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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting General

What items are top of businesses’ post-election wish list?

post-election wish listInevitably many promises were made during pre-election campaigning but how many will be delivered and what items are top of businesses’ post-election wish list?
There is no question that there are many urgent domestic issues that need tackling and were “parked” during the on-going wrangling over Britain’s referendum to leave the EU.
However, now that the so-called “party of business” has been returned with a solid majority, perhaps businesses will see some action on the issues that have left them feeling that they were overburdened and struggling to carry a heavy weight with little support.
While many business groups have been calling for the closest possible trade alignment with the EU post-Brexit it will be a year – or more – before the shape of any deal is known.
In the meantime, there are plenty of items on the business post-election wish-list that can be progressed.
Perhaps the biggest and most pressing burden needing attention is a thorough reform of Business Rates.  Of course, the loudest cries for this have come from the retail sector, particularly from High Street retailers, but there is no question that the current levels, and the slow pace with which appeals are addressed, is a heavy burden for many SMEs.
However, the Federation for Small Businesses (FSB) leader Mike Cherry, has warned that it could take up to five years to complete a rates review and reform
Arguably of equal importance is the difficulty many businesses have in finding people with the appropriate skills and this has been impeding growth plans.
While the new Prime Minister has promised an overhaul of immigration policy, this will affect how and who firms can recruit. It remains to be seen how the proposed three-tier points-based system will work.
The idea is to fast track so-called Tier One entrants such as entrepreneurs, investors and people who have won awards in certain fields, and Tier Two people, skilled workers, such as doctors, nurses and other health professionals, who have a confirmed job offer leaving the need for less skilled, people such as for as agriculture and manufacturing as a problem. Essentially Tier Three employers will most likely have to show that they cannot recruit enough people from within the UK before other entrants are allowed into the country which may take some time and leave them with short and medium term staffing shortages.
Indeed business organisations such as the Confederation of British Industry (CBI) have said that the current immigration proposals are vague and impeding businesses’ ability to plan for growing staffing levels.
The final and most pressing issue, on which the Government has promised action and investment is the country’s neglected and in some cases crumbling infrastructure, particularly in areas like the North and Midlands.
Whether improving communications such as road and rail links, or broadband connectivity, it is going to require significant financial investment and given the lack of growth and current weak economy it remains to be seen how much money is in the Chancellor’s pot come the first budget in March.
 

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Key Indicator – Stock Market behaviour predictable or not?

stock market predictionsAt the start of the new decade predicting stock market behaviour is anything but an easy task.
A year ago, the pundits variously predicted that the year-end valuation of the FTSE 100 would be anywhere between 7200 and 8400 points. In the end, at close of business on 31st December it was in the mid-7000s at 7542 below most predictions but it was still a stonking year.
Over the last year, stock market values, including the UK’s FTSE 100 and 250, have risen an astonishing amount to make 2019 one of the strongest years ever, despite a sluggish global and EU economy, US and China trade wars and Brexit uncertainty.
According to the business news two days ago the Dow Jones industrial average has seen  a rise of almost 25% having reached record highs day after day, the broader S&P500 is up 30% and the tech-heavy Nasdaq has grown 40% in value. The FTSE100 in London is also close to its record high, as is the Dax30 in Germany.
In so-called “normal” times the stock markets traditionally go down when the interest rates go up which may explain the stock market values given the unprecedented period of low interest rates set by Central Banks that have done everything they could to support their countries’ weakening economies in their attempt at stimulating growth or more accurately avoiding recession.
But what is “normal” given that some Central Banks including European Central Bank, Japan, Sweden, Denmark and Switzerland have set negative interest rates?
To make predictions more difficult, this has been going on now for more than 10 years, since the 2008 Financial Crisis, and growth/recovery is still pretty sluggish despite the stimulus.
Usually, over a 10-year period there is a natural economic cycle from “boom” to “bust”, but the “bust” has yet to come, and nor is it being predicted. More of the same seems to be the view of most economists.
However a few pundits, notably the economist Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business, argue that the stock markets are far too optimistic, while the business writer Rana Foroohar, author of Don’t Be Evil: The Case Against Big Tech and associate editor at the Financial Times, predicts that the next crash will be brought about by the concentration of power in the hands of big tech companies like Apple, which have built up huge amounts of debt in their quest for power. She says: “Rapid growth in debt levels is historically the best predictor of a crisis.”

So, why have stock market valuations continued to climb?

In my view, two things have driven the value of companies listed on the stock market.
Firstly, businesses have broadly maintained their profitability by reducing overheads through slimming down management and not reinvesting. This has hidden their decline in productivity because profitability has been maintained. I believe that the cutting out of swathes of management has made many businesses extremely lean but left them without scope for responding to growth, with little experience for investing in new technology and for implementing the changes necessary to remain competitive.
Secondly, the numbers of listed companies have declined leaving fewer in which to invest money. Given that investors want to invest in profitable businesses this has meant that the pool of investable companies has also shrunk driving up the value of those that should be part of an investment portfolio. This distortion is likely to encourage a shift from the growth investment strategy preferred by long-term investors to one of value investment preferred by those with a higher appetite for risk. Indeed, picking winners is difficult as those who backed Neil Woodford will attest.
You could argue that UK based companies exporting abroad with foreign investors have benefited from exchange rates problems due to Brexit to make more locally focussed companies more attractive but this should only be part of a value investment strategy and still leaves the long-term investors looking for fundamentally sound businesses.
It’s possible that once Brexit is under way after January 31, there will be a re-rating because the companies that import from abroad have suffered disproportionately.
It will only take the Central Banks raising interest rates to more normal levels for a major stock market crash to become inevitable.
 

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Business Development & Marketing Cash Flow & Forecasting Finance General Insolvency

Diversity of thought is about more than challenging stereotypes and ticking a box

diversity of thoughtToo often the word diversity as applied to directors of companies is seen as demonstrating representation by gender, ethnicity, religion, and possibly of age. But it should actually be about more than that, it should also be about diversity of thought and ideas.
The challenges facing businesses in the 21st Century are becoming more complex and happening at a faster pace so it makes sense to have people at board level who think differently and can communicate their ideas.
In a recent survey carried out by Social Mobility Pledge as reported by The Times newspaper, the researchers found that by and large “who you know” was still the most important factor when promoting staff.
Sadly, the inference from this is that recruitment tends to favour like-minded people, which is hardly helpful to businesses wanting to avoid being stuck in a rut.
The ability to challenge the status quo at all levels and in particular a board level was a topic discussed in a recent vimeo by Kenneth McKellar, a partner at AGM Transitions, which advises senior executives on their career transitions and roles.
He argues that every business needs people who can challenge the organisation and this means choosing directors from a wide variety of backgrounds, education and disciplines as being more important than simply having more women on the board which seems to be the focus of most FTSE 100 companies seeking to observe the UK Corporate Governance Code.
Being open to people from different educational backgrounds and with different experiences can bring different ways of thinking, different knowledge bases and different perspectives to problem-solving.
The challenge for boards is to avoid groupthink despite the natural desire among teams to seek harmony and conformity since groupthink can lead to irrational and dysfunctional decision-making.
This is also about people’s preferred ways of thinking as shown in the Hermann Whole Brain ® Model which was the result of research originally conducted at GE’s corporate university, Crotonville.
It describes four main modes of thinking, analytical, organized, interpersonal and strategic, each of which has a value in promoting diversity of thought in the workplace and at board level. Of course, this is likely to lead to differences of opinion which might imply conflict. However, such differences ought to be regarded as healthy if a business is to consider the challenges of the future and continuously change to meet them.
Ultimately businesses need people who represent a range of thinking and of ideas with the ability to think laterally, who can disagree in a way that leads to collective decisions.
‘Yes’ men and women may keep their job but they ultimately they contribute to the decline of their business due to their going along with others instead of contributing in a constructive way that improves the decisions made.

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

What is AIM and is it beneficial to SMEs to apply for AIM listing?

aim for growing businessIt is coming up to 25 years since AIM (Alternative Investments Market), the London Stock Exchange’s junior stock market, was launched and it now lists around 3,600 businesses.
According to the accounting firm BDO, “AIM is the most successful growth market of its type in the world” and in the last five years AIM-listed businesses “have created an additional 76% jobs, now employing almost 390,000 people”.
The London Stock Exchange website explains that AIM is targeted at smaller, and growing, businesses and offers them “the benefits of a world-class public market within a regulatory environment designed specifically to meet their needs”.
It is a multilateral trading facility, operated and regulated by the London Stock Exchange under FCA rules.
Candidates for AIM listing do not have to have a trading track record, but they must abide by the rules. There are very clear guidelines on how to apply for AIM listing on the Stock Exchange website.
They must appoint and maintain an AIM approved Nominated Advisor, also known as a NOMAD, who is responsible to the Exchange for assessing the appropriateness of an applicant for AIM. The NOMAD also advises and guides their client through the AIM listing process and once listed ensures it complies with its ongoing responsibilities.
The Stock Exchange will suspend trading of the company if it ceases to retain a nominated advisor and if a new NOMAD is not appointed within a month, its AIM listing is cancelled and its shares can no longer be publicly bought or sold.
Albeit with advice from a NOMAD, application for AIM listing is relatively straightforward but listing does cost an estimated £400,000 to £600,000 a year. This covers the NOMAD and other adviser and broker fees, plus AIM membership at around £100,000 per year, according to the website startups.co.uk.
Startups lists some of the pros and cons of AIM listing, the main advantage being future access to raising further funds after the IPO (Initial Public Offering). It says, “AIM listing is being seen as an increasingly attractive investment class to institutions such as pension funds”.
“It also raises the profile of a business, as does having Plc status”, it says. While Plc status requires a minimum of £50,000 share capital, AIM companies tend to have much more and there is the attraction of having publicly tradeable shares.
The downsides according to Startups, are not only the financial cost but also the difference between running a Plc as opposed to a privately-owned business, plus the business will be vulnerable to the ups and downs of share values.
I would add another downside, the need to make public disclosures about matters that influence the share price. This may be great when an AIM company is doing well but can be disastrous for one that isn’t, especially one that needs restructuring.

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

UK economy macroeconomic update at the end of March 2019

UK economy crystal ball gazingAmidst the tedious ongoing, protracted and now further extended Brexit process, predicting where next for the UK economy is akin to crystal ball gazing.
So, a macroeconomic update on the UK economy can only be a short term snapshot, from which it may be possible to tease some potential signs for the future although the impact on UK of some global trends make some predictions more certain.

The state of the UK economy after the first quarter of 2019

As ever, we have seen a mixture of positive and negative economic data but it should also be remembered that Brexit is a distraction since the UK economy is heavily dependent on the EU and global economies which have been slowing markedly.
In defiance of most economists, unemployment continues to decline and is at its lowest level for 45 years, and employees are finally seeing modest, albeit recent, above inflation wages growth after many years of minimal wage increases. This has no doubt contributed to the higher levels of income tax and helped narrow the gap between government spending and revenue. Consumer spending has also held up rather better than predicted to help the UK economy.
While the FTSE 100 dropped to 6,584 in December it has since recovered to 7,490 but not yet to its historical peak of 7,877 in May last year. Much of the recovery would appear to be a reversal in economic forecasts for interest rates, which were expected to rise in US and UK but now are projected to remain the same for some time and even may be reduced as some are predicting. As a benchmark the yields on UK 10-year Gilts (bonds) are currently 1.23% up from 0.52% in July 2016, and US 10-year Treasury bonds are 2.58% which is down from their 5-year high of 3.23% in November last year.
The rate of house price growth has been at its lowest for almost eight years and the UK economy expanded by just 0.2% in the latest three months with the Treasury, the Bank of England and the City predicting the weakest growth for eight years for 2019.
Export orders, too, have gone down, with UK export growth falling by 0.8 points to 95.6 in the first three months of the year.

Worrying signs ahead for the UK economy

The UK’s service sector accounts for 80% of its economy and the most recent purchasing managers’ index for February from IHS Markit/CIPS fell to 48.9 in March from 51.3 in February, where any figure below 50 shows a contraction in the sector. Construction, too, remained below 50.
IHS Markit/CIPS is predicting that the UK economy will grow by just 0.8% this year. PwC has also downgraded its GDP growth forecast for this year to 1.1% from 1.6%.
At the end of March, there was some evidence from the REC (Recruitment and Employment Confederation) that employers were scaling back hiring and investment plans.
More concerning is the flight of capital out of the UK with Santander moving spare capital away from its British operations and EY (Ernst & Young) analysis suggesting that banks, asset managers and insurers are opening or expanding their European centres, with 23 companies announcing the transfer of £1trn in assets.
Despite what some might regard as a gloomy outlook, it would appear that prospects for the UK economy are better than those for Europe and possibly than for US.
It will be interesting to see what happens over the next quarter now that extra time has been agreed to sort out the Brexit situation.
Normal business life cannot remain on hold forever, but whatever the outlook we should get on with doing business and not wallow is apathy or self-pity.

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Banks, Lenders & Investors Business Development & Marketing General

March sector focus on UK food production, imports and exports

UK food export and importTea, the UK’s favourite beverage, could become a luxury if analysis by HSBC of a no-deal Brexit is to be believed.
The analysis, published by Business Insider in January, puts the amount of food imported into the UK at 80% if ingredients for processing products are included. Tea, for example, may be processed in the UK but is not grown here.
The prospect of no easily-available cuppas should really concentrate the mind!
Joking aside, an examination of UK food imports and exports indicates just how closely-integrated the food and food processing supply chain really is, and how much relies on the EU.
An analysis of the food industry must cover trade in both ingredients and processed foods. It is complicated by the fact that some ingredients, such as beef, pork and lamb, are often produced in UK but exported for processing and then re-imported as finished products such as cuts of meat ready-packaged for sale or as ingredients in ready-meals. This is the result of us in UK having so few processing facilities.
A further complication for UK food producers/farmers is the shortage of labour, from overseas workers for picking and packing to HGV (Heavy Goods Vehicles) drivers for transport.
This all suggests the likelihood that the cost of food imported into the UK is likely to rise sharply.

What food and drink does the UK export and to where?

According to the most recent statistics from the FDF (Food and Drink Federation) the top ten UK exports by value, in order, for 2018 were:

  1. Whisky
  2. Chocolate
  3. Cheese
  4. Salmon
  5. Wine
  6. Gin
  7. Beef
  8. Beer
  9. Breakfast cereals
  10. Soft drinks

At the moment it calculates that some 75% of this trade is to countries within the EU and as such may mean that new trade agreements, tariffs and so on may have to be developed with both EU and non-EU countries. Some UK food products have EU Protected Food Name status.
Non-EU target markets are likely to include New Zealand, Canada and/or the USA, China and other Asian countries but again all will need trade agreements to be put in place.
ADAS, the UK’s largest independent provider of agricultural and environmental consultancy, rural development services and policy advice, has analysed some of the potential opportunities for the UK to pursue in developing food exporting outside the EU.
For beef and veal, it suggests China, rest of Asia and Africa for offal and the USA for premium cuts but lists among the UK’s weaknesses its limited market access, uncompetitive pricing and the lack of processing facilities.
It is a similar story with sheep products, with the additional factor of already-established competition from Australia and New Zealand. Pork exports could be targeted at South Korea, Vietnam, China and the rest of S Asia but this will take time to put in place.
For dairy products ADAS sees opportunities in countries where there is a growing and affluent middle class, such as China, the Middle East and North Africa.
The UK already has an established global trade for its cereals and oilseeds with Algeria, Tunisia and Japan and here, too there may be potential for further market development.
The AHDB, (Agriculture and Horticulture Development Board, Stoneleigh, Warwickshire), too, sees potential for expanding UK food exporting particularly in dairy products.
Its analysis says: “The main trade-related opportunities of Brexit for the UK dairy industry will focus on displacing imports or growing new export markets. If the UK manages to negotiate a trade deal with the EU allowing tariff-free access, then the likelihood is for business as usual with the EU.
“However, if not, any import tariffs imposed by the UK could provide an opportunity to substitute a number of imports with British milk. Experience from the EU suggests that tariffs may limit the scale of imports of commodity-type products, although speciality products will probably still reach the UK.
“Combined with increased supply chain investment, this could see the UK progress as an industry.”
While opportunities for export are identified in all the analyses, they are contingent on the ability to negotiate Free Trade or Low Tariff agreements with potential customers as well as fending off already-existing arrangements that have been established by the EU.
The other glaring UK deficiency is in the scarcity of in-country facilities for processing foods for export.
It also remains to be seen how UK farmers and growers will be affected by the loss of various agricultural subsidies that have protected EU farmers for many years.

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Banks, Lenders & Investors Business Development & Marketing Finance General

March Key Indicator – Investment in the UK

investment on solid foundationsInvestment is a tricky term to unravel largely because the investment objectives are key to any decision and predicting the future is so difficult, especially given that past performance is rarely a predictor of future returns. Despite the lack of certainty, much analysis is necessary.
Much has been made recently in the UK’s uncertain economic climate about the massive reduction in investment being made by UK businesses in their companies.
It is argued that with the future so uncertain, businesses are holding onto their cash reserves and delaying plans for growth and indeed towards the end of last year the BCC (British Chambers of Commerce) was warning that British businesses had paused investment in growth. However, this is also an excuse used by weak leaders and those who lack a vision.
But investing in the future and growth of your own business is only one level of investment.
At a higher level, investors can be pension funds, investment “vehicles” or funds run by investment companies, and Foreign Direct Investment (FDI) by businesses from one country into those in another.
A rise in investments in the stocks and shares of businesses in an economy is generally regarded as a positive thing.
So, at the moment, UK equities seem to be doing well in that Bloomberg, for example, has just reported that the UK’s top ten investors, in which it includes Invesco, Schroders, Aberdeen Standard and Legal & General, have increased their holdings of UK-listed shares by more than a third over the last three years. This is interpreted as showing a degree of confidence in the UK’s long-term future.
In January CityAM interviewed Shroders’ CEO Peter Harrison reporting that he expected 2019 to be a better year for investors.
Similarly, ONS (Office for National Statistics) data shows that overseas investment into the UK is at its highest level ever, with investment from India, the US and from Japan leading the field.
Sectors currently seen as attractive by equity investors are the financial services and, for both Angel and Venture Capital investment, the UK tech sector, particularly for those businesses developing innovative software, and in Fintech (financial technology).
The key to understanding investors and their behaviour, however, is to examine their expectations.
Much has been made of the short-termism of many investors and shareholders and its negative impact on businesses. In this scenario, investor pressure is for maximum profits or returns on their money over a short period. This pressure can change the behaviour of boards of directors and even influence the remuneration packages of CEOs so that those who deliver maximum profits in the shorter term are well rewarded.  It is questionable, however, whether this is in the longer-term interests of a business.
Generally speaking this type of expectation is most likely to come from pension fund-type investors, where fund managers themselves are under pressure to maximise profits for their members.
Arguably the most successful and reliable investment funds, however, are those that take a longer-term view and focus on the lifetime value and potential of a business.
Warren Buffet’s Berkshire Hathaway vehicle and Terry Smith Fundsmith fund are the top performers using this type of investment model.
Buffet’s “value investing” style focuses on business, management, financial measures, and value and the emphasis is on the long term. He is less interested in the market or the economy or investor sentiment, focusing instead on consistent operating history and favourable long-term prospects.
Terry Smith uses a similar approach as described in a Guardian article last year. Since its founding in 2010 it has made a gain of 309%. His fund has a low turnover of shares and his message is simple: “Buy good companies. Don’t overpay. Do nothing.”
Smith says he avoids certain sectors like insurance companies, real estate, chemicals, heavy industry, construction, utilities, resource extraction and airlines. He recently launched a new fund, called Smithson, focusing on in mid-size companies. Like Buffet’s, Smith’s focus is on the longer-term value in businesses and this is where he chooses to put his money and those of the investors who are members of his fund.
Clearly if a business can attract the interest of either Buffet or Smith in investing it can have some confidence in its stability and its future. Strangely their strategies are similar to those of well run private businesses, although this is perhaps less surprising given that their money is in their funds.

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Business Development & Marketing Cash Flow & Forecasting General

Are your staff loyal? Retaining valuable staff depends on how you treat them!

valuable staff should be well treatedIn a mature economy with an ageing population and amid rapidly-changing technology, businesses are finding it increasingly difficult to find the skilled staff that they need.
This makes it a buyers’ market for job seekers and the evidence for this has been mounting particularly in sectors such as construction, engineering, manufacturing and IT where wages are rising significantly above inflation.
In December a report from Barclays showed that only 6% of people aged between 16 and 23 wanted to work in manufacturing and official figures have also shown that workers are switching jobs in record numbers.
A BCC (British Chambers of Commerce) report based on a survey of 6000 businesses in January revealed that four fifths of employers in manufacturing reported difficulties in finding the right workers and in the services sector, which makes up nearly 80% of the economy, seven in 10 said they had struggled to recruit.

Persuading valuable staff to stay with your business

At the moment UK employment is at its highest level ever and depending on proposed Government changes to immigration rules, it may become more costly, and difficult, to recruit from overseas.
Projections for 2019 suggest that businesses will have to increase rewards and perks to secure and retain valuable staff and will have to become more ethical. Alternative work conditions, such as remote working may also be on the rise.
What do workers value?
First and foremost, they want to feel valued and respected and to be involved in the progress of the business for which they are working.
While adequate remuneration is a part of this, so, too is the possibility of progressing within the business so listening to their ideas is key as is offering training, particularly if parts of the business process can be automated.  The introduction of AI should not be seen as a threat but can be used as an opportunity to offer upskilling to at least some of those who may be affected.
There has also been a lot of emphasis on the disparity between women’s pay when compared with men’s and the pressure to show female employees that they are an equally valuable part of the team with the same prospects and opportunities is becoming increasingly important.
Employee wellbeing, too, is moving up the agenda.  38% of workers say they have suffered from work-related stress. While pressure can be a positive motivator for improving productivity, when it becomes stress it can lead to mental health problems.
A clearly laid-out set of policies on mental and physical health should be a part of every employee handbook and should be acted upon if the need arises.
Being part of an ethical company that is not afraid to publicise the fact can also be important.
Businesses can benefit from being more innovative in the way they support and reward staff and should look beyond their current policies for ideas.
This more than simply paying high wages, it is your actions and behaviour as a manager and leader that are also key for staff when considering if they should stay.
There are a number of quotes about valuing staff, I like this one by Richard Branson: “Train people well enough so they can leave, treat them well enough so they don’t want to.”

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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.
 

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Banks, Lenders & Investors Cash Flow & Forecasting General

Productivity, working hours and health – time for a new approach?

happiness and workers' productivityProductivity, and how to improve it, is a perennial concern for the UK’s SME managers.
The country’s woeful productivity when compared with other countries has long been an issue for businesses, albeit it improved in the first six months of this year according to ONS (Office for National Statistics) figures.
Productivity is traditionally measured by the amount of work produced per worker, per working hour, but new thinking suggests that we are measuring it all wrongly.
In an article in Businessleader.co.uk entitled Are we measuring productivity all wrong the economics and productivity expert at UWE, Professor Don Webber is quoted as arguing that productivity is measured by dividing gross value added (GVA) by the number of hours of work but that until the financial crash of 2008 GVA had been disproportionately boosted by the financial services sector.
There are three components to increasing productivity, he says. They are the ability to push down costs, push up prices and sell more units.
But he says the calculation is far more complex in a consumer economy like the UK, where austerity has had an impact on the ability to buy goods and services, and not enough attention is paid to such elements as investment in more efficient systems, tools and working conditions.
Indeed, I would argue that national productivity measurement based on macro data masks the huge productivity gains made by many firms and especially those who have invested in automation, robotics, AI and new machinery. Consider the comparison of two measures of productivity and how they might show significant improvement; the first is sales by square feet in a Lidl or Aldi, both shops that stock the shop floor with pallets of goods; and the second is car manufacturers who might measure sales per worker where their factories are automated. It can be seen how the gig economy masks these productivity gain figures.
The Businessleader article also mentions some HSBC research, which found that workplace culture is a key factor to increasing productivity.
It found that businesses that offer employees the opportunity to work flexibly are more productive and that workers place flexibility ahead of financial incentives when asked about what motivates them the most.

Innovative solutions to improving productivity

In November, Shadow Chancellor John McDonnell suggested that businesses that operated a four-day week without cutting pay could see improvements in staff morale, health and revenue. It may seem counter-intuitive but there is evidence from a number of bosses whose businesses have tried it that they are reaping rewards. The economist, Lord Skidelsky, has been asked to investigate the issue further.
The Health and Safety Executive (HSE) recently announced that, for the first time, work-related stress, anxiety and depression account for over half of all working days lost due to ill health in Great Britain. In total, 15.4m working days were lost in 2017-18 as a result, up from 12.5m the previous year.
The issue of businesses paying attention to their employees’ mental wellbeing as well as their physical health has consequently attained a higher profile. A growing number of major employers, including the bosses of Royal Mail, WH Smith, Thames Water and Ford of Britain have called on the Government to give mental health the same status as physical health in HSE legislation.
Clearly, it makes sense for businesses to review their policies and practices on working hours, mental and physical health support and training, where there are now so many options for using AI and smart technology to improve working practices and where it is becoming clearer that a happy, healthy and motivated workforce is a key to improved productivity.

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

Is fear for the future the explanation for a rising numbers of insolvencies?

does fear for the future rule your business decisions?The increased number of insolvencies, largely due to CVLs (Creditors Voluntary Liquidations) between July and September this year is a worrying, but hardly a surprising, trend.
There has been a gradual upward trajectory in insolvencies for much of 2018 but it seems to be accelerating. The latest figures, for Q3, show an increase of 8.9% on the previous quarter and an increase of 19.3% compared with Q3 in 2017. CVLs make up the bulk of the quarter’s insolvencies at 71.6% of the total, that is 3,083 out of 4,308 and the highest number of quarterly CVLs since January to March (Q1) 2012.
As for much of the year the construction industry had the highest number of insolvencies in the 12 months ending Q3 2018, followed by the wholesale and retail trade and the repair of vehicles industrial grouping.
For some time now, it has been clear that businesses have been holding back on investment for growth given the climate of uncertainty that the economy has been in for two years now, and yes, many cite the lack of clarity over the outcome of the Brexit negotiations as their reason for holding off.
My regular readers know that I believe no SME business can afford to stand still without risking eventual failure and that in difficult times I advise focusing relentlessly on cash flow as well as a regular review of margins and Management Accounts.
Nevertheless, it is understandable that there is little confidence in the future after two years of tedium, and, some would argue, incompetence in the negotiations and it may be that the rising insolvencies are a sign of businesses – and creditors – running out of patience or room for manoeuvre.

The signs for the future are not good

In the last week the CBI (Confederation of British Industry) quarterly survey has revealed that smaller British manufacturers expect their output to dip for the first time in seven years during the next three months. It found that order books are struggling as Brexit approaches, with firms reining in their investment plans as a result. Optimism about export prospects for the year ahead is also at its the weakest level since April 2009.
Lloyds Bank’s monthly barometer of business confidence has also shown a marked slide particularly among smaller SMEs and the net positivity balance had fallen by 9% to -7%.
While the latest IHS/Markit purchasing managers’ index (PMI) for the construction industry improved to 53.2 in October a slowdown in housebuilding across the UK and in new orders is weighing heavily on construction, proof, if any were needed, that in this sector particularly survival depends on growth.
On top of this has come the news that two European suppliers of car parts, Schaeffler and Michelin, announced plans to close UK factories, although both deny this has anything to do with Brexit. Instead they cite dwindling demand for smaller tyres.
As reported in the Evening Standard yesterday, research by Populous World has predicted that around 12,450 smaller businesses in London and the South East may go under if there is a no deal Brexit, with the figure at 7,900 failures even with a deal.
As if that were not enough, there will be more pressure on struggling businesses following the restoration of HMRC to preferential creditor status in last week’s Budget, albeit that this is restricted to recovery of unpaid PAYE, CIS and VAT as the taxes collected by businesses on behalf of HMRC.
Given all the above and that HMRC has become increasingly aggressive in seizing assets and in litigating to recover money owed and, as calculated by Pinsent Masons, that the average length of cases of unresolved tax battles going through the courts is now 39 months, it is perhaps no surprise that creditors are running out of patience and CVLs are climbing rapidly.
Many lenders, creditors and even shareholders would appear to be pursuing a strategy of ‘better some cash now rather than waiting for more later’. Is there a real fear of worse to come?

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Business Development & Marketing General Uncategorized

What are the benefits to SMEs of collaboration with corporates?

skydiving collaborationThe 2018 Global CEO Outlook by KPMG found that 70% of the 150 UK CEOs involved were in favour of collaboration with start-ups and SMEs.
Many cited the benefits to them of collaboration helping them to drive innovation to remain competitive and support their growth objectives, particularly where new businesses in the tech sector can help their larger partners to become more agile.

Collaboration is not a one-way street

One of the difficulties cited with collaboration, however, is achieving the right fit in terms of shared aspirations and culture. So, it is important that potential misunderstandings are ironed out before working together.
Both sides should want to establish a relationship based on trust which includes understanding others’ as well as their own needs and agreeing how any shared knowledge will be used. Equally, both sides need to be prepared to learn and this may be more difficult for those involved in a large corporation, where there are often clear and bureaucratic lines of communication and decision-making.
There is an argument that to be sustainable the corporate can learn much from the SME/start-up and how to think like a smaller business.
However, the benefits should not be one way.  While it is clear how large corporations can benefit, it is less clear what is in it for SMEs or start-ups unless they are agreed in advance such as access to contacts, finance, resources, technology and distribution channels.
A mistake that corporates make is thinking SMEs want advice when they generally want help to grow. Indeed, all too often the executives of large firms have little understanding of the problems facing small firms. They do however have access to resources that can benefit the SME.
A small business is unlikely to have the spare capital to be able to invest significantly in marketing or R&D. When resourced are limited and there is a prospect of running out of money, the issue for SMEs is the uncertainty of spending time and money while they search for sales that can be replicated. This can take longer and use more resources than the SME can fund hence the benefit to them is a leg up from a larger partner.
Once the SME finds its formula for growth, a larger partner can be particularly useful by helping with the planning and implementation. SMEs can learn how the “big guys” operate, how they establish supply chains and install systems and processes.
Working with others can be frustrating and is often a choppy ride, according to Stefan Tan writing in a blog for dashmote.com.
He describes it as being a bit like white water rafting, with all its thrills and spills but “the experience can be truly rewarding if you are able to endure the ride”.
He says it can take time to build a solid relationship and depends on both partners working to understand the benefits and limitations of each one’s corporate culture. Often this can be achieved by running a pilot project to iron out the differences and once that phase has been completed to then scale up activity, being mindful of KPIs and costs.
Above all, he says, they should be mindful that there will always be some cultural differences and that it is important to recognise that neither’s business model is better than the other’s.

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Banks, Lenders & Investors Business Development & Marketing Finance General

August 2018 Key Indicator: is consumer spending undergoing a massive change?

consumer spending - a devastated landscape?The UK economy is generally described as a consumer economy.  This means that its health is significantly dependent on and measured by how households spend or save their income.
The effects of changes in consumer spending behaviour can be dramatic for businesses as my July 2018 Key Indicator on the retail sector demonstrated.
But consumer spending behaviour is not simply directed by a change in habits and tastes.  In this month’s Key Indicator, I look at those factors that affect how much disposable income is available and how this influences spending decisions.
The majority of consumer income is earned as salary or wages from employment.
This may be topped up by benefits, such as the tax credit system for households with children, where family income is low. This was restricted to being payable for the first two children only, following various adjustments to state benefit rules since the 2008 financial crash and the introduction by the Government of various “austerity” measures as part of efforts towards economic recovery.
For the retired, household income generally comes primarily from state and occupational pensions.
Household income may also be topped up by interest and dividends from any savings but recently these have been low, none the least due to the unprecedented low levels of interest rates.

The factors that affect disposable income and therefore consumer spending

There have been several worrying indicators that consumer spending has been sluggish throughout 2018, and this has a significant impact on the health of an economy like the UK’s.
The most recent figures published by the Office for National Statistics (ONS) on household consumption are for the first quarter of the year, from January to March. Although there is always a time lag in publication they are indicative of a longer-term trend.
Consumption remained subdued at 0.2% in Quarter 1 2018 according to the ONS and in 2017 annual growth in household consumption remained at its weakest since 2012. The ONS reports that this is “consistent with the slowdown in output for consumer-focused services industries, which has been on a declining trend since late 2016.”
The factors that are likely to have affected this are the weak growth in real wages, with household incomes squeezed by rising import prices following the past depreciation of £Sterling following the 2016 Referendum vote to leave the EU.
According to the ICAEW (Institute of Chartered Accountants in England and Wales) sluggish wage growth at on average 2% in the face of a near- 3% inflation rate is also a major factor in the squeeze on household incomes.  This is despite unemployment being at its lowest level since the early 1970s and therefore the existence of a skills shortage in some sectors. But it is outweighed by the existence of such things as tax and benefit reforms, the growth of the “gig economy” and zero hours contracts that have changed the employment landscape for both businesses and employees and in turn reduced the reported level of unemployment statistics.
Kamal Ahmed, the BBC’s economics editor says he looks at two statistics when examining people’s finances.  These are firstly whether they are net borrowers or net lenders, and secondly at their savings ratio.
Net borrowers are either borrowing, or spending their savings, to make ends meet.  Net lenders are those “lending” money to the economy in the form of pension contributions, savings and investments”.
The savings ratio is the proportion of people’s disposable income that they save. Here again there are worrying signs in the most recent ONS data. The savings ratio is currently at 4.1%, the third lowest since records began in 1963.
As I reported in my blog on Tuesday (July 31) the most recent statistics from the Insolvency Service, on the second quarter of the year, April to June 2018, also revealed a worrying indicator on individual and household finances. This was that numbers of individual insolvencies had reached their highest level since the first quarter of 2012 and had increased by 4.4% compared with January to March 2018. Again, this has been an upward trend for several months.
According to the ONS British Households spent on average £900 per year more than they received in income in 2017 and there are signs that people are increasing their borrowing. There are three main sources for personal lending which are all growing: credit cards, finance for capital items like cars, and payday loans. Most of this debt is not to buy luxuries but simply to make ends meet since so many people live paycheck to paycheck.

The implications for SMEs of a potential change in consumer spending habits

Clearly the retail sector is the first to feel the effects of changes in consumer spending and arguably the shift to online purchases has not only been because of the convenience but also because buying goods online can often be less expensive.
Equally the rise of the budget food stores, such as Aldi and Lidl, suggest a shift in food shopping habits to make household incomes stretch further.
There may also be signs of a shift in the travel and tourism sector based on fewer people taking holidays abroad and instead having “staycation”. This is something I shall be exploring in a focus on the sector later this month although there may be other factors at play here as well.
Clearly, though, the pressures outlined in this blog on household incomes would suggest that unless things change to improve our national economic prospects there may be a longer-term shift in consumer spending habits.
Those businesses that rely on consumption should not assume this is a temporary blip.
Given the changing circumstances it will be essential for those of you in this sector to review and adjust your business models, your marketing plans and your products and services in order to safeguard your business for the future.
Stop press: it remains to be seen what effect today’s Bank of England Interest rate increase, from 0.5% to 0.75%, will have on consumer spending but it is likely to affect all those with variable or tracker rate mortgages making disposable household income even tighter.

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Banks, Lenders & Investors Business Development & Marketing General

Brexit uncertainty has gone on too long for UK SMEs

brexit uncertainty and migrating businesses
Will Brexit uncertainty turn businesses into migrating birds?

In the days running up to last Friday’s cabinet meeting at Chequers many of the UK’s largest businesses were warning that complete lack of agreement or clarity on the details of the Brexit negotiating position meant that time was fast running out for them to plan their future operations.
Businesses, both large and small, were clearly also less than impressed by the Government’s lack of attention to and understanding of their need for clarity so they can make practical plans.
So, while I have avoided commentary on the tedious, ongoing Brexit saga as far as possible, for once I am focusing on it, not least because of the events of the last few days.
After the Chequers meeting, it seemed that at last there was a “third way” proposal over which there was cabinet unity.  The details are expected to be published later this week.
But it seemed that at last business concerns and the future of the economy were finally front and centre in the proposals and this was tentatively welcomed by businesses.
By Monday, however, all was up in the air again as the UK’s main negotiator, David Davis resigned, along with another leading negotiator Steve Baker, and the chorus of disagreement from the usual Brexiteer suspects in Parliament was growing louder. And then Boris!
As an aside I can’t help thinking about petulant children who don’t get their way and the lack of leadership by those seeking to distance themselves from an outcome that was always going to be based on compromise.

Why businesses, particularly SMEs, urgently need an end to Brexit uncertainty

The key issues for SMEs, many of which are involved in pan-European supply chains, are clearly what the eventual outcome will do to costs and access to various components or raw materials not to mention access to skilled labour and markets for our goods and services.
It is not only the large supermarkets that operate a “just in time” model for supplies, so do many manufacturers. The model helps to reduce overheads and the costs and cash tied up when holding a large amount of reserve stocks, not to mention the warehousing needed.  However, it also relies heavily on reliable, prompt and efficient delivery.
If the eventual agreement on import, export and customs arrangements cannot guarantee the same level of efficiency it is likely that businesses may have to move to Europe if they want to survive.  Many are already considering doing this.
What the UK Brexit negotiators do not seem to have taken on board is the time most businesses will need to set up and carry out such a relocation, plus the effect it might have on job availability in the UK and on the UK economy.
Sourcing skilled workers in some key sectors has for a long time been a problem in the UK and the gap had been filled by workers coming into the UK, particularly in the construction, fabrication, engineering and IT sectors. Here too, uncertainty has taken its toll.
However, by the end of last week it seemed that these concerns were reflected in the new proposals and at last the concerns of eventual customs arrangements had been addressed along with the possibility of “special” arrangements to allow EU workers to be able to work in the UK post Brexit under similar arrangements as previously.
Of course, thanks to yesterday’s developments the fog of Brexit uncertainty could descend yet again and then there are the “unknown unknowns” of a looming US president-inspired global trade war, admittedly nothing to do with Brexit but far from helpful.
It would be no surprise if SMEs and larger businesses alike decided enough was enough and started the process of moving elsewhere. Are you likely to be one of them?

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Banks, Lenders & Investors Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance

Are SMEs really unaware of asset finance or are they simply not borrowing?

asset finance predators?
Predators hunting prey

Last year the website smallbusiness.co.uk, published research findings that seemed to indicate that many SMEs were unaware of the benefits of asset financing.
Its report, citing research by Close Brothers, said that “almost three-quarters (72 per cent) of SMEs in the survey did not know it was possible to secure finance against their turnover” (by which we assume they mean cash flow funding which in practise means book debt), rather than their credit rating.
It also reported that while 44% of SME respondents would consider using asset finance they were not acting on this.
It suggested that many SMEs were sticking with “inflexible and often unobtainable forms of credit” because they weren’t aware of the potential advantages of alternative funding options.
The inference, in other words, was that SMEs were continuing to approach the mainstream banks, despite the widespread perception that the banks were inflexible and unwilling to lend to them.
But how true is this?
Over the 18 months or so since there have been more pronouncements from asset finance providers.
In January this year CityAM quoted the MD of a business finance group, Peter Alderson, who said: “more are exploring financial options outside of traditional bank offerings that can support the level of business development needed to compete in new tech and online spaces.”
In the same month businessmoney.com reported on a survey of brokers operating in the asset finance carried out by United Trust Bank and revealing that 39% of them expected demand for asset finance would grow throughout 2018, identifying the most likely sectors for growth as Construction, Transport, Waste Management and Manufacturing.
Martin Nixon, head of asset finance at United Trust Bank, commented: “There’s no doubt that awareness of asset finance is growing amongst UK SMEs. Lenders, brokers and industry bodies, such as the FLA and the NACFB are working hard to spread the word about the versatility and flexibility of asset finance and how quickly and easily transactions can be completed.”
This may be true, but according to the British Chambers of Commerce (BCC) borrowing among SMEs appears to have stalled.
The BCC yesterday released the results of a study it carried out with the specialist finance provider Wesleyan Bank which found that 56% of British companies did not attempt to apply for finance in the past year. Almost two thirds (63%) of them were small firms.
The study found that those that did seek finance showed a clear preference for the “conventional” which it identified as overdrafts (18%), business loans (16%) and asset finance (9%) and that half of these reported that they did so because of weak cash flow.
The BCC’s head of economics, Suren Thiru suggested that the results revealed a move from the “credit crunch to credit apathy where a lack of demand, rather than supply of finance is now the overriding issue”.
He called for the Government to do more to kick start business investment and to relieve the burden of business costs.
But is it any wonder that two years of uncertainty and opacity about the Government’s proposals for Brexit has led to the perception among businesses that the Government neither understands or takes heed of their concerns and that SMEs are holding back on growth and investment plans?
I would argue that it is not ignorance of asset finance but cost and a fear of a loss of control of assets.
The recent memories of lenders and their insolvency practitioner advisers seizing assets as an early response to default is too recent for business owners to believe that behaviour has changed and that it won’t happen again.
We advise most of our clients to consider building their balance sheet based on slower growth rather than rapid growth based on asset-based finance. It takes one slip for the advisers and lenders with penal default clauses to see profit from misery.

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Banks, Lenders & Investors Business Development & Marketing General

The pros and cons of setting up business in the countryside

business in the countrysideThere are undoubtedly challenges to setting up business in the countryside but in this blog, I will argue that there are also benefits.
Obviously, for some businesses, such as those related to agriculture, leisure and tourism, a rural location is essential for access to customers, but it is taking a somewhat narrow view in an ever-more connected world to discount the possibility of moving out or setting up away from an urban location.
There are plenty of examples of all types of business, from digital media companies to engineering, already to be found in rural areas.

The drawbacks to setting up business in the countryside

High on the list of drawbacks are the adequacy or otherwise of the IT and transport infrastructures and the availability of employees.
For a business that relies heavily on IT and a decent broadband speed with uninterrupted access can be a problem. In theory, however, this is a problem that is already being addressed by the Government’s Broadband Delivery UK scheme albeit not quickly enough to suit some businesses.
The transport infrastructure may be more of an issue if your business needs access to a decent road system for the delivery of either goods or services, especially if you need access for HGVs, or to be sure that employees can get to work on time.
It is worth investigating the likelihood of planned work on roads with the local authority when considering a rural location.
Employees are also key, especially if you are moving location. While some people might be happy to move most are likely to need cars to get to work. The other issue is recruitment which can be a critical factor if you need skilled staff since they may not be locally available.
Amenities may be another issue, as rural areas experience a diminishing supply of local bank branches, post offices and village shops.

The benefits to setting up business in the countryside

A rural location does not have to be somewhere deep in the heart of a green landscape, although there are plenty of farms that have converted redundant barns into small business centres, if that appeals.
Scattered throughout the UK are plenty of small towns, many of which have industrial estates on their outskirts. It is quite possible that setting up your business on one of these will mean that in addition to a potentially more reliable IT and transport service, there will also be opportunities for collaboration with other, neighbouring businesses.
Equally, the cost savings may be considerable, not least on business rates, and it is often easier to access business support grants and other funding specifically directed at business in the countryside.
Recruitment and staff retention may also be easier as more and more housing estates are developed in smaller towns and those living on them may appreciate the opportunity to use their professional qualifications and skills to work locally rather than face a lengthy daily commute to an urban centre.
If you are thinking of setting up a business in the countryside it is also worth investigating the local crime figures. On the whole, it is still the case that the figures are lower outside of the urban areas but check with the local police for any schemes that that focus on protecting businesses.
There may be challenges to setting up a business in the countryside, but it is a mistake to discount the option without proper investigation.

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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 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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Business Development & Marketing Finance General

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

Sharing economy ideasFrom renting a city-centre bicycle, a place to stay overnight to a taxi ride, there are plenty of examples of the sharing economy, also called the “access economy” or the “demand economy”.
The big, established names in the sector include Airbnb, Uber and Etsy and what they all have in common is that they have been made possible by developments in IT and its widespread use, coupled with the idea that consumers may want access to goods or services for only a short time rather than buying them long-term.
But there is no reason why this type of business should only be the preserve of big businesses.  It is less about economies of scale because the overheads are relatively small, and more about being able to provide something that customers want.
One example is an Essex-based business, Borrowaboat.com, that allows boat owners to rent out their vessels. Within 18 months of launching they had 17,000 boats registered on their platform as available for hire all over the world, from Thailand to Suffolk’s River Orwell.
Arguably, therefore, there is no reason why SMEs cannot be successful in this sector. Suppose someone wants to an hour of a handyman’s time for help with a small household job, or for help with assembling a flat pack. Both are examples of potential services that could be small, shared economy businesses.
While there is clearly potential for consumer-oriented services that does not mean there are no opportunities in Business to Business, such as having people do research or handle business calls for short periods such as when you are on holiday.

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

The first and most obvious is to thoroughly research the mechanics of a Sharing Economy business model. There is plenty of information both online and in book form about the concept.
There are several online platforms like Kajabi, QE Bot, Simplero, Kartra that make it easy to set up and go.
Knowing your target customers and identifying their needs is crucial to launching a successful Sharing Economy business as is finding the resources to satisfy them.
What possessions or skills do people have that they are most likely to want to share and need to advertise, and are they things for which there is likely to be a demand from sufficient customers?
It doesn’t matter from which end you approach the market since you are finding suppliers looking for customers and customers for them, so essentially you are making it easier for both parties.
Marketing is key and often relies on paid-for promotion and Social Media to create awareness of the service.
One of the benefits of the Sharing Economy is the opportunity to differentiate your proposition for example by emphasising a commitment to minimising waste, to sustainable growth or to corporate social responsibility. It is surely more ethical to share goods or services than it is to own them but use them only rarely. Equally, demonstrating an awareness of the financial constraints many people experience and offering a solution through sharing can be a sign of a responsible, civic-minded business.
Creating a successful Sharing Economy business is about identifying a need and offering a solution that works well both for the business and for the individuals using its services.

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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 General

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

stress and managementStress is an inescapable part of life and work, and it is well recognised that the effects of stress can be both positive and negative.
Imagine what it must be like to work for Donald Trump who like all managers will have significant impact on stress levels based on how he deals with staff; “you’re fired”.
Psychologists call good stress “eu-stress” and bad stress “dis-stress”.
The effects of stress can have significant effects in the workplace and arguably can make, or break, a business.  To a large extent, this depends on how stress arises and how it is managed.
The average working week adds up to approximately 47 hours a week and over a lifetime this equates to 100,000-plus hours! So, if those hours are predominantly filled with negative stress, both employees and the business are likely to suffer.

Managers have a key role in promoting and controlling stress

While the manager may be under pressure to achieve challenging targets and therefore be stressed themselves, they need to be very honest and self-aware about how they handle both themselves and others to ensure positive, rather than negative results.
They need to recognise when their own stress levels are reaching the point where it is turning from good and motivating to bad and demotivating.  A good indicator of this is when it lasts too long or becomes too intense to be managed. The results can be high blood pressure, fatigue, depression, and anxiety.
If they put pressure on their team to meet results by shouting, swearing, threats and other negative behaviour, they may achieve results in the short-term but ultimately their behaviour will be counter-productive.
So, the first step for the manager in managing their own negative stress is recognising it and trying to moderate their own behaviour to manage it.  This may mean acknowledging their own limitations and getting help, even if only a listening ear, in order to strengthen their self-control.
Negative, or dis-stress happens when employees feel that the amount of effort they are putting in does not meet the rewards they receive. If this happens they are likely to become less motivated to put in effort and do their best.
However, the “reward” or incentive does not have to be the promise of more money.   In fact, research has found that the promise of extra cash, while welcome, is not often the prime motivator for workers to put in greater effort.
It can be as simple as a thank you for a job well done, or for putting in the extra effort that has allowed the team to achieve the desired target. Maybe treating the team to cream cakes at coffee break or taking five minutes out to talk to them about their non-work interests and activities and family.
The point is to convey that people are recognised as individuals and valued, no matter how challenging the circumstances may be.
The other aspect of managing stress is to ensure it isn’t constant, and in especially high-pressure environments to make sure that it is relieved every now and then. Ideally it should not be ‘taken home’.
The effective manager will not only be able to manage their own stress but also to manage the “right” level of stress that gets the best out of their team. Something that Donald Trump is clearly not doing.
 
With thanks to Ivan Throne https://darktriadman.com/2015/12/16/donald-trump-the-dark-triad-man/ for permission to use the picture.

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

Are you undermining your business by ignoring equal pay?

equal pay how far have we progressed since this old suffragette posterDespite years of campaigning and even legislation it seems that many businesses are still ignoring the rights of women to have equal pay for work of equal value.
Tomorrow, April 4, marks the deadline for the UK Government’s legal requirement for businesses and public sector organisations employing more than 250 people to publish their gender pay rates.
As of April 1, approximately 7,000 of the estimated 9,000 businesses and organisations required to do so had complied and the results so far have made depressing reading.
According to the ONS, the median pay gap between men and women revealed so far is 18.4% in favour of men and the mean (average) gap is 17.4%.  The median gap, based on the difference between those employees in the middle of the range, is thought to be more accurate because the mean can be skewed by a small proportion of very highly paid employees.
The Equal Pay Act 1970 prohibited any less favourable treatment between men and women in terms of pay and conditions of employment and was replaced in 2010 by the Equality Act.
Yet it seems that many employers have continued to consistently ignore the law or found ways to circumvent it.
According to the ONS top of the list for ignoring equal pay are in businesses in the Finance and Insurance, Power, Education, Professional and Academic, Manufacturing and Communications sectors.
Perhaps given greater impetus by the #MeToo movement following the revelations of the Harvey Weinstein and other similar scandals, this may be a moment where the situation can no longer be ignored. High profile voices, such as the resignation of the BBC’s China correspondent Carrie Gracie in protest against her own pay disparity compared with male colleagues, have also put the situation under the spotlight.

Equal pay is about respect and valuing employees

Any number of excuses will be put forward for the disparity, such as the effect on career progression of women taking time out for pregnancy or the preponderance of women in relatively low-skilled or part time work.
However, as I have argued many times, crucial to a successful business is showing respect for employees.
There is plenty of evidence that those who feel valued, who are consulted about business developments or who are given opportunities for further training to improve their skills and progress their careers can make all the difference to productivity and to a business achieving its goals.
It makes no sense at all, especially in times of near-full employment, for a business to ignore or undervalue half the potential pool of recruits, i.e. women, who could be available.
Perhaps, 100 years after the birth of the suffragist movement began, we have finally reached a tipping point where there will be some real action on equal pay for work of equal value.

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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.

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

Business review complete? Time to review the marketing plan

Business horizon Marketing planThe next phase of the annual business review and subsequent decisions about plans for the coming year is to review the marketing activities, set objectivities and develop a marketing plan for achieving them.
The marketing review should give a clear indication of whether last year’s objectives were achieved and form the basis for setting new ones.
This is true not only for businesses that are intending to expand either their range of products or services, or to try to grow.  No business can hope to avoid marketing itself altogether.
Marketing is not only about hoping to generate more sales, it is also about keeping the business name in customers’ minds and about demonstrating its expertise and its good reputation in its particular sector or niche.

The components of an effective marketing plan

Accurate and detailed profiles of the target customers and clear goals about what a business wants to achieve are the basic building blocks for a marketing plan.
Marketing tools cover everything from the website to social media and e-newsletters to traditional “old school” advertising, PR and promotion using printed materials such as brochures and flyers.
Even if the bulk of business comes from personal recommendations, it is foolish to assume that ongoing referrals will continue. Maintaining relationships by marketing to referrers, influencers and introducers should be included in you plans and especially if you rely on them for work.
As part of the process there are a number of factors to consider.
The external economic climate, competition from new entrants into its market and technological change, to name but a few are all factors that can all affect a business’ viability and resilience and therefore should influence the goals and how to achieve them.
Past plans and continuing with old marketing practices should be challenged. Is it time to change? A website refresh?  Or more radically is now the time to sell via the website?
If your marketing relies on social media, what worked last year may no longer work. Facebook, Twitter, Pinterest and others online platforms regularly change their requirements. For example, Twitter last year increased the maximum length of Tweets, and Facebook narrowed down the criteria by which a business page could increase its reach to viewers.
If your marketing relies on emails or telesales then new legislation referred to as GDPR may render your database redundant unless you have obtained specific permission from each contact that you may contact them, specifically by sending unsolicited promotion emails or calling them. The deadline for GDPR compliance is 26 May 2018 so your plans ought to include soliciting OPT-IN permission from your contacts. I would advocate that the number of contact OPT-INs is a KPI and a useful way to measure marketing success. It might also be used for setting SMART marketing goals (specific, measurable, achievable, realistic, timely).
Clearly if the business plan for the coming year includes the addition of new products or services these will need to be incorporated into the marketing plan. It goes without saying that research is necessary to identify the customers for the new products. Is there a demand? How will the customers be reached? And many more questions that need answers before developing the plan.
Finally, there needs to be a system of regular monitoring of results against the goals the business has set. I have referred to goals being SMART as reviewing results against goals forms the basis for tweaking plans and developing new ones.
Finally, marketing plans should not be set in tablets of stone.  They need to be responsive to the results they are achieving so that they can be refined or adjusted if needed.

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Business Development & Marketing Cash Flow & Forecasting Finance General

Annual review of your business and setting of growth plans?

growth plans?The festive break allows time for you to reflect on your business and review its performance over the previous year. It is also an opportunity to consider your growth plans for the coming year.
The discipline of writing down your plans and setting of budgets needs to be underpinned by measuring and monitoring performance as the basis for future planning.
The level of your review, whether strategic or tactical, will be defined by your objectives which might be for little change or dramatic transformation.
While the level of detail and research will differ, whatever the objectives the key information needed for a review are.

  • Last year’s plan and last year’s actual figures, details of your order book and future order prospects an up to date balance sheet.
  • Consideration of the different parts of your business that have been non-productive and those that act as a drain on resources that might be discontinued and those that have growth potential and should be the focus for the future. While this might seem subjective, it should be supported by evidence from historical figures and an observation of trends. Ideally it should involve market research before making any big decisions about major investment or a change of direction.
  • Consideration also should be given to resources available, options for growth, and this can be done by analysing your business’ strengths, weaknesses, opportunities and threats and preparing a SWOT matrix. The key is to use this as the basis of a ‘so what’ assessment of how to exploit strengths and opportunities and what to do about weaknesses and threats.
  • Consideration of your products and markets to identify those that yield the best margins, those that are good for cash flow and those that might require attention, whether increased margins, revised terms or cutting.

Your review should provide you with a clear picture of the business’ current situation and be used as the basis of future plans.

Setting of growth plans

Plans should be based on clear goals and objectives which need to be written down and agreed upon by everyone involved so there is no ambiguity about what is expected and so that they can be measured. A useful test of each goal is that they are ‘SMART’ where each should be based on the following criteria: Specific, Measurable, Attainable, Realistic, Timely.
While business plans might be prepared, all too many sit on the shelf unread for another year. Instead it is often more useful to use the review and SMART goals to produce financial forecasts of profit and loss, cash flow and ideally balance sheet. The more detail the better as they can be used for setting detailed budgets for expenditure and detailed sales by market or product. The detailed expenditure lines in a forecast can be used as key drivers of business performance whether investment in people, in marketing or in equipment. An example is to identify and have a separate line in the forecast for all the various marketing initiatives so that the results of each initiative can be measured and used as the basis for adjusting the marketing plan.
Detailed sales lines can be used to support the SMART goals so that performance can be measured against achieving targets.
The layout of the monthly management accounts should reflect the same line items as set out in the forecast so that once a detailed forecast has been set, such as for monthly sales and expenditure, it can be used to compare with the management accounts as a means of monitoring performance. In this way adjustments to the plan can be made where necessary.

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Business Development & Marketing General

SMEs, as well as bigger companies, should pay attention to reputation management

Reputation management the damage a prawn sandwich can doIn the last few months at least two high profile, large companies have been having a torrid time thanks to issues that have made the headlines.
Uber, the app-based taxi hailing company first of all was refused its operating licence renewal by Transport for London (TfL) over passenger safety concerns. It then lost an appeal against an employment tribunal ruling that it must treat its drivers as employees and give them basic worker rights such as holiday pay and the minimum wage.
Uber’s chosen path in both cases was to lodge immediate appeals against the original rulings.
At around the same time, the budget airline Ryanair announced a huge reduction of flights, not once, but twice, due to its “messed up” planning of pilots’ holidays. Initially Ryanair compounded the problem by a lack of clarity about what it would do to compensate affected an estimated 400,000 customers.
The CE of the Civil Aviation Authority expressed fury at this lack of clarity and argued that the airline would be breaking the law if passengers were not re-routed via another airline or otherwise compensated, something Ryanair’s chief executive had initially refused to do.
Time will tell what effect the fall-out from these incidents will have on their respective businesses’ profits, although neither is likely to be wiped out completely, but they should remember what happened to Ratners the high street jewellery chain. It went bust after Gerald Ratner’s reference to his earnings being cheaper than a prawn sandwich. His customers didn’t like being treated with contempt and voted with their feet.
Another example of mismanaging reputation was Bell Pottinger, a PR firm that thought it specialised in reputation management. It caused its own destruction through an ill-advised PR campaign on behalf of clients that stoked racial division in South Africa such that once its activities became known, no one would do business with them and they went bust within a couple of weeks of the story hitting the press.
While one might question the original crisis, more pertinent is the reaction and handling of the situation and its effect on their reputations. Reacting swiftly to a crisis in the digital age is imperative especially as consumers are prone to expressing their displeasure on social media by which messages can spread like wild fire.

SMEs need to pay more attention to reputation management

A survey two years ago by Zurich found that only a small proportion of SMEs monitored their customer reviews and social media sites closely.
How many of us check online reviews of a restaurant or hotel before booking or of a product such as a television before buying one. Checking reviews, and not just those for service or product quality is now becoming more common as we can check up on people as well as businesses before even meeting them
Notwithstanding what happened to Ratners, larger companies can deploy resources to deal with a problem but for smaller, local businesses, favourable customer reviews are vital for survival.
It may be difficult for a SME to monitor its facebook, twitter and other pages and posts as often as advisable and it would be easy for a bad review to be missed.
However, there is plenty of evidence that prompt action and positive responses by a company can make a significant difference in avoiding longer-term damage.
This is one area where it is worth paying to outsource such monitoring to an outside expert, but at the same time the SME should give them very clear and detailed guidelines on what is and is not acceptable in handling complaints and negative reviews.
It is unrealistic for any business to expect to satisfy all its customers all of the time and to never make a mistake, but it should at least have robust reputation management systems in place to handle things promptly if something does go wrong.

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Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance Rescue, Restructuring & Recovery

Short term thinking in business amid Brexit uncertainty

in the midst of uncertainty don't panicIt seems that hardly a day goes by without a new and negative headline about the UK’s decision to leave the EU and the prospect of an adverse outcome from the negotiations.
Here’s a selection from the Independent at the time of writing: “David Davis has conceded that Britain’s Brexit withdrawal agreement will probably favour the EU”, “UK financial watchdog warns bank moves likely to be irreversible”, and “20% of UK restaurants at risk of going bust due to Brexit”.
It is hardly scientific, but gives some flavour of the atmosphere currently dominating the headlines on the issue.
Whether business owners follow the news or not, it is hardly possible to be completely immune to the climate of uncertainty that is surrounding the process, not least because reportedly some 58 studies have been carried out on the likely impact of leaving the EU on various sectors of the UK economy, details of which the Government has so far declined to publish, allegedly for fear of jeopardising negotiations, but may now be forced to after a vote in the House of Commons.
What further pressure last week’s interest rate rise to 0.5% will put on businesses remains to be seen, but the prospect of further rate rises is unlikely to help any business struggling with debt repayments.
No wonder, then, that many businesses are putting growth and investment plans on hold and concentrating on short term survival.
But ultimately this is not a sustainable position to be in since the business that fails to innovate is unlikely to thrive or grow and stasis is generally seen as a forerunner to failure.

What can a business do in the face of continuing uncertainty?

The obvious is to say, “keep calm and carry on”.
But also, acknowledge that fear of the future can become a self-fulfilling prophecy that encourages short term thinking, caution and at worst frozen panic.  It is often the case that where some see only looming disaster others see opportunities.
So, we would urge businesses to do their best to look on the bright side, think and plan for at least medium term and do everything they can to keep their businesses in the best possible shape, from carefully managing cash flow and monitoring cost but at the same time actively looking for opportunities.
This may mean getting help from a restructuring advisor to thoroughly review all its operations and identify the strengths and weaknesses and suggest ways to transform, pivot, slim down or otherwise revise the business model and update processes in preparation for embracing the opportunities as they emerge.

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

Business failure can be a self-fulfilling prophecy

nusiness failureIt is often also a predictable inevitability.
The financial website Investopedia defines irrational exuberance as unsustainable investor enthusiasm that drives asset prices up to levels that aren’t supported by fundamentals.
Eventually, this becomes an unsustainable “bubble” as in the so-called “tulipmania” in the Netherlands during the 1630s, the dot com bubble of the late 1990s and more recently the collapse of many lending organisations through artificially high property prices that resulted in the 2008 Credit Crunch.
The result? Business collapse, often with repercussions well beyond those at the centre of the crisis.
Over-confidence among SME business owners may lead to failure, albeit anyone leading a company must have some self-belief and confidence to make a success of a business.  Taking risks should be based on a calculated strategy underpinned by a consideration of the risks versus the prospects of success.
But the opposite may also apply and equally lead to a business failure. Lack of confidence in a strategy and a reluctance to take risks may result in a business playing safe and stagnating. This can be due to managers not really believing their strategy will work and thereby anticipating failure in a way that reinforces their expectation. This is often the case when manages play it safe.
This may be exacerbated if the company is led by a CEO who is cautious and conservative, and who does not encourage new ideas.
It is common in businesses that have a blame culture where any new initiatives are suppressed.
But that is not how successful entrepreneurs, like the late Steve Jobs, create successful, growing companies.  Jobs was famous for ignoring preconceptions about what can and cannot be done.

What other influences increase the likelihood of business failure being a self-fulfilling prophecy?

Short term thinking can affect a business, not only when it leads to pressure from investors for profits and dividends at the expense of investment and growth.  It can mean that the CEO or business owner is distracted from thinking strategically for the longer term.
Caution over investing can become counter-productive especially when the general business and economic climate is pessimistic and businesses sit on money that could be invested. Over time this reduces productivity by not replacing old plant and equipment or hardware and software to the point where they are costing excessive time and money to maintain or use.
Failure to keep up to date with the latest innovations can lead to a business losing ground against its competitors and eventually losing customers and orders.
It takes a combination of courage and caution, wisdom and daring to keep a business growing and moving forward – and the help of a mentor or adviser to add perspective and help avoid a predictable inevitability.

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Business Development & Marketing Cash Flow & Forecasting Finance General

What kinds of unreasonable demands should prompt SMEs to decline contracts?

saying no to an offer The natural inclination of most SMEs is likely to be to accept almost all new orders from clients and customers, but there are times when this can be counter-productive.
A study by Hitachi Capital published in early summer revealed that almost half of SMEs had turned down work due to “unreasonable demands”, rather than because they felt unable to deliver the work.
The main reasons cited were contracts that were priced too cheaply, unfair payment terms or with unreasonable and unrealistic requirements on such things as completion dates.
The findings support research carried out two years ago by the FSB (Federation of Small Businesses) that found that half (52%) of small firms had been stung by unfair contract terms with suppliers, costing nearly £4 billion in the previous three years.
But it takes considerable courage and clear thinking for a SME to walk away from potential new work, especially in an uncertain economic climate like the current one.

What to consider when making a decision to decline contracts

Companies need to preserve their reputations and their ethics and therefore this should also be taken into account when assessing the merits of a new order.
If the potential new client is trying to impose an unrealistic time constraint on completing the order, accepting the work and then being unable to deliver could rebound in damaging its reputation with existing clients. It can also be expensive if penalties are imposed by the client.
There may also be ethical considerations that are part of a business’ identity that could be compromised by the demands of a new client.  If, for example it is a local prepared food manufacturer that sources ingredients through the Fairtrade scheme, pressure from a potential new customer for an unreasonably low price could force it to source cheaper ingredients that would compromise its ability to support Fairtrade.  This would not only compromise the SME’s own ethics but potentially its reputation with existing customers.
The practical considerations include costs involved and capacity to deliver.
SMEs should set prices at a level that is viable, both in terms of purchasing raw materials and covering manufacturing costs at a level that ensures a reasonable profit.  It makes no sense to accept an order that would compromise this.  This would apply also to unreasonably lengthy payment terms leaving the business to carry the costs of fulfilling an order for some time before being paid.
Ideally, when approached by a new customer, a business should issue a contract stating the terms and conditions it expects to be met if it is to accept the order.  It could include the requirement for a deposit, say 30%, to be paid at the start of the agreement, perhaps if appropriate an interim payment and another on the date on completion.
Credit risk should also be taken into account as few SMEs can afford to lose money due to customers going bust or simply not paying, leaving the SME to incur the huge financial and time costs involved when chasing payment from determined non-payers.
While inevitably the potential customer may try to negotiate to modify terms, if they prove obdurate then it would be better to walk away.
Another issue that could affect costs and ultimately whether a business decides to pursue a new order is the often lengthy and complicated process, including many pages of form-filling and supporting evidence that is often involved in tendering for public sector contracts.
Again, a careful analysis of the costs involved in the bidding process, the time involved and the attention demanded of staff away from what they would otherwise be doing will give some idea of whether it is worth pursuing.
Ultimately a lot of this is about bullying and the bottom line is that no SME should allow itself to be bullied into complying with unreasonable demands.

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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.

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Business Development & Marketing Cash Flow & Forecasting Finance General

An uncertain future for the new and used car sectors?

car for saleFrom time to time K2 looks at the health and performance of specific sectors of the UK economy and this time it is the turn of the new and used car markets.
Data published by the Society of Motor Manufacturers & Traders (SMMT) tracks the monthly patterns of both production and sales in this sector and gives some sense of the overall picture.
After a record start to the year manufacturers reduced production by -9.7% in May 2017 compared with May 2016, when output increased by +26%. The SMMT says that exports are still the main driver of demand in the new car sector with almost 80% of all cars made in the UK going to Europe.
Also in May production for the home market fell -12.8% in May, down -8.1% on the year to date. Today’s June production figures show a continuation in the decline, down by 13.7% compared with a year ago.
Similarly, a three-month reduction in UK sales continued into June, when sales fell by -4.8%, following declines of -8.5% in May and -19.8% in April.
Meanwhile sales of used cars continued to rise throughout the first quarter of the year, up by +3.4% on the same quarter in 2016.

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

The SMMT figures can be put in the context of Markit/PMI’s overall monthly manufacturing trends, where rates of increased production have been slowing throughout the second quarter (April to June).
It seems that the Brexit factor is beginning to weigh heavily on manufacturers, such that while the fall in the value of £Sterling since the 23 June 2016 Referendum decision to leave the EU has helped exporters, the increase in import costs for materials is having the opposite effect on domestic sales. These costs are now being passed on to domestic consumers.
Also, with the leave negotiations now under way, amid considerable uncertainty about the direction they will take and the outcome, it would not be surprising if producers held back from significant investment for growth.
Particularly for the consumer-dependent sectors of the UK market it is likely that wage growth stagnation, increased inflation and concerns being expressed by the Bank of England, among others, about high and increasing levels of consumer credit debt are also likely to contribute to a decline in new sales.
The rise in sales of used cars would bear this analysis out.
However, another factor that may have accounted for the significant dip in UK sales may be the April 2017 changes to road tax, which imposed new charges on all cars registered from 1 April 2017, and removed road tax exemption from hybrid vehicles, leaving only all-electric vehicles zero rated for road tax.
Finally, calls for the Financial Conduct Authority (FCA) to investigate the ease with which credit is being made available to UK new car purchases may well be adding to the dampening effect on consumer confidence in committing to a purchase.

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Business Development & Marketing Cash Flow & Forecasting Finance General

Big data, statistics and decision-making

big dataBusinesses should always be aware that statistics can be manipulated and that analysis of so-called big data sets is a complex process that produce highly variable results.
Big data is defined as enormous amounts of complex information that can only really be processed using extremely powerful software using multiple servers.
While it can, over time, reveal trends, it is also subject to variability as data flows can be highly inconsistent with periodic peaks and troughs.

Interpreting the data

Then, there is the problem, as with all statistics, of drawing useful conclusions that are not skewed by what is selected and what people want the data to show.
A good example is the acceptance that a majority of the UK, 52%, voted in favour of Brexit. Actually, 52% of those people who voted were pro Brexit equating to roughly a third of the population.
There is no doubt that the vast amount of information available from big data collection has the potential to offer businesses power full insights on behavioural trends that can help them to make decisions.
However, this is only helpful at a broad level, such as driving general policy.
Business decision-making also needs to be underpinned by a much more granular analysis and understanding of its sector and its customers’ behaviour and desires.
Here, such factors as location, average income in that location, attitudes, personal tastes and preferences, are likely to play a significant part and are crucially important in determining how to pitch the marketing or sales messages at a particular target audience.
For example, US consumers appear to have no problem with repetitive, lengthy and “shouted” messages from businesses trying to market their products or services. In the UK, however, such tactics are seen as intrusive or even bullying and likely to have a negative effect.
Successfully integrating the broad brush of big data trends with the more granular and specific data collection is the key to business success, particularly for SMEs.

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Business Development & Marketing General

Proof that, taught properly, cold calling really is child’s play!

child making a business callVery few of us actually like cold calling.
The idea of phoning a total stranger can strike fear and dread into the most competent SME owner. Who has not at some time been roused to rage by those ubiquitous call centre sales calls, where the caller is plainly working to a script, plainly not listening and not interacting with you?
Yet it is a crucial part of the sales and marketing activity and can be immensely effective if done correctly.
Working to a script is not the answer but there has to be a plan and a goal as this video on Linked In demonstrates. The video https://www.youtube.com/watch?v=nL5Iab45fSo was posted by my good friend Marcus Cauchi, an expert in sales management training. You can subscribe to get more.
It is worth watching it right to the end not only for the technique it demonstrates but also for the “surprise” revelation at its conclusion.
It shows that the key to effective cold calling is to listen and to interact with people, with a clear goal in mind. The goal does not have to be to make a sale.  It may be to plant a seed so that when a prospect is at the right point in their buying journey they remember the business’ name.
It may be, as in this video, to get people to think about the illogical excuses they make and commit to a meeting or appointment.
Cold calling is about creating trust and empathy so get permission to speak to your prospect, as you are effectively stealing their time.
The aim is to get them to engage in a conversation, leading them, with their acquiescence to your defined end point, in this case an appointment. So on this cold call focus only on arranging the appointment.
The call should last between 3-8 minutes. Any less and you have probably missed the mark with your 30-second commercial or blown the call with your tonality. Any longer and you are in grave danger of trying to make the full sale.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

The post-election Government must start listening to business

confusing signpostAs if the post-EU referendum uncertainty wasn’t enough, businesses now must contend with a Government that is far less “strong and stable” than it was before the General Election.
Portcullis Public Affairs, of which I am a shareholder and chairman, is a specialist consultancy advising businesses on government and strategic communications.  It has an excellent perspective on the election outcome for business which can be viewed in the News section of its website at www.portcullispublicaffairs.com/oh-what-a-night-and-what-it-means/
It is almost a cliché that businesses hate uncertainty, so the implications for businesses, especially for SMEs, are not good. This has been made worse by a Prime Minister who appears to be anti-business and a manifesto that offered no reassurance to business.
Companies were already holding back on investment decisions and, in some cases, struggling to keep afloat in the face of rising costs on imported raw materials and oil thanks to the post referendum devaluation in £Sterling.
Trading conditions have gradually become more difficult since the start of 2017 as inflation and wage stagnation have fed through into the economy and dented consumer confidence – not helpful where so many small businesses in the service sector rely so heavily on consumer spending.
Many have felt that the government was not listening to or considering their concerns. Among the issues and proposals they have highlighted have been:

  • The lack of provision of growth funding after 2020 when current EU Funding ends (FSB chairman Mike Cherry).  This particularly affects SMEs in poorer parts of the country.
  • Abandoning the customs union, which allows UK firms to trade in the EU without paperwork, tariffs or barriers.
  • Requiring businesses to disclose the numbers of foreign workers they employ and failing to provide any assurances that those already working in the UK will be able to remain.  This affects all businesses where there is a skills shortage, such as construction, engineering and seasonal work on farms.
  • Being prepared to walk away without an agreement if the EU does not agree to UK’s terms.

With barely a week to go before formal negotiations are due to begin businesses have been signalling plummeting confidence and urgently demanding more engagement, flexibility and pragmatism on their needs.
Immediately after the election the Institute of Directors (IoD) reported a significant drop in confidence among the 700 members it has asked. IoD Director General Stephen Martin said the current uncertainty could have disastrous consequences for UK businesses.
“The needs of business and discussion of the economy were largely absent from the campaign,” he said. “but this crash in confidence shows how urgently that must change in the new government.”
Portcullis’ briefing ends with the view that without specialist advice businesses face making strategic errors that could be costly, or even fatal, in the current uncertain political climate.

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Business Development & Marketing General

A leader’s lack of confidence can inhibit business growth

business leader standing on hilltop contemplating horizonWe recently explored the toxic effects on a business that can result where people in influential positions exhibit one or more extreme versions of the psychologists’ Dark Triad of psychotic behaviours.
All three, Machiavellianism, Narcissism and Corporate Psychopathy, could be described as selfish, arrogant and demonstrations of supreme confidence.
But what about the effects on a business of their opposite, a leader who lacks conviction and confidence?
Recently, venture capital company Highland Europe, carried out research among 173 European company leaders, of whom two-thirds were their companies’ founders. The respondents were from a mix of start-ups and companies that might be regarded as scale ups.
Highland Europe, founded in 2012, invests in growing European internet, mobile and software companies but their findings have wider implications than this sector only. They wanted to find out more about how these people saw themselves and their ability to adapt to the transition from founder to CEO of their growing business.
The research found that almost half of the respondents saw the founder’s ability to effectively manage growth and their ability to implement new strategy quickly as key risks.
Interestingly, among the start-ups UK respondents were consistently less confident than those in similar European companies.
Among the challenges mentioned by the start-up group were doubts about building sales, about finding the right senior talent, about establishing the right organisational structure and about access to capital.  For the scale-up group that were already on the growth track the same key issues cropped up but in a different order, with senior talent first, followed by organisational structure.

The components of lack of confidence

Lack of confidence can be the result of external factors, such as the uncertain economic conditions that have prevailed in the UK since the 2008 Financial Crash and, more recently, following the June 2016 decision for the UK to leave the EU.
As we have pointed out many times, an excess of caution has deterred businesses and investors from taking risks and investing capital in growth for some years.  In other words, lack of confidence can inhibit innovation and arguably business growth.
But lack of confidence can also manifest more personally in doubts about one’s own abilities and the research found that it was considered crucial for founders to be able to adapt and change as their business grew. Many cited this as their biggest challenge along with having difficulty in staying focused on the bigger picture rather than operational detail and in delegating effectively.
Plainly, while the extreme behaviour characterised by the Dark Triad can be toxic for a business, as we found, the same is true for its opposite.
A growing business needs a confident leader who has conviction in the business, who is able to take risks, to think strategically and to manage people.
It would be unrealistic to assume the founder of a small start-up automatically has all these qualities, even where they had the entrepreneurial vision to take the first step.
There is no shame in looking around for advice and guidance, whether from a mentor or a business coach, to develop the qualities – and therefore the self-confidence – to take their business to the next level or hand over to others who can.

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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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Banks, Lenders & Investors Cash Flow & Forecasting General

Is Creative Destruction being stifled by risk aversion?

Breaking the wall K2 Partners Business Blog

In his 1942 work, Capitalism, Socialism and Democracy, the economist Joseph Schumpeter introduced the idea of Creative Destruction as an essential ingredient for sustaining long-term economic growth.
In a nutshell, it is the entrepreneur and his or her innovation that acts as a brake on, or actually destroys, established companies, thus protecting an economy’s health by allowing new companies and ideas to rise.
Schumpeter’s thesis was that while healthy capitalism is about constant change, inevitably the drive for maximum productive performance, if successful, will tend to kill competition and thus the system contains the seeds of its own destruction. Therefore, the entrepreneur and innovation are essential to capitalism’s healthy survival.

Managing capitalism in a global marketplace

Over time, ever since the Great Depression of the 1930s both political action and economic theory, have been evolving, prompted in part by the distressing consequences to many individuals when things “go wrong” in countries’ economies.
So, for example, Keynes’ solution to the Depression was that governments should step in with deficit financing, stimulating projects that could be started quickly to provide people with work and pay, which would stimulate economic activity and be paid off by increased tax payments. Equally governments, such as in the US, moved to regulate excessive risk-taking and speculation in the financial sectors to prevent a recurrence.
Gradually Governments took more responsibility for people’s welfare, in health, education and for stimulating employment. This has contributed to a shift in the balance of power from the employer to the worker.
A failure to manage the resulting imbalances and the consequences for national economies eventually led to disenchantment with the mixed economy and a return to completely unregulated free market capitalism, aka Neoliberalism, as promoted by Margaret Thatcher in the UK and by Ronald Reagan in the US.
After the 2008 Financial crash and the difficulty countries have had in recovering the question in the mature economies of the 21st Century, therefore, is what place capitalism has in our current and future society, especially in a now-global marketplace.

The businessman is no longer an entrepreneur or hero

Businesses constantly complain about the time absorbed and constraints imposed by “Government red tape”.  But we would argue regulation has moved further from things like Health and Safety regulation and employment protection into trying to regulate in a way that prevents risk.
Consequently, businesses are focusing on dealing with red tape and bureaucracy rather than on doing things, or getting out and selling. Dealing with red tape is disproportionately expensive in time and money for the SME compared with the larger companies and therefore inhibits their capacity for growth. Even in the larger companies there has been a rise in the professional manager whose chief aim is to look for safe returns and short term decision-making that protects her/his bonus and job. There is a lot of dysfunctional activity going on but not the kind that encourages risk taking.
Is state legislation helping businesses or compounding this problem?
It is only human to want to prevent further toxic economic shocks to people’s economic stability and wellbeing but if Schumpeter is right unless the correct balance is stuck it could well lead to the demise of capitalism.
It might be an unpalatable fact but knowledge is best gained by experimenting and learning from failure. The quicker and more failure, the quicker and greater success.

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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 General Rescue, Restructuring & Recovery Turnaround

Staff costs, efficiency and productivity

business core valuesIn this month, when our blog theme is about monitoring and measuring performance and putting appropriate systems in place, today’s blog topic is about applying this to employees, efficiency and productivity.
Of course, all businesses want to maximise profits and minimise overheads and one of the biggest overheads can be employment costs.
However, as the recent employment tribunal ruling against Uber’s conditions of employment and now potential action by people working for Deliveroo suggest, a ruthless strategy of keeping employment costs to a minimum above all else can backfire.

Staff productivity is achieved by investing in people and job security

As the above examples illustrate classifying people as self-employed or issuing zero hours contracts may minimise the wage bill, but it may also be myopic if a business wants to protect both its longevity and its growth.
Clearly, people want job security and at least a fair return for their efforts, but many studies have shown that offering additional cash incentives for improving efficiency or productivity is not effective.
What works better is for employees to feel valued, included, respected, listened to and engaged in any changes being contemplated.
This starts from the moment a new member of staff joins a company, when employment contracts, terms and conditions should be clearly stated and fair.
They should be settled in with an induction programme that makes them feel valued and welcome, one that introduces the culture and values as well as training them to use equipment and the company’s procedures.
It may seem like a revolutionary idea but when change is being considered, consult those people “at the sharp end” who will be doing the job.  Indeed, they often have ideas that management have not considered and a much better idea of what will work and what will not.
While setting targets and goals that can be measured is essential for productivity and growth, recent research by the Centre for Business Research in Cambridge and the Global Development Institute in Manchester has shown that employees’ productivity is directly related to their personal development and security of employment.
Investment in employees as well as equipment is more likely to ensure long term prosperity for a business than keeping them living with the fear of job and financial insecurity.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance Insolvency Rescue, Restructuring & Recovery Turnaround Voluntary Arrangements - CVAs

Current post Brexit insolvency statistics are no guide to the future

solvent or insolventThe latest corporate insolvency statistics released by the Insolvency Service for Q3 (July to September) show 3,201 liquidations slightly increasing by 2.2% from the previous quarter while 75 CVAs show a significant decline by 30.6% from Q2. The number of liquidations is broadly at the lowest level over the last 30 years since the previous peaks of 5,110 liquidations in Q1 of 2009 and 6,332 in Q1 of 1992.
Despite the above statistics which might suggest businesses are doing well, research carried out in mid-October by Pinsent Masons among Insolvency Practitioners (IPs) and published in Insolvency Today found that two thirds of the insolvency profession believe Brexit will contribute to an increase in the number of business failures in the UK over the next 12 months.

Uncertainty about the future is not the only pressure looming over businesses.

Arguably, loose monetary policy and low interest rates maintained by the Bank of England post the 2008 Great Recession may have preserved the life of many zombie companies. But given the increase in inflation revealed last month, and the forecasts of more to come, it may be that there will be no further room for interest rate reductions. Indeed, interest rates look likely to start rising, which might benefit savers but not businesses. Indeed, rising inflation combined with declining profits that many businesses are reporting raise the spectre of stagflation. Insolvencies can’t be far behind.

What other factors may affect business insolvencies?

Recent criticism of Mark Carney, the Governor of the Bank of England, by some members of the Government has led to concern about their relationship which leads to further uncertainty. While the Governor has announced that he will stay on for an extra year beyond his 2018 term it isn’t the full three years option that would have reassured the money markets.
Business confidence is key for the economy since it is a prerequisite for medium and long term investment. Investment in turn improves productivity which in turn justifies higher wages which leads to a higher standard of living. The focus on employment has overlooked the quality of jobs and prospects for employees to share in the spoils of improved productivity.
It remains to be seen how the forthcoming Christmas trading period will unfold and whether this, combined with new business rates which come into effect from April 2017 will expose the retail and hospitality sectors and their dependence on people having a level of disposable income.
In our view the signs are not looking good for those UK businesses with high overheads and low margins and those that have hung on since 2008 but still have high levels of debt to service.

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Business Development & Marketing Finance General Turnaround

How is the Recruitment Industry faring post-Brexit?

job vacanciesThis week’s employment figures published by the Office for National Statistics (ONS) showed that the unemployment rate held reasonably steady at a near 11-year low of 4.9% in the three months to August with a small rise of 10,000 to 1.66 million.
That will be broadly welcomed, especially by those politicians who have been arguing that the vote to leave the EU has so far had little impact on the economy.
But the question is for how long and what are the longer term implications for the jobs market given the question marks over what will happen to those from other countries currently working in the UK and the ongoing skills shortages which many employers are still highlighting as a significant issue.
The Recruitment and Employment Confederation (REC), of which many Recruitment Agencies are members, takes a monthly in-depth look at the state of both the recruitment industry and the sentiments of employers.
In its latest Markit/REC monthly survey on jobs published on October 7 the key findings were a moderate increase in permanent placements and vacancies and a slightly slower decline in candidate availability.
However, the results of another monthly REC survey published in late September, this time among employers, found that a third of those surveyed stating that they had no spare capacity to take on more work without hiring more staff while 25% expected to take on more staff in the medium term.
Confidence is also a factor and most likely the reason for a lack of investment in both productivity and growth since 2007. Related to this is the uncertainty about Brexit. While a decline in the value of sterling may justify investment in UK plc by foreign companies, if it remains at the current low levels, the lack of investment will result in low value jobs.
Confidence, too, has weakened each month since the referendum with a third of those surveyed reporting that economic conditions were worsening.
This prompted REC Chief Executive Kevin Green to say: “there are question marks around the sustainability of positive trends we have seen since the referendum. Skills shortages are a major problem in many sectors, one that will only get worse if the supply of skilled EU workers is in any way curtailed. Employer confidence has fallen significantly, suggesting that while businesses continue to perform well, there is much anxiety about what the future holds.”
The sectors where it is most difficult to find suitable candidates are in engineering, tech, construction, health and social care.

The implications for the recruitment industry

Uncertainty is likely to affect the recruitment industry, as for any other business, for the foreseeable future.
But, depending as it does, on being able to source and supply suitably qualified and skilled candidates the recruitment industry is going to be affected not only by confidence among employers but also by its ability to find the right candidates.
In addition, there is a question mark not only on post-EU immigration policy as it will affect the ability to recruit the best people, but also on the potential for a raft of additional legislation about checking on candidates’ eligibility to work.  That may add to the industry’s responsibilities and make its job even more difficult.
There may also be a distortion in the employment stats with the number of self-employed workers increasing by 273,000 to 4.79 million – 15% of all people in work.

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Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Have you got the basics of your social media marketing right?

Ready for Tomorrow?Social media marketing is an increasingly important element of business promotion and therefore should be on the list for review when a business is preparing to implement strategies for fundamental change.
As all businesses change and develop over time, so must its core support tools, which means everything including production, marketing, management and reporting.
So it is worth revisiting the key questions that should have been addressed when a social media campaign was first launched.

Questioning the social media marketing fundamentals

No marketing is likely to work if it is trying to sell the wrong product to the wrong people, worse still if a business has not researched whether there is actually a demand for whatever it is planning to offer.
No matter whether a product or service was well received when it was launched, it may be that it has outlived its usefulness or that there are now more competitors in the market.
It is worthwhile, therefore, to revisit the question of whether it is something people want before making any adjustments to the marketing plan.  The best way to find out is to actually ask real people what they want or need. Getting to know them as people is crucial.
The answers may not only give a business clues as to how better to refine its offering but will also give a more accurate picture of its target audience and where best to find them.
Armed with this information a business can make changes if necessary to its product or service so as to provide a solution to what its customers need NOW, not that they needed when it was first launched.
Providing the right products and services is key to growing a business. Marketing them is basically all about making sure customers know about them, where to buy them and making it easy and friendly for customers to deal with your business rather than a competitor. Social media can be used by itself or be integrated into a strategy that uses many different ways of communicating with customers.
Of course, developing and implementing a social media marketing plan may include creating message templates, ensuring any written content is to the point, sparkling and engaging to that specific market, and that images support the message. Testing alternative messages and posts is also necessary determine which works best.
Get it right and a business can use social media to support its growth plans, get it wrong and the best social media marketing plan will be a waste of time.

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Business Development & Marketing Cash Flow & Forecasting Finance General

The costs of investing in staff

invest in recruitment or outsource?Replacing an employee who is leaving, or adding additional staff as a business grows can be a costly endeavour.
This is not only at the point of recruitment but also it is important to consider the additional costs of employers’ duties, such as National Insurance contributions, auto-enrolment in a pension scheme and so on, and the investment required for induction to help a new employee to understand the corporate culture and the training necessary for them to learn how to do things the company way including systems, procedures, reports, using equipment or following the brand bible. And this is before investing in any staff development or changing their role.
If, however, you think this investment is expensive and are concerned they might leave once trained, consider the cost of not training staff and them staying.

Recruitment

If sourcing from an agency, especially for a senior level position, it is important to understand the agency’s fee structure. In a recent example one of our clients had recruited a manager using this route and paid the full fee of £16,000 which was refundable on a sliding scale if they left within three months.  Unfortunately, the new recruit left after four months leaving the employer with the cost of having to replace them.
Recruitment is not only a cost in terms of advertising the position and, in this case, the agency fee, but also in the time spent in selecting candidates for interview, conducting interviews and following up on references.
In addition, once in post, a business will have to factor in the time it will take for the newcomer to settle in and be able to function effectively.

Are there alternatives?

It can be difficult when a company’s order book is growing so that the volume of work is greater, reaching the point where existing staff can no longer manage the workload.
If this is starting to affect the relationship between business and clients this will add to the pressure.
While it can be tempting to save time by using an agency, online services or finding ways of using in-house resources to recruit key staff may avoid unnecessary costs such as that in the example above.
However, before embarking on recruitment, it may be worth a business having a look at its systems to see whether anything can be automated or improved in other ways.
Systems for processing and tracking orders through to final invoice may not have been automated when the business was smaller, but with increased volume it could be more cost effective to install a new system.
Another option may be contracting work out so that the business does not have to consider recruitment and payroll costs at all.
A third option may be to invest in training an existing employee and promoting them, then recruiting an apprentice or a lower-skilled addition to the team.
Innovative thinking is always necessary to business survival and to keeping costs under control, but never more so than when a business is growing.

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

How to identify new opportunities

SWOT analysis diagramIt is one thing to spot a new business opportunity but quite another and much harder to identify whether it is the right one to pursue.
Identifying and exploiting opportunities can depend on the culture within a business and one way to find out is to look at the suggestion box.  Having visited many businesses over the years as a turnaround and rescue advisor I have always made a point of inspecting them and never once have I found a suggestion in them which suggests that everyone has given up on initiatives or more likely no longer believe management will listen.
That is not to say that a business cannot or should not solicit ideas from staff.  But wherever new ideas are generated it is important that a business acknowledges them and has a process for considering and reviewing them.
The business’ SWOT analysis is often a useful reference point because it ought to identify opportunities via its identified strengths and, equally important, weaknesses so it knows what not to do.
The critical aspect of this process of review and assessment, however, is to be realistic about the ability of the business to act on the opportunity. What impact will executing the new opportunity have on the existing business? What are the investment resources that might be needed both financial and in staffing? Does it fit within the current business and how far does it challenge the current business model?
An example
A retailer with a chain of shops identifies an opportunity to sell a new range of goods to existing customers through its stores or perhaps identifies a new segment in the marketplace.
Boots the Chemist entered the DIY market in the late 1980s through its acquisitions of AG Stanley and Payless DIY. AG Stanley’s two high street retail DIY chains FADS and Homestyle were a complete disaster and after many years of losses Boots wrote off £180 million and paid Jon Moulton’s Alchemy millions to take them off its hands. Boots’ other venture Payless DIY was merged it into Do It All owned by WH Smith as a 50:50 joint venture. Within 10 years this became an even bigger disaster with Boots writing off £312 million when it sold Do It All to Focus DIY.
While the growth of home ownership in the 1980s and 90s offered an opportunity to exploit the growing DIY market, was it appropriate for Boots as a chain of chemists to enter the DIY market in terms of both its core market and its management capability?
This illustrates some of the strategic considerations that need to be looked at with each new opportunity.  It includes assessing the competition and whether the new product or service is being offered to existing customers or to a new market segment. Consideration needs realism about capabilities as well as the resources needed and the challenges ahead. It also needs an appreciation of the opportunity cost, that of diverting time and resources away from the existing business
Before a good idea becomes a financial disaster, there are a number of useful tools for assessing opportunities. Here are a few that might be worth using: Porter’s Five Forces was developed by Michael Porter as a framework for industry analysis of the five competitive forces that shape strategy.
Boston Matrix diagramThe Boston Matrix is a growth-market share model developed by Boston Consulting Group to help businesses analyse their portfolio of businesses and brands by categorising them into one of four areas based on market share and market growth to assess their potential.
 
The GE-McKinsey nine-box matrix was developed by McKinsey & Co to help prioritize investments in business units.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

SMART marketing goals – Specific, Measureable, Achievable, Realistic & Timely

marketing and its role in businessWhether a business is using traditional or digital marketing techniques the same principles apply to defining the goals of any activity.
While it may be tempting to have an overall goal it is actually much more effective to narrow it down to specific targets and milestones that can be measured and tested.
A business will need to monitor the spending in both money and time on the activities that are carried out to achieve its goals in order to have a clear picture of the effectiveness of the marketing strategy.

What to consider when setting marketing goals

Crucially, they must be related to commercial goals. For example, a marketing goal may be to generate 50 sales leads per month, but the question to ask is: are they the right leads and will they achieve the commercial goal, which could be to grow export revenue by 10%.
If the objective is lead generation, there are myriad ways of achieving this.
One might be to send emails to a database. Achieving the 50 leads should be broken down into other measurable goals such as how many on the database, how many emails, how many recipients you expect to respond, what is the desired response, how do you qualify the response, what is the next action, how do you convert the responses and many more. Essentially every component of the process should be defined and monitored. In this way components can be refined and improved.
It is not unusual for small businesses to set the wrong goals.  A good example is trying to generate “likes” for a business Facebook page.
Targeting a large number of “likes” can infer a greater level of awareness but what is the point unless they lead to the desired action from the viewer which can be a long way from there to being a sales lead, let alone an order or a sale?
This is where measuring the number and costs of marketing activity against a business’ commercial goals can be very effective.  If the amount of time and activity is disproportionate to the value of and the profit from any resulting order, then it may be time to refine the marketing strategy so that it contributes more cost-effectively to the sales funnel in which it plays a part.
(image courtesy of renjith krishnan at FreeDigitalPhotos.net)

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Business Development & Marketing Cash Flow & Forecasting Debt Collection & Credit Management Finance General Rescue, Restructuring & Recovery Turnaround

Business improvement is a continual process

As people become a bit more comfortable in their businesses, growing and selling more, it is easy to forget the basics.
It is easy to do when the pace has picked up and everyone is busy keeping on top of all the extra work.
However, all businesses will experience ebbs and flows of activity and if they do not keep on top of the “housekeeping”, not only will they not be forewarned when a fallow period is looming, they will not be ready to deal with it.
Good practice means continuing to monitor the cash flow, regularly reviewing the management accounts, making sure the tracking of orders from start to invoice and including credit limits for customers and payment terms are adhered to.
Keeping an eye on debt collection is one of the activities that can slip when things are going well.
Continuous business improvement means finding new efficiencies, cost savings and better quality as an incremental process with the aim of building a more sustainable business.
This is especially important when times are good as it prepares a business for survival during recession.
There is no right or wrong way to do this. It depends on the individual business but among the items that could be regularly reviewed are reporting of management information, production or service speed and quality, bought in and inventory stock levels, working practices, safety and environment, staff training, marketing and communication, all initiatives to relentlessly make a lasting and beneficial difference.
Maintaining good habits like this will help to smooth out the inevitable peaks and troughs of business and ensure fewer nasty surprises.

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Business Development & Marketing Finance General Turnaround

How can SMEs prepare for the National Living Wage?

Predictably, predictions of job cuts and slower growth for SMEs followed the announcement of a compulsory National Living Wage in July’s emergency budget.
But how serious a threat is it really, given that businesses are already used to annual increases in the minimum wage and the £9 Living Wage will not come into effect until five years hence in 2020?
Although there are other factors such as business rates and rent that received no mention in the budget and play into business costs, the wage issue alone need not put a brake on plans for growth.
Firstly, some of the increased wage bill is offset by an increase in the employers’ national insurance employment allowance from £2,000 to £3,000 and from a reduction in corporation tax. Secondly the living wage will only apply to those aged 25-plus.
It could, therefore, be used as an opportunity to plan ahead, which all businesses should be doing each year in any event.
All businesses depend on a well-motivated and well trained workforce and with four or five years still to go, now might be a good time to consider taking on an apprentice or two or investing in staff training.
It may also be a good time to invest in more up to date equipment and more automation or to consider outsourcing some routine tasks that will leave more time for existing staff to focus on those tasks that need to be done by skilled humans.
Arguably, such measures will bring the advantages of a more stable, committed and engaged workforce and higher productivity per person and a growing business better prepared for paying the Living Wage in 2020.

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Banks, Lenders & Investors Business Development & Marketing Factoring, Invoice Discounting & Asset Finance Finance General

Is raising finance from debt crowdfunding a good idea?

In the second in our series on crowdfunding we’re focusing on debt crowdfunding, also called Peer to Business lending.
Typically lenders are looking to finance tangible assets that they can secure, such as book debts, vehicles or plant & machinery. However all too often businesses want to finance business growth which might involve business development, staff or simply working capital. The banks have largely withdrawn from such funding unless security can be provided. As a result there is an explosion of crowdfunding with most models based on loans.
In the debt crowdfunding model most loans are based on compounding interest with equal monthly repayments for the duration of the loan which is normally for between 2 and 5 years.
According to Nicola Horlick, chief executive of Money&Co, writing in CityAM in April 2015, debt crowdfunding is the source of funding for the vast majority of UK SMEs. She argues that this type of crowdfunding is less risky than equity crowdfunding because of the high failure rate of start-ups, whereas a debt funder like herself will ask for several years of made-up accounts.
Funding Circle is probably the best known debt crowdfunder in UK. It has loaned about £750 million to 7,300 businesses in UK and US. Examples include Blood & Sand who borrowed £104,000 in October 2014 from 100s of individual lenders to refurbish their new cocktail bar in London.
Given the risks, such loans are not much cheaper than those from a bank but they tend to be easier to obtain. However despite the perception of an easy loan, most funding platforms rely on directors giving a personal guarantee so as to make sure that they have every intention of repaying the loan.

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Business Development & Marketing General Turnaround

What are the basics of a fair and useful appraisal system?

Very few people have been taught how to deal with or manage staff so it is not only staff on the receiving end who are terrified of appraisals, they can also be an ordeal for the managers who have to conduct them.
But effective communication and staff management are skills that can make all the difference to the growth potential of a small business.
In our view a properly constructed staff appraisal system is an essential tool for both staff and for business growth.
So what are the key elements?
When setting up an appraisal system there are a number of things to consider.
Most importantly, what is the required outcome: staff motivation? Setting goals? Staff development? Identifying training needs and skills gaps? Planning the development of the business? An opportunity for staff to give feedback? An opportunity for management to give feedback?
Identifying the goals of an appraisal will help to set it up in the right way to meet them and may also identify who should carry them out and how frequently.
But the basics of any appraisal system are that the outcome for all involved should be a positive experience and not an intimidating one that causes fear for all concerned.
And finally, appraisal ought to be carried out by line managers as it is a matter of leadership. It is not an HR function although HR may be useful for advice on how to conduct the interview and support with technical matters.

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Business Development & Marketing Finance General Turnaround

Business leaders need leisure time to be truly creative

In our last blog we discussed the importance of business leaders structuring their busy working week to find time to think and reflect.
At the turn of the 20th Century Henry Ford closed his factories on Saturdays and cut daily working hours from the then standard 12 hours to eight. The result was a more efficient and productive work force.
Research shows that when we are at leisure, our brains are most active and this is often when stray thoughts or images come together in ways that result in novel ideas.
Yet despite the benefits, taking leisure and creative time is something that many CEOs of SMEs fail to do. Not being perpetually busy makes them feel guilty, but this can result in them not seeing the bigger picture, not seeing the obvious such as opportunities for their business.
However, arguably, in what is increasingly being called a knowledge economy, creativity is what will keep SMEs ahead of the competition.
Often the breakthrough to a more profitable company can come from what in hindsight is obvious or simple.
Yet how can creative ideas rise to the surface or attract the attention in a brain that is constantly too busy?
It is just as important to make time to walk on the beach, play with the kids, perhaps meditate or go for a jog as it is to be totally focused on a business.
When do you get your most creative ideas?

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

Election uncertainty puts business activity on hold

There is no doubt that there is a lull in business activity ahead of the UK election which I believe is due to uncertainty about the outcome.
But the outcome itself is unlikely to deliver the certainty needed for businesses to make plans for the future. Rather than certainty, the psephologists are predicting we are a long way from having a majority government and we may be entering uncharted political territory.
At the moment, there is little prospect of even a coalition forming a government with a clear majority. This is somewhat alarming for business as the party leaders have ruled out possible alliances. The likelihood is that no party will be able to survive a full five-year term.
Britain is still a novice when it comes to coalitions. This is a shame as experience in those countries that have had them for some time has shown that they can be a good thing. One big advantage of coalitions is that they provide scope for parties to reverse some of their election promises, which all too often are made to solicit votes, despite whether or not they can be afforded.
From the business perspective, in a country where government by coalition is accepted and understood, a strong coalition can be a desirable outcome as business needs both stability and extreme policies being tempered by coalition partners.
It will take a while before Britain reaches that point, so the uncertainty is likely to continue and in that environment many business will continue to struggle as there is little to justify attempts to grow in an uncertain environment.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery

Regional growth is on hold while we wait for the election

Plainly we’re already hearing political promises ahead of the 2015 election and most noticeably a recognition that the political focus may be shifting away from London.
Small businesses have been saying for many months that the economic picture on investment and their ability to grow is a lot less rosy than in the capital.
Surprise, surprise, Westminster seems finally to be listening with announcements from both Labour and this week from the Coalition on a promised £5 billion of Government investment to be allocated to local authorities and businesses for building homes, improving transport links and for small business support services and new training opportunities.
None of this will happen until after the election at the earliest and that is not helpful for the many small businesses anxious to take advantage of positive signs in the economy.
In the meantime Deloitte has carried out a poll of 112 chief financial officers in bigger companies, which has revealed that while these larger companies were a little more confident about investing and expanding, the respondents felt that the political uncertainty about the election, the Scottish and potential EU referenda were the biggest risks to business.
It would seem therefore that before any “feelgood factor” translates into investment and growth flowing down to small businesses, especially to those in the regions, we need to get the next general election out of the way.
This will provide greater certainty about the future, which in turn influences the confidence about the economy that is needed to justify investment in growth.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Are you a collaborator?

 

It is widely believed that larger companies are reluctant to engage with sole traders and SMEs because they feel they will be too small or inexperienced to take on a bigger contract.

But with business finance still reported to be hard to get, skill shortages widely reported and SMEs very nervous about taking on any debt it can be frustrating or not cost effective to try to grow a small business to be able to offer the range of expertise some potential bigger clients may expect.

An alternative solution may be to collaborate with related businesses as partners when making bids.  As long as they are organisations the SME knows well and trusts this does not have to mean entering into a formal long-term partnership but it does require excellent communication and agreeing on some basics.

Examples of such collaborations could be a web developer offering a combined service with a marketing content writer and a graphic designer to offer an all-in-one service for clients looking for marketing support.

Sole traders who specialise in carpentry could collaborate with painters, plumbers, bricklayers and so on.

The advantage in collaboration for the client is that they get all the services they need for a project with one central point of contact for co-ordination and communications. 

The advantage for the small trader is the ability to bid for larger contracts by offering a full set of the skills required.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Growth for SMEs in 2014?

This is the time of year when all the pundits, stargazers and assorted “experts” start predicting what the next 12 months will hold for businesses.
K2 is not planning to join them, but we do have a few questions that may affect SMEs in the months ahead.
So let’s set the scene.  We have some indications of a recovering economy that many believe will consolidate in 2014.  However, there are plenty of experts already warning against a repeat of a consumer debt-driven, housing bubble- led upturn that is inherently risky after the property market collapse in 2008.
CBI director-general John Cridland made this point in his New Year’s address: “As a country, we need to move away from an economy that was far too reliant on consumer and government debt.”
He has, rightly, called for well-balanced growth, with a renewed effort from business to focus on new markets and exports, of both products and services.
So the questions for SMEs who may be hoping to grow their businesses are: how will they finance growth? Is now the right time to be taking on additional risks? How are they going to minimize the risk of getting their timing wrong?  Is the growth likely to be sustainable? What is growth – sales, margins or both? Are there any options for growth without taking on more risk?
We will be looking at aspects of these questions in coming blogs and would welcome comments from SMEs about how they see the future for their businesses and how they are addressing these questions.

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Banks, Lenders & Investors Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery

Business pain in a recovering economy

There are two things happening that suggest that signs of economic recovery are believable, rather than government spin.
The first is the narrowing of the trade gap with a significant growth in exports in June and the second is a 10% rise in business insolvencies (compulsory and creditors’ voluntary insolvencies) in the quarter from April to June 2013 (3,978) compared with January to March (3,601).  However, there were actually slightly fewer insolvencies this year when compared with the same quarter in 2012.
Insolvencies generally do increase when an economy is coming out of recession because creditors normally start to lose patience and begin recovering debt when they can see signs of a rising market.
This time, however, I believe something else is going on.
Firstly, for more than two years now businesses have been focusing on paying down debt so why should creditors suddenly lose patience? Secondly, it may be that HMRC is taking a tougher line on collection of arrears now.
But most importantly now that the owners and directors of businesses can see the future more clearly, and there is greater optimism around, they are starting to restructure their businesses because clearly any future growth is not going to be fuelled by business lending.
It is perhaps no bad thing that growth is likely to be slow and steady and will be achieved by businesses ensuring they have enough working capital, by imposing tough payment terms on customers and suppliers and by everyone in the supply chain working together.
The worrying thing is that in other circles there is still too much reliance on a consumer-led recovery and that exports to non-EU countries were lower, playing no part in the narrowing of the trade gap.

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Business Development & Marketing Cash Flow & Forecasting General Interim Management & Executive Support Rescue, Restructuring & Recovery Turnaround

Build a Flexible Marketing Model to Ensure Perpetual Growth

Following on from the flexible business model that we developed to ensure the perpetual survival of businesses it makes sense to explore how growth can be achieved with flexible marketing without ‘betting the farm’.
The principles of flexible marketing are similar to those of survival as they involve tight cash management and being aware of the fixed nature of many contracts for promotion initiatives that either don’t work or become a financial burden.
Marketing can be complicated and there are lots of alternative ways to achieve marketing objectives where it is often difficult to measure success in terms of ‘return on marketing spend’ or ‘bang for buck’ when developing a marketing plan.
Marketing activities can serve a number of purposes which makes measurement even more difficult. The model that works best will be different for every business, but when markets are so uncertain and cash is tight marketing can make the difference between failure, survival or growth. The key is to understand then manage the relationship between cost and return for different marketing activities. Flexibility reduces the cost of switching between activities which in turn reduces the cost of getting it wrong.
Possible marketing objectives include generating new sales leads, selling different products or services to existing customers, launching a new product, persuading potential customers to buy from you, or reassuring clients by building a reputation, particularly for those firms selling advice or professional services when they want to set up or move into a new geographical market.
Having established your purpose and defined objectives you need to consider various marketing initiatives, affordability and how they might be measured in terms of cost and outcome. Essentially flexible marketing is based on a process of trial and error where you can afford to get it wrong.
Simply placing a single advertisement can work for some firms even if it is expensive, providing the results justify the cost.
Affordability versus flexibility can be an issue especially when payment is spread over a period of time. While flexibility is likely to cost more, most initiatives can be easily trialled and measured without the need for a long-term commitment to test whether they work, e.g. pay per click such as Google Adwords, internet banners, leaflets, posters, adverts on print, radio or television, redemption vouchers, point of sale promotions, text based promotions, stands at trade fairs and even short-term rent or pop-up shops.
Less easy to measure are longer term marketing initiatives such as publishing articles in online media to generate visits to a company’s website. Similarly public relations and press releases to relevant media can generate press interest that raises awareness but may not produce immediate sales. These are more speculative, need not be expensive and can help establish a reputation for the business as an expert in its field. They offer longer term benefits since they tend to be picked up by search engines and therefore have a long life. Using such methods will depend on whether the business firstly can afford to invest the money and secondly is looking to a longer term return than immediate sales or orders.
Whatever initiatives are deployed, the marketing mix needs to be continuously reviewed and refined in exactly the same way as applies to using a flexible, cost sensitive business model.
Add a flexible marketing model to a flexible business model and you can both ensure perpetual survival in a difficult economic climate and perpetual growth.