involvement of both”.
Another area is marketing where apparently competing businesses have their own USP or target market that allows for joint funding of promotion and lead generation initiatives.
Examples might be logistics companies offering different solutions or supplying different routes; or food businesses with different product ranges being sold to the same customers.
Co-opetition, used effectively, can identify not only cost savings but also growth opportunities for those taking part.

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

The latest insolvency figures reveal a worrying trend for some businesses sectors

Road sign to liquidation or insolvencySMEs in the supply chain sectors that particularly rely on consumer spending should pay heed to the latest insolvency figures, for January to March 2017.
While the figures released by the Insolvency Service at the end of April show a relatively small increase by 4.5% compared with the last quarter of 2016, the trend has been upwards now for three consecutive quarters.
There were 2,693 Creditors’ Voluntary Liquidations, 68% of 3,967 total insolvencies for the first three months of 2017, affecting particularly the construction and the wholesale and retail sectors.

Consumer confidence, inflation and import costs

As higher prices, particularly for food, have started to feed through into the shops, there have been signs of a weakening in consumer confidence and a slowdown in spending.
While the “headline” story since the New Year has been the demise of 28 large retailers including Jaeger, Agent Provocateur, Brantano and Jones Bootmaker, the implications are clear for those businesses involved in the wholesale supply chain, many of them relatively small SMEs.
Both KPMG and Begbies Traynor, have been monitoring the trends for companies in what they call “significant distress”.
Analysis by KPMG of notices in the London Gazette reveals that the numbers of companies entering administration are still relatively low, however Blair Nimmo, head of Restructuring, has identified a “steady creep in numbers that we’ve witnessed over the last 12 months”.
Begbies Traynor’s Red Flag Alert research for the first three months of 2017 has identified an increase in companies in distress, up by 26% on average over the past year in key sectors of the consumer-facing supply chain, with the Industrial Transportation & Logistics businesses up by 46%, the wholesale sector up by 16%, and the Food & Beverage Manufacturing sector up by 15%.

How do SMEs survive the growing insolvency headwinds?

Given the higher costs of raw materials imports due to the devaluation of £Sterling since the EU Referendum result, businesses will not be able to absorb all these costs and will have to pass them on to customers. This in turn is likely to reduce income for UK focused SMEs and lead to greater pressure on those that have high fixed costs.
As ever, it pays businesses to ensure they are as lean and fit as they can be and that means scrutinising their costs and reducing them wherever possible.
Regular monitoring of cashflow may reveal opportunities for cutting fixed costs and introducing efficiencies, for example outsourcing transport or automating activities such as accounting and invoicing. Another critical area for SMEs is to improve cash flow such as introducing more rigorous follow-up on late payments, and invoicing as soon as possible. Close attention to credit control and collaborating with other small suppliers can also help when dealing with larger customers and getting them to pay on time.
Above all, potentially vulnerable SMEs should not wait to get restructuring help and advice. An objective eye sooner rather than later and before a business is in crisis can make all the difference to survival.

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Business Development & Marketing General Turnaround

Being honest with yourself and the power of saying “no”

untrustworthy-looking businessmanFar too many SMEs are not explicit about what their business does and make it harder for themselves when selling.
It may be that they need the work.  It may be a lack of clear, precise thinking about what business they are in. Or it may be over confidence in their ability or they simply want to help clients even if they don’t really know what they are doing.
However, all this can lead to costly mistakes, whether paying for external expertise or time spent on unfamiliar matters, disappointed clients and a damaged reputation.
Much better and more impressive is the business that knows precisely what it can do, can ask the right questions to clarify what a prospective client is looking for and, if it cannot supply it, has the confidence to say “no”.
Even better, if it knows its sector well enough and works with others in the sector then suggesting another firm can yield the benefits of referral and collaboration.

The honest plumber

A plumber might be asked by a potential client: “Do you do tiling?” Several might answer “yes” to this question but rarely do plumbers specialise in all aspects of tiling.
First there is the preparation of walls or floors and need for them to be stable and or waterproof, few plumbers will be aware of the alternative waterproofing systems that might be used in shower walls as a base for tiling. Again, few plumbers will know much about the different types of tiles, tiling cement and grout that might be used in different circumstances, let alone have experience of using an electric tile saw or laying out tiles so they will look right at the edges and corners.
The same plumber might be asked by a client to fit a bathroom, kitchen, boiler, unvented water heater, central heating and any number of other jobs involving water in the home. And how tempting it must be to say “yes”. Better is to either say “no”, or offer to do the plumbing elements and introduce other specialists, or to retrain and become a tiler, or become a project manager of the various trades, but never say “yes” unless you really do know what you are doing.

The honest broker

Finance brokers are a particular group of people I meet who seem incapable of being clear what they specialise in. Trying to find out what they sell would involve conversations about sales ledger finance, vehicles, plant & machinery, mortgages, even grants and investment but despite the promise they all too often were only offering sales ledger finance solution.
It is always better to develop a reputation as an outstanding expert in a defined product or service than as a generalist “jack of all trades and master of none”.
It is also more impressive when a business has the confidence to say “no” when what a client is looking for falls outside their remit.

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Cash Flow & Forecasting Finance General Turnaround

Can care homes be viable businesses?

elderly people in art activity in care homeThe provision of residential care for the elderly when they are no longer able to live independently is understandably an emotive issue.
But it must be remembered that however compassionate care home owners may be, they are primarily running a business.
The UK care home sector is largely composed of SMEs, with a few large-scale providers. They are businesses increasingly beset by financial, employment and compliance problems that are making it difficult for them to survive.
Like all employers, they face the increases in costs to meet the National Living Wage and for NI contributions alongside difficulties in recruiting enough employees willing to work in a low-paid sector not to mention training them. Inevitably, they face other increasing costs, such as energy supplies and food bills, both of which are in any case likely to be higher given the additional needs of frail, elderly residents.
Compounding the recruitment problem is the eventual outcome of Brexit, particularly relating to recruitment of workers from the EU, who make up a large proportion of care workers.

Why is finance such a difficult issue for care homes?

To some extent viability for the SMEs in the care homes sector depends substantially on the rate paid for their services, whether by private customers or by local authorities. Essentially local authorities have been reducing the rate they pay to as little as £350 per person per week while private rates can be well above £750 per person per week. This would suggest that those care homes that focus on private customers are viable while those focused on local authorities are likely to struggle.
It doesn’t help that many care homes are old and were not originally designed for the job, having been converted from a residential property with the consequent burden of maintenance, compliance and upgrading costs.
Much of the funding for small care homes is based on the value of the property rather than the underlying business, which suggests that failure and repossession are inevitable.
On the other hand, larger care home chains have increasingly turned to venture capital for finance, but many of them also derive a proportion of their revenue from local authorities exposing them to possible insolvency.
In 2016 the accountancy firm Moore Stephens found that the number of care home providers going out of business had been increasing year on year fuelled by reductions in local authority fees and rising property costs.
The Local Government Association has calculated that the spending gap in social care is likely to reach £2.6 billion by 2020.
Also, a Manchester University study last year questioned the appropriateness and sustainability of the larger chains using venture capital and amassing substantial debt when revenue is largely from government. It warned that at least one private equity owned firm could run out of money by the end of the year.
The increase in levels of debt is such that a BBC Panorama investigation this week revealed that one in four of the country’s 2,500 care homes is at risk of insolvency.
It also revealed that private care companies have cancelled contracts with 95 councils because, as one company said, they cannot do what is being asked for the money available.
The situation has prompted not only the Care Quality Commission (CQC), the industry’s regulatory body, and Martin Green, the Chief Executive of Care England, which represents independent providers of care, to warn that the whole sector is “at a tipping point”.
So, unless the rates paid by local authorities increase dramatically it seems that the answer to our title question is a resounding “no”.

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Banks, Lenders & Investors Finance General Turnaround

How long will it take to achieve a properly skilled UK workforce?

Skilled Workers K2 Partners Business Blog

The UK’s skills shortages in key sectors like engineering, construction and technology are well known and becoming more pressing in the context of imminent Brexit with its likely impact on the ability to recruit skilled workers both from within and outside the EU.
This weekend it was announced that technology investor Sherry Coutu is launching a new app to link schoolchildren with local employers — in an effort to tackle the skills crisis that is holding growing companies back.
Around 15,000 fast-growing businesses and 500 students are believed to have already signed up to the free service, named Workfinder, which will help schoolchildren to find work experience and to apply for apprenticeships.
Sherry Coutu is the co-founder of the Scale-Up Institute, chair of the Financial Strategy Advisory Group for the University of Cambridge and Founders4Schools, and is a non-executive director for the London Stock Exchange Group and Zoopla.
To be fair, the UK Government has also produced initiatives, firstly setting a target of achieving three million new apprenticeships by 2020, to be paid for by a levy on businesses with a payroll of more than £3 million starting from April 2017.
On Monday, the Prime Minister also launched a consultation, in the form of a Green Paper, marking a proposed new industrial strategy of Government intervention to provide regionally-targeted support for innovation and skills development through high-quality practical skills training relevant to local business needs. Businesses will be consulted on the proposals and the deadline for responses is April 17.

For a properly skilled UK workforce businesses need to get involved

Upskilling to a properly skilled UK workforce will not happen overnight and it needs real, practical, positive contributions from businesses, as well as Government. This highlights a major reason for the lack of skills, businesses expecting to recruit fully trained employees, although they may have a point.
Take this example from London, where a survey from the London Chamber of Commerce and Industry (LCCI) revealed that more than a third of London businesses cited the cost, an estimated £15,000 to £24,000 per year, as a disincentive to taking on apprentices, nor had the HR capacity to handle them.
There is also plenty of anecdotal local evidence of the difficulties young people have each year in finding work experience placements.
As automation eliminates more and more blue collar jobs, increasing the need for more highly-skilled workers, we would argue that sitting back and waiting for “someone else” to do something is no longer good enough.
While it is undeniable that businesses cannot grow if they cannot find the skilled people they need, consultations take time the UK doesn’t have.  Businesses can speed things up by being pro-active in encouraging and enthusing young people via work experience and by offering good-quality training now.
And Government needs to play its part by providing appropriate incentives and support as well as understanding that their imposition of a minimum wage promotes automation. We voted for them.

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Business Development & Marketing Cash Flow & Forecasting Finance General Insolvency Turnaround

Where next for High Street retail?

Christmas High Street sceneAs the figures for pre-Christmas trading are appearing a clear divide is emerging in performance between non-food and food sales performance.
This is supported by Next reporting that sales fell by 0.4% compared to 2015.
However, as predicted, Marks & Spencer and John Lewis also reported increased sales in non-food items.
Discount retail posted the biggest gains.  B & M, which offers a range of household, DIY, furniture, clothing and other items, has reported a 7.2% rise in like for like sales during the three months up to December 24.
Perhaps predictably, however, online buying continued its inexorable upward trend by +19% according to BDO.
High Street shopping remained relatively quiet until the last week before Christmas, with analysts suggesting a variety of explanations ranging from Christmas falling at a weekend, giving a full week for “last minute” shopping, to consumers being more careful about their spending, to the Black Friday hangover and inevitably to the rise of online shopping.
Overall, retail analysts at BDO are predicting a slight fall overall in High Street retail trade in Dec 2016 after a significant fall of 5.3% in Dec 2015.

Less discretionary spending and more on “essentials”?

Interestingly, the food retailers have generally experienced increased sales in the pre- and post-Christmas period. Again, it was the discount end that did best with Aldi reporting sales up by +15%, and Lidl by +10%.
But of the “big four” supermarkets that have so far reported, sales were also up, at Sainsbury by .1%, largely fuelled by its Argos operation, at Tesco by 1.8%, at Morrison by .2%. Marks & Spencer, too, reported increased food sales, up by.6%.

Can retailers relax a little in 2017?

Despite the slightly more positive Christmas picture compared with 2015, this year retailers will still face several pressures as higher import prices thanks to a devaluing £Sterling feed through and hit both their costs and consumers’ income.
Food prices are expected to rise but so also are clothing, a great deal of which is manufactured outside the UK. What happens to oil prices will also play its part in increased transport costs and the price of petrol at the pumps reducing discretionary spending.
Two significant costs that may also affect High Street retail are the effect of Quarter day rents due at the end of December and the impact of business rate revaluations due to come into effect in April. While the latter may benefit smaller independents if may hit the larger stores hard. Given also the ongoing Brexit uncertainty inhibiting investment, will we see another BHS-style High Street name collapsing?

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Accounting & Bookkeeping Banks, Lenders & Investors Cash Flow & Forecasting Finance Turnaround

Choosing to do business in $dollars, instead of £Sterling

currency exchange boardWhile there is uncertainty and volatility in currency exchange rates, as has been the case since June 2016 and the EU Referendum outcome, many UK businesses might find it more attractive to trade in another currency, especially if they are purchasing goods in another currency.
Since June the value of £Sterling has plummeted by some 15% against the $Dollar and around 12% against the €Euro, making imports, such as raw materials, goods and supplies to the UK more expensive, although it has been positive for those UK companies that trade overseas.
This month the US Federal Reserve increased interest rates by 0.25%, suggesting that there is more confidence in the US economy and in the strength of the $Dollar.

The business advantages of using another currency

It is plainly of no benefit to a UK business operating only in the UK to switch all its transactions to another currency, but the situation is different for exporters and those who pay for purchases in another currency.
For these businesses the decision to switch, most likely to $Dollars, is about taking a longer term view of risk and currency values.
Many businesses work in other currencies and the $Dollar is for many industries the standard currency, as well as the one used when doing business in the Far East.
Opting for trading in $Dollars is changing the way you think about your business, in particular about paying bills, where it might be advantageous to have a $Dollar currency account.
One question to ask is what currency is more suitable given that UK interest rates are driven by the desire to protect employment.  Are US interest rates more stable that the UK?  If the UK is keeping interest rates low to promote employment, on one level that is a measure of instability.
Interest rates have been held down for far longer than they should have been since the 2008 Financial crisis and we would go for trading in $Dollars rather than any other currency.  It is all about managing risk.
But there is a note of caution. The cost of commercial insurance policies for those using $Dollars tends to be much more expensive due to the assumption that a business is more likely to be exposed to US law and the prospect of litigation.
If you got this far, I thank y