Banks, Lenders & Investors Cash Flow & Forecasting Finance General

The cost to SMEs of IT failures

IT failures in a networked worldThe pressure to do everything online is inexorable but what is the cost to businesses of IT failures?
Perhaps one of the most frequent and difficult issues facing SMEs is the seemingly frequent meltdowns of both banking systems and government websites.
This is without considering the issues of cyber-attacks on companies where the FSB has recently calculated UK small firms are subject to nearly 10,000 cyber-attacks a day, with over a million small firms hit by phishing, malware attacks and payment scams.
Obviously it is in businesses’ own interests to have robust IT systems in place including cyber security, but the frustrations of IT failures are a different issue and often not of their own making since the counter parties also need to have adequate IT systems and security at their end.
Since 2018 the FCA (Financial Conduct Authority) has required banks to publish information about the number of major operational and security incidents they have experienced.
Last month a BBC investigation revealed that bank customers face an average of 10 digital banking shutdowns a month, based on the figures published so far.
The figures for the 12-month period until the end of July 2019 are not exactly comforting. The top five worst “offenders in the list (with the figures in brackets showing failures for the 3 months between 1 April and 30 June 2019) were:
Barclays 33 (4);
NatWest 25 (7);
Lloyds Bank 23 (2);
RBS 22 (7);
Santander 21 (4).
This is at a time when an estimated 6000 small bank branches have been closed, often in small town or rural locations, while, according to analysis by Close Brothers Finance, 51% of SMEs visit a bank branch at least once a week while three quarters use online banking at least once a week, with 41% using it every day.
This would suggest that the costs of IT failures to SMEs, not only in delays, frustration and cash flow issues are considerable.
But it is not only the banks that are a problem. We have lost count of the number of times businesses have reported difficulties with Government websites, from the application process for Business Rate Relief, to authorising and accessing various HMRC websites, and the online court service where last January the entire civil and criminal court IT infrastructure collapsed for several days!
Where does the problem lie for IT failures?
Is the problem with the expectations of those commissioning IT systems, who perhaps do not understand the IT capabilities and limitations? In their understandable desire to win business are the software providers and developers, themselves often SMEs, failing to tell their potential clients honestly what the limits are to the systems they want to commission? Or more pertinently what you can have for the budget.
Or is it simply that the IT skills of the Fintech and other IT provider industries are just not good enough?
We know there is a skills shortage in the IT sector generally but Fintech is supposed to be one of the UK’s most successful sectors.
UK Fintech companies received £740m from venture capital in the second quarter of 2019, almost double the amount invested during the same period last year according to the CBI (Confederation of British Industry), with Challenger Banks like Monzo among the most successful cohorts in Fintech.
Data released by Tech Nation and Dealroom for the government’s Digital Economy Council showed that British tech companies attracted more foreign investment in the past seven months than in the whole of 2018. Another endorsement.
If SMEs are to rely more and more on IT and the tech services of banks and other institutions with which they have to interact, it is perhaps time to look more closely at the services being provided and to make a concerted effort to do something to prevent so many IT failures.

Business Development & Marketing General Uncategorized

Why should SMEs have a staff handbook?

taff handbookIt is important for employees, and management, to know exactly what is expected of them by way of appropriate behaviour, legally-imposed regulations and any specific company policies.
Businesses are required to oversee compliance by staff of all manner of regulations such as Health and Safety, manual handling, smoking, noise, abuse and discrimination to name just a few.
However, new laws and regulations are constantly being imposed on businesses and others are subject to change. While in the past such policies might have been incorporated into each employee’s contract of employment, the constant changes make updating them almost impossible. Instead contracts of employment can be quite short by referring to a staff handbook that can be kept up to date.
Businesses vary greatly in what they include in the employee handbook, but some can run to some 60 pages.
The essentials that should be in a staff handbook
Essentially, the handbook is combination of quality, management and reference manual. They are particularly useful when inducting new employees or as a reference manual when dealing with grievances and disciplinary matters, or sickness and absence.
Therefore, it makes sense for every business to have a well-structured staff manual, no matter whether it is an SME or a larger company.
Ideally, a staff handbook should be clear with an easy to search index so that it can be used for training purposes and referred to when dealing with problems that may arise.
It should contain company policies on dress codes and behaviour, information about claiming expenses, health & safety, security, personal safety, use of vehicles and driving while on company time, and lots of statutory policies.  It might include instructions for using technology and telephones, while most companies now forbid staff from using phones while driving and some forbid their staff from taking calls on business phones outside working hours.
Others have instructions for operating specific equipment or machinery as might relate to departments, while these can be incorporated into the staff handbook they might instead be appended in working instructions that apply to the relevant department. Either way such instructions should be referred to in contracts of employment and the staff handbook as observing them will be a condition of employment.
Staff handbooks should include reference to policies on equal opportunities, Disciplinary Rules and Procedures, Grievance Procedure and Health and Safety Policy.
While there is no need to include the details of the legislation they should point to where both staff and management can find more information.
There are many other policies, these days, that businesses may also have, such as on drug and alcohol consumption, especially where they expect employees to drive motor vehicles. Email security is also a major area where employee compliance is key including internet security, protecting company systems from unauthorised access and viruses, accessing inappropriate or non-work-related websites, personal use of company computers and telephones or social media. Sickness and absence, parental leave, data protection and whistleblowing are also normally covered.
Again, staff and management need to be familiar with the policies and procedures and know that they exist, and where to go for detailed information.
An up to date staff handbook should be available on staff noticeboards with notice of any changes that might be relevant. These should also be covered during a periodic staff review and every now and then an updated staff handbook should be issued to all staff.
It might need to be longer than 60 pages but, however long, every company that employs staff needs a staff handbook.

Cash Flow & Forecasting Finance General

Time to review outsourced services?

Jenga game getting the balance rightIt can be a false economy for SMEs to try to manage all aspects of their business in-house.
However, it is a good idea to regularly review the outsourced services being used and the partnerships or collaborations the SME has been involved in and the ebb in activity during the summer holiday season is a good opportunity to do so.
Typically, SME outsource their IT support, HR admin, book-keeping, payroll, PAYE and VAT and tax returns and many use virtual PAs for some or all of their administration. Some SMEs also outsource their manufacturing, distribution, sales and marketing.

What to consider when reviewing outsourced services

One of the main benefits of outsourcing can be that it ensures that essential back-office functions can be looked after by people who are up to date with legal and other requirements. Another is that the outsourced firms specialise in one aspect of your business so you should expect them to get the work right and do it on time.
When reviewing existing outsourcing arrangements there are several considerations and questions to be asked:
Skill availability in-house: employing qualified and experienced staff to carry out work related directly to the products or services the business offers is crucial to its success.  However, diverting them, or adding to their main work load by having them carry out other tasks may not be the best use of their time and expertise, which ideally needs to be focused on the main function for which they were employed.
Efficiency & time: people are rare rarely under-occupied in a SME, so asking them to multitask may end up making them less productive overall.
Costs: it may be tempting to think that costs can be reduced by doing tasks in-house, but again, it is a balancing act between reduced overheads and the benefits of specialist knowledge and expertise.  This is particularly important with services that are extremely technical, such as IT, or require extensive and up to date knowledge of regulations and legislation, whether it is accounting functions or marketing activities or dealing with employer’s responsibilities or Health and Safety matters.
The value of another perspective and in-depth knowledge can also bring huge benefits such as the accountant who takes a hands-on approach to supporting clients, rather than them being simply an information processor. They may have expertise culled from a wide variety of clients and, with an objective eye, can offer another perspective or suggest possibilities for improving profitability or taking a business forward.
Ultimately, when reviewing outsourced serviced there is a balance to be struck between cost, time and expertise, and the effects on a business’ reputation if standards slip by bringing tasks in-house to save money.

Accounting & Bookkeeping Cash Flow & Forecasting General

Employee productivity and how it is changing

Breaking the wall K2 Partners Business Blog

The standard definition of productivity for a business is “A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs.”
It is usually calculated by dividing the output for defined periods by the total costs (capital, energy, material, personnel).
That has served well for businesses involved in manufacture of a defined product and, to an extent, for those in the service sector.

The productivity calculation is changing thanks to technology

While it was straightforward to assign a value to the inputs of labour when production relied on people doing the work the equation needs to be adjusted with the increasing use of automation for all or part of the manufacturing process.
While capital, energy and material may still have a quantifiable cost that can be measured the role of personnel changes significantly.
While, of course, efficiency and optimising output are still essential to maximising productivity, how does labour fit into the calculation, when human beings are no longer performing those repetitive tasks on the production line?
The manufacturing model is changing where by the traditional manual role has largely been replaced by the management of equipment and systems.  This may involve programming equipment to set up the process, monitoring it while running and intervening only when something is wrong or in the event of a breakdown.
The new manufacturing roles require technical knowledge, materials management skills, quality control, administration and planning production. The blue collar worker is now a skilled and often highly trained engineer who no longer needs supervising by a traditional manager.
Even such basic jobs as road sweeping are no longer about a person with a sweeping brush and dustcart. They are now more likely to involve someone operating a mechanised sweeper, which may need more training and skill. Modern tractors and farm equipment take technology to a new level.
While automation can eliminate back-breaking labour and improve productivity in manufacturing, it still needs people with the training and knowledge to operate machines, maintain and fix them and to understand how to get the best performance out of them.
This may result in the need for fewer employees in a business, but with a higher level of skill and education and therefore higher levels of pay. A consequence is less need for middle management.
Therefore, when calculating business productivity where automation is playing a part, the costs of the various inputs, including personnel, and their relative importance will need to be rebalanced.

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

Van delivery businesses operate on very slender margins

van delivery serviceCourier and other delivery services that operate using vans do not need one of the three main types of operators’ licences required in the UK if their vehicles have either a gross plated weight (the maximum weight that the vehicle can have at any one time) below 3,500 kilograms (kg) or have an unladen weight of less than 1,525 kg (where there is no plated weight).
Generally, one of three business models applies to these types of companies. They are either companies that have their own vans, or they are one-man van companies or two-man van companies.
In terms of labour the two-man per van model, which specialises in loading and delivering such things as furniture and white goods, is the most costly to run.
But in all three cases the full costs of operating the business are going up significantly because of fuel price inflation, exchange rate fluctuations and the incredibly competitive market in which it operates. And the cost of vans and parts is likely to rise since the recent change to exchange rates.

Can van delivery businesses become more efficient?

Efficient fleet management is key. We came across a case of a company operating its own vehicles that had agreed to a delivery deadline for the goods from their factory.
However, one item was not ready so the factory manager decided to send out all those goods that were ready then have the van deliver the missing item the next day. This doubled the transportation costs and as a result crystallised a loss on the order. The factory manager had simply treated the van as a convenience and not a cost to be managed. There were many alternative options but all too often convenience is chosen without regard to cost or efficiency.
Another problem faced by some delivery companies is that they are operating under a franchise model using self-employed drivers. The recent ruling against Uber is likely to significantly add to these companies’ costs because they will have to comply with employment laws and the pay minimum wage unless an appeal overturns the verdict.
A third issue is the cost of warehousing where delivery companies are receiving goods into warehouses for onward delivery or storage and calling off. This model introduces the additional burden of tracking goods and having an efficient system in place to manage both storage, retrieval and delivery. While this provides scope for adding value and charging a premium, it requires investment and training which are all too often ignored and lead to the business failing.
One area that seems to justify a margin is handling valuable or specialist goods such as art or glassware. While it can take time to build a reputation, the relationship with customers can change from simply being all about cost to developing a partnership.
Manufacturers however are often wise to outsource deliveries which will allow them to focus investment and training on their factory.  But like the first example, duplicated journeys are expensive so deliveries need to be managed.
As to the van delivery companies, the competition in the market is fierce and it is likely that there will be considerable insolvencies as costs rise. Survival and profits are all about systems and volume, or specialism.

Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Revisiting the role of the manager

remote workingThere has been a massive reduction in middle management positions in recent years which raises questions about the role of the manager in 21stCentury businesses.
Is the management hierarchy giving way to greater employee empowerment?
Have we moved to a world where actually much routine management is no longer a discrete function but is now a part of doing a job as part of the value chain?
To what extent has initiative taking been devolved to members of staff, who no longer want to feel managed and want to get on with the job themselves?
Many of the historical management functions, such as decision making, organising, planning and administration, can be carried out by members of staff if they are suitably trained, empowered and experienced to take them on and there is some mechanism whereby they can be accountable for their actions.
Arguably a flatter organisation with fewer levels of hierarchy is more efficient and more competitive being less expensive due to the need for fewer staff and much quicker when decision making doesn’t require management.
If a business is known for empowering its employees it can also make it easier attract more highly-skilled people which in turn contributes to being more efficient and competitive.

Efficiency or stagnation?

In many ways when a business is stable and working efficiently there is no need for the traditional management role of overseeing the activity of others.
So while there is still a need for senior managers even in a business with a flatter hierarchy, their time is freed from overseeing the actions of others to focusing on the strategic, on management of specific issues and on one-off problems that are not part of the day to day course of business.  Trained, experienced and empowered staff can now deal with such things as customer complaints, refunds, advancing loans or monitoring processes for example.
Therefore, the core role of management is now more about mentoring and providing support for the empowered and capable staff and less about supervising them as with a historical command and control approach to business.
There is however another view: businesses that are going nowhere don’t need managers to administer genteel decline. A fear of risk and little appetite for growth among owners and investors has resulted in many businesses pursuing short-term profits. Those with ambition need managers to make decisions, to take risks and deal the challenges ahead if they want to be successful.