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

A complex jigsaw puzzle for directors in planning a post-coronavirus retail strategy

the retail strategy jigsaw puzzle As more restrictions are relaxed, allowing increasing numbers of retailers to re-open, directors have many issues to consider when planning their retail strategy for recovery.
Given that High Street retail was already in serious trouble, directors need to address a number of complex questions to assess their chances of survival and develop their retail strategy for reopening, short-term survival and growth.
This will include understanding and meeting the interests of many stakeholders including customers, staff, suppliers, landlords, investors and regulators.
Reducing overheads is likely to be key, given the need to include social distancing measures that will inevitably limit numbers in-store at any one time, thus reducing the number of transactions that can be achieved in any working day. This raises the question of whether or not the business is viable as it needs sufficient revenue to cover the cost of staffing, utilities, rent and related premises expenses while also generating profits.
Customer behaviour and changing attitudes are also likely to be a key factor that will determine retail strategy.
Even before the lockdown there was clear evidence that shopping online was increasing dramatically where those retailers that had introduced online with delivery or click and collect were generally surviving rather better than those that had not. Research by the accountancy and business advisory firm BDO has indicated that online sales rocketed in April by 109.6% compared to last year, although this did not factor in the loss of high street sales caused by the lockdown.
However, there has been much talk of a “new normal” post-Coronavirus and Mary Portas, the retail guru, has highlighted this in her suggestion that post lockdown will bring a “new era of shopping and living” which she calls the kindness economy in which shoppers will search for brands that reflect their values. Environmental and ethical concerns were already becoming increasingly important before the coronavirus pandemic and they will almost certainly continue to be a growing factor.
In addition, consumers will have less disposable income given the likely job losses although it is not yet clear how disposable income will be deployed if restrictions remain for mass events, leisure, travel and holidays. Certainly, being confined to home has encouraged a shift in consumption and again it is not clear if these will be permanent such as surviving without spending on disposable fashion, for example.
Accessibility to high streets may also change now that people are being encouraged to walk and cycle more and drive or use public transport less. Will this impact on shopping habits with shoppers making fewer, and more considered, purchases, not least because they will have to be carried home if not bought online?
All these considerations will weigh heavily on directors planning their future retail strategy and will likely mean convincing shareholders, lenders and suppliers to think long-term for a return on their investment.
The question is, can directors fashion all these competing interests into a retail strategy to ensure survival and growth in the future?

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

The Phases for dealing with a pandemic involving Zoonotic diseases

dealing with a pandemicIn 1999 the WHO (World Health Organisation) devised a blueprint based on Phases for dealing with a pandemic, subsequently updated in 2005.
It set out six Phases, to provide a global framework to aid countries to prepare for a pandemic and plan their response.
The first three Phases cover animal transmission escalating to domesticated animals and eventually germs spreading to humans defined as a Zoonotic disease. These initial phases also deal with the preparation, capacity development and response planning activities, while the last three Phases deal with the response and mitigation efforts when a disease transmits from human to human.
Phase 4 deals with verified human-to-human transmission of an animal or human-animal virus and its ability to cause “community-level outbreaks”.  Phase 5 deals with the human-to-human spread of the virus into at least two countries in one WHO region and the sixth Phase is the Pandemic Phase where virus transmits from human-to-human in at least one other country outside the region identified in Phase 5.
These are relatively straightforward definitions, but how different governments, businesses and people react to them is another matter altogether.
As has been clear during the current Coronavirus Pandemic state-level reactions for dealing with a pandemic have varied widely both in the state measures adopted and how stringently they have been implemented, with countries like South Korea at one extreme imposing a strict lockdown and restriction on movement from fairly early on when there were just a few cases, to Sweden, which has imposed relatively few restrictions and no lockdown.
However, the disparity in various state reactions to dealing with a pandemic has arguably informed the way both citizens and businesses have reacted. In the UK much of the initial focus was on the economic impact with the Chancellor introducing a wide range of financial support measures for both businesses and employees. However, some argue that the initial infection control was not as stringent as it might have been.
Scientists at Harvard university have mapped the behaviour of people in response to a Pandemic and also identified similar Phases of reaction to those set out by the WHO.
Initially, their research found that in the case of a severe Pandemic, the initial reaction by people when they become aware of a risk is to overreact. They become hypervigilant, pause “normal” behaviour, and “take precautions that may be excessive, may be inappropriate, and are certainly premature” – such as panic-buying toilet roll and other supplies as happened in the early stages in the UK. This, they say, is not the same as panic.
The scientists argue that this is entirely appropriate early in such a crisis because it means people then become able to cope with the crisis.
However, the alternative reaction is denial or even anger and in the early Phases inaction as a response is counter-productive since people don’t take precautions. Examples include those, such as in Michigan, USA, who protested against lockdown measures.
Michigan epidemiologist Sandro Gales has identified five Stages of reaction to a major disaster: starting with self-preservation, moving through group preservation to blame setting, justice seeking and finally “renormalizing” which can mean adaptation to the threat.
These are similar to the five Stages of grief: denial, anger, bargaining, depression and acceptance as identified by Elisabeth Kübler-Ross who also found that a lot of people get stuck in one phase or another and some take a long time to reach acceptance of the situation.
How well a country copes with a crisis, therefore, depends on how its leaders manage both individual perceptions as well as vested interests such as those of business. This is improved by radical transparency when they don’t know the answers but their honesty about what they do and don’t know and what they are doing will help reassure everyone that they are doing their best.
The fact is they will make mistakes but so long as they make the best possible decisions based on expert advice and the information available then they will convey confidence that they will eventually find a way through the crisis. There is no doubt that many with the benefit of hindsight will seek to hold them to account but there are lots of armchair warriors and very few leaders who stand up and take difficult decisions.
Understanding and managing the different Phases of a Pandemic and the different stages of reaction to a crisis are particularly important as they inform what messages to convey, where people may misunderstand messages such as when restrictions, as now, are being eased while at the same time there is a need for maintain a level of vigilance.
Perhaps we shall know the Pandemic is over in UK when we see the House of Commons packed with MPs given that so many are classified as vulnerable being over 70.
 

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Business Development & Marketing Cash Flow & Forecasting Finance General

VUCA – protecting your business when nothing is predictable

VUCA uncertaintyVUCA is an acronym devised by the US military to describe an environment of Volatility, Uncertainty, Complexity, and Ambiguity.
But it doesn’t only apply to conflict zones. At the moment, and for the foreseeable future, it could equally well describe the climate in which business is operating.
For UK businesses the predominant uncertainty has been the situation, arguably since June 2016, when the country voted by a narrow margin to leave the EU. Since then, there have been three years of VUCA which won’t end tomorrow when we know the outcome of today’s General Election.
In the meantime, the UK economy has been sluggish, with the latest data from the ONS this week indicating that there had been almost no growth, a derisory 0.7%, in the third quarter of the year.
However, there are other influences that have combined to make uncertainty the new business norm, including a rise in nationalistic sentiment and population, trade wars between the US and China and also those between Japan and S Korea, all of which have led to a slowdown in the global economy.
Longer-term influences are the rapid pace of automation and AI development and, increasingly, worries about the future of the environment, which are influencing both consumer and investors in the direction of more ethical and responsible behaviour and decision-making.
Given the headwinds, VUCA is likely to get worse and will affect businesses for a long time to come.

Can businesses turn VUCA into a positive?

Despite its reference, VUCA offers terrific opportunities to entrepreneurs and adaptable businesses although exploiting them tends to be at the expense of those businesses, normally large ones, that rely on stability and predictability.
The website  vuca-world.org re-imagines the acronym as Vision, Understanding, Clarity and Adaptability and several business writers, among them Karen Martin and Sunnie Giles, both writing for Forbes, make the point that ultimately dealing with uncertainty is down to the creativity, agility and skill of people in an organisation.
Giles suggests that businesses need a change of mindset, so that they can react to fast-moving changes.
These include “moving from hierarchy to self-organisation”, “democratising information”, “speeding up interactions” and using “simple rules to make quick decisions, rather than perfect analyses.”
Of course, there will need to be effective and flexible leadership and a sound knowledge of the business situation at any point in time, which makes such things as management accounts and cash flow monitoring, as well as sound knowledge of customers’ changing behaviour and requirements even more crucial.
I would argue that it is often SMEs that are in the best position to deal with a VUCA climate as very often they are flatter organisations where there has to be a good deal of multi-tasking when the numbers of key employees are fewer than in larger, more hierarchical organisations.

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General Turnaround

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

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

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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

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

Restructuring is not a dirty word

dial pointing to optimisationThere is a saying: “If you always do what you’ve always done, you will always get what you’ve always got” variously attributed to Anthony Robbins, Albert Einstein, Henry Ford and Mark Twain.
Whoever said it, the phrase is particularly appropriate for businesses, from SMEs to larger corporates, in that no business can afford to stand still, even when things are going well.
Economic environments and business circumstances change as time passes and so should business plans, models and methods in a process of continuous improvement. If not, a business that was previously performing at the top of its abilities compared with its competitors can rapidly start to drift through inertia into potential failure.
An obvious example of this drift has been the well-known chains in the retail sector, which went through phases of presence on every High Street to shifting to large stores in edge of or out of town retail parks.
Then, when the pace of closures started to accelerate, it became clear that they had failed to factor in the growth of online shopping or react with agility to the challenge it presented.
Inevitably some went into administration and could not be saved, such as Woolworths and more recently BHS. Could they have been saved if they had been less complacent?
A proportion of consumers say they would still prefer to be able to inspect goods before they buy them, but it took a while before the retailers restructured and developed a model that satisfied both online and in-person shoppers – whether easy return by post or click and collect – and those that did have survived and remained profitable in what is a difficult market.
Manufacturing, banking,  estate agency, even legal services are all examples of industries that are undergoing a radical transformation with many individual examples of businesses that are going bust having failed to evolve.

So why does restructuring have such a negative image?

Sadly, many businesses that end up in need of restructure and turnaround leave it too late, until after an insolvency practitioner has been called in because they are in financial difficulties.
This, we believe, is why there is such a stigma attached to the word “restructure”, when actually it could be seen as a positive, agile and forward-looking initiative.
It may be that some have practised continuous improvement to update their business plans, but have lapsed in their rigour.
One issue is that change tends to involve investment in people, premises, equipment, process and marketing which can be expensive and tends to have a negative impact on short term profits. Incentive packages for professional managers have contributed to such short term thinking.
Investment like continuous improvement can involve constantly updating to stay current with the latest developments in an industry, where all too many treat it as a one-off activity that plants the seeds of future failure.
In a fast-changing economic world it does not take long before performance, sales and revenue start to slip, supplier prices perhaps start to rise and before they know it they are facing a cash flow crisis.
In fact, calling in a restructuring adviser when things are going well means a business has access to an objective outsider with the knowledge and expertise to assess their business model and processes and suggest improvements that will help a business to remain prepared for whatever the future may bring and to plan ahead for the investment they may need to make in such things as automation and new technology.
Whether restructuring, turnaround, change or transformation it should be seen as a positive initiative.

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Cash Flow & Forecasting Finance General

Will the business wish list for tomorrow’s Spring Budget be fulfilled?

purse decorated with UK flag

There will be two budgets this year, one tomorrow and a second in the Autumn, after which there will only be Autumn budgets.
The signs are that the Chancellor, Philip Hammond, will be cautious. He has already said publicly that he wants to reserve some funds for the Government to use as a fall back to protect the economy after the completion of Brexit negotiations.
Leaving aside the pressing financial concerns about the future of the NHS, social care, education and welfare support, all of which are likely to be disappointed if hoping for extra cash, the Chancellor has already also indicated that there will be no easing of the austerity measures intended to reduce the Budget deficit.
Given all this the question is whether there will be any relief or even help for hard-pressed businesses, particularly SMEs, navigating uncertain times while they try to keep their companies surviving and thriving?

What would businesses like to see in the Spring Budget?

The issue raising the most concern has been the revision of business rates, due to come into force in April. Virtually every national body representing business has commented on this.
In some parts of the country small businesses will have benefited from the higher threshold for exemption but in difficult trading conditions, especially for small retailers, those whose rates have been increased will want to see some help beyond the phasing-in period that currently exists.
Following its annual conference on February 28th, reform of business rates is top of the British Chambers of Commerce (BCC) wish list. It would like to see the switch in how rates are adjusted for inflation from RPI (Retail Price Index) to CPI (Consumer Price Index) brought forward from 2020 to April 2017 and plant and machinery removed from property valuation.
The FSB (Federation of Small Business), too, has highlighted the business rates issue. Called by its national chairman, Mike Cherry, “The broken Business Rates system ..” he wants the Government to recognise the need for a “sensible, fair system for the 21st Century”.
In addition to a rethink on business rates, the Institute of Directors (IoD) wants to see all types of businesses recognised and a more level playing field created to allow for fair treatment of High Street and online business as well as a loosening of restrictions on the rules for various enterprise schemes from which SMEs can source investment funds.
For EEF, the manufacturers’ organisation, measures to boost productivity and pressing ahead with promised infrastructure improvements are high priorities. Enabling higher investment in R & D, skills development and manufacturing investment are a must, although it too mentions the need for reform of business rates.
For the CBI (Confederation of British Industry) it is all about ensuring stability for businesses during the process of exiting the EU. Its pre-budget letter urged the Government to ensure that it does not add to the “mounting burden of costs facing firms for just doing business”.
We shall report on the outcome and its impact on business shortly after the budget.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Patience is wearing thin as business starts to confront reality

signposts which way to confront reality

Business activity has effectively been just ticking over with investment at a low ebb since the outcome of the June 2016 referendum to leave the EU.Business dislikes uncertainty and tends to retreat into its shell when faced with no clear way forward, but sooner or later maintaining the status quo risks a slide into genteel decline, as we have mentioned before in previous blogs.
While the Government repeats its determination that by the end of March it will trigger Article 50 to start of the process of leaving the EU, the bill to approve it is still grinding its way through the houses of Parliament.

Planning ahead means confronting reality now rather than putting it off

Meanwhile, with still no clear idea of what the “red line” terms for negotiating trade agreements will be, business seems to be running out of patience.
In the last two weeks, there have been a number of indications of the way things are moving.
Brexit Secretary David Davis admitted that it was unlikely that there would be a noticeable reduction in immigration figures for several years after leaving the EU, openly acknowledging how much the UK economy depends on European and other nationals to work in certain sectors, noticeably farming, construction, engineering and the caring professions.
At the same time the Prime Minister’s continued prevarication about EU nationals’ residence rights has apparently been too much for some, and, according to a report in the Independent, some 100,000 EU citizens had left the UK in the three months post-referendum, while more recent figures showed that 40,000 fewer people had come here to work.
This has prompted restaurant owners to delay or abandon plans to open new restaurants, particularly in London, reports the British Hospitality Association, but also recruitment difficulties are being reported by farmers across East Anglia, Kent and the Midlands.
It is not only in hospitality and farming that patience is wearing thin. This week it has been reported that BMW is planning to produce the Electric Mini away from the UK, probably in Europe, and that an exodus of some businesses from one of the country’s most vibrant and pioneering company sectors, “fintech” or financial technology, was on the point of getting underway.
The CEO of PRRO Group, one of the fastest-growing fintech companies, Simon Black, pointed out that moving this kind of business and getting through all the required compliance and licensing processes was a complex six-month process.
Waiting until the outcomes of Brexit trade negotiations were known, a minimum of two years hence, before starting the move was therefore not a realistic option.
It is a safe bet that once some businesses start thinking this way, momentum will build up and others will join the exodus as they confront the reality of what they might lose by waiting.
While planning for UK to leave the EU is planning for the inevitable, planning for the future of the EU is another matter that should also be considered.

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Business Development & Marketing Cash Flow & Forecasting General

Resetting the marketing budget for 2017

Ready for Tomorrow?Given the challenges many SMEs are likely to face in the coming year, the quiet period between Christmas and New Year is an opportune time to reflect on the state of a business and consider where next.
Once there is a clear view of the way ahead it is also important to revisit the business’ marketing, consider what has worked and what has not and reset the marketing budget at a realistic level of spending.
One thing to remember is that marketing is not an optional extra. If potential clients or customers do not know who you are and what services or goods you offer they are clearly not going to be converted to buying from you.
This is particularly important to remember when trading during difficult economic conditions, when it is generally not advisable to cut the marketing budget.

How much money is available to spend on marketing?

This involves having a clear idea of how secure the business’ income is and this will depend on whether it has long-term contracts with clients and customers or not.
It is also important to know how much money needs to be retained to cover overheads and other expenses.  For example, the business that has a 12-month contract with a supplier will need to ensure it has the money to fund the obligations, especially when it is prepaid.
Armed with this information and a careful analysis of the potential for increased demand for its services or goods a business will be in a better position to establish what cash may be available to spend on marketing, and what proportion of that it can afford to use for speculative marketing.

Limited duration versus enduring messages

While businesses might consider the cost and impact of promotion material and the medium for distribution, it is also worth considering how long a message lasts for.
Businesses should also monitor the cost and results of initiatives such as time and money spent on social media. Paid for advertising such as Google Adwords, Google’s Universal App Campaigns or Facebook advertising should be measured in terms of a return on the investment.
Much of this activity disappears from view very quickly in that the message put out today may be lost tomorrow – or even in a few seconds in the case of Twitter. However, that is not to say that there is no value to such marketing activity. With sustained effort it can be used to raise awareness of a business’ brand while not directly bringing results in terms of immediate sales. Such marketing therefore needs to support other initiatives.
On the other hand, spending on a printed membership journal or client leaflet, where information remains available for a long period could be seen as more durable marketing. However how many of these are used by clients to find your products or services? It could be argued that years ago online search engines replaced Yellow Pages and similar directories.
There is never an absolute guarantee of immediate results with any form of marketing since ultimately the choice to buy remains with the customer.  Equally, there is a value in both limited duration and enduring messages.
The important point is to know exactly what cash options a business has and to decide how best to apportion marketing budget to get the optimal return on the investment.
 

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

Uncertainty after the Referendum is producing some wild predictions

keep calm and stay positiveIt is true that businesses dislike uncertainty when planning for medium and long term investment and that it will probably be at least two years before there is any clarity on the UK’s position over leaving the EU.
But how likely are the speculations of some economic commentators that the UK may be facing a period of stagflation, defined as a period of rapid interest rate rises coupled with a depression?
The last time the UK experienced stagflation was during the 1970s, when huge oil price rises precipitated an economic downturn in much of the Western world.  In the UK a combination of climbing interest rates and government borrowing, high unemployment and a miners’ strike culminated in Edward Heath’s government declaring a state of emergency in January 1974 and imposing a three-day week on industry amid fears of power shortages.

So what likelihood of a repeat of such a perfect storm?

Plainly much has changed since then including tighter regulations on strike action and diminishing trades union powers, less reliance on coal-fired energy supply, control of interest rates being moved to the Bank of England, and, at the moment, relatively high levels of employment.
While it is true that the IMF (International Monetary Fund) has downgraded global growth since the referendum, its predictions for the UK are still sturdier than they are for Germany and France.
Interest rates have been at unprecedentedly low levels since the 2008 financial crash and it would seem that the Bank of England may yet provide further stimulus by reducing them below the current 0.5% figure as well as introducing more quantitative easing. This is uncharted territory and lending markets may reassert their authority by demanding higher interest rates given the greater perception of risk caused by Brexit.
Another factor is the devaluation in £Sterling which followed the referendum results. At the moment this translates into cheaper exports from the UK and very soon will lead to price inflation for consumers due to the increase in cost of commodities bought by UK companies in $US or in Euros. 
In fact, commodity prices have been falling for some time thanks to lower demand from China and in the last week oil prices came down again by 20% after rising slightly for a short time. But when commodity prices rise, the impact will be felt by everyone.
Although uncertainty will lead to lower growth as some businesses hold off on investment there will need to be massive rises in commodity prices and interest rates, perhaps combined with a significant rise in Chinese consumption for the preconditions for stagflation to exist.
If, in addition future governments turn more protectionist by erecting barriers to trade and migration, while introducing measures to combat inequality by redistributing income (through taxation and regulation) then the situation could become more precarious.
While the referendum result has crystallised issues and opportunities in the UK and there will business winners and losers, in our view the more extreme predictions of imminent stagflation are decidedly premature, if not straying into the realms of fantasy.

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

What helpful indicators can SMEs keep an eye on?

worried businessmanCost and commodity prices have been very low for quite some time and the exchange rate will now mean they are likely to rise quite sharply over the coming months.
This will have an impact on costs for all kinds of businesses, from manufacturing to retail.  But given the ongoing uncertainty following the EU referendum what other indicators might be helpful to SMEs to monitor what is happening to the economic cycle and to economic activity?

Businesses will need to be patient

Economic activity among consumers and clients is the easiest and most immediate clue. In the retail sector are the end of season sales starting earlier than usual? Monthly figures for house sale activity and prices and for mortgage approval levels can also be a helpful guide to how confident consumers may be feeling. These are published monthly in arrears but it may be better to look at quarterly or even annual trends to get a clearer picture.
For business activity the monthly Markit PMI (Purchase Managers’ Index) is useful for measuring confidence and activity levels in both manufacturing and service industries.  The most recent one published last week and the first post-Referendum made grim reading with a headline that the UK economy had been shrinking at the fastest rate since 2009, immediately after the 2008 crash.
It found that manufacturing had dropped to its lowest level since February 2013 and that confidence levels in both sectors had fallen from 52.4 in June to 47.7.  Any figure below 50 means a contraction in activity.
Another perspective comes from the quarterly economic survey of business confidence from the British Chambers of Commerce (BCC).  Its most recent one, published in early July and covering April to June showed that there had been improvements in both manufacturing and service sector confidence and sales during the second quarter of the year for most regions in the country with only slight reductions in confidence looking ahead to the next quarter.
However, for those companies that may be struggling but have delayed making decisions on restructuring and on investment until after the referendum a key question will be what happens next to interest rates. Restructuring company Begbies Traynor has reported that company insolvencies were stabilising with fewer than 4,000 going into insolvency in the first three months of 2016, a rise of 5.4% on the previous three months but remaining lower than the same period in 2015.
The insolvency statistics are also reported quarterly in arrears so again it is likely to be a while before a clearer picture emerges.
What will happen to the economy will also depend on what actions the Bank of England and the new Chancellor, Philip Hammond, take in the next few months to stimulate the economy and how successful any measures they introduce are, bearing in mind that here too there is always a time lag.
Basically, therefore, the advice to SMEs is to keep calm and carry on while keeping an eye on the developments we have suggested above.
(Image courtesy of Vlado at FreeDigitalPhotos.net)

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Accounting & Bookkeeping Cash Flow & Forecasting Finance General Turnaround

Understanding allowable business expenses is important

get organisedThis month is a good time to look at all aspects of your business “housekeeping” for two reasons.
Firstly, it will be some time before businesses have a clear picture of the effects of June’s EU referendum result on the UK economy and on trade so businesses can use this period to bring systems, process and records up to date and develop a clear picture of their current position.
Secondly, late July and most of August are traditionally the time when many people take a break and with the housekeeping done it is much easier to relax and to use the time for thinking and reflection to be reinvigorated for the return to work.
First on our suggested housekeeping list is business expenses and what can be claimed.
A key issue for many businesses is understanding what items are allowable business expenses and this can be important for ensuring a business does not pay out more than it needs to in tax.
It should be said at the outset that the regulations on what can be claimed as a business expense are complex and businesses would be well advised to consult their accountants or tax advisors.
What follows is therefore an overview.  The general rule is that most business expenses are likely to be allowable for tax relief.
This would cover accommodation, use of private cars, meals, repairs and renewals, business rates, energy and other overheads.  The devil, however, is in the detail.
Accommodation of staff is a good example.  Hotel stays would be allowable, but a company renting a flat for staff is only allowable if the journey is considered by HMRC to not be commutable. Travel expenses are also conditional.  Most people are aware that travel from home to work cannot be claimed as a business expense.  However, in some circumstances use of a private car for work is eligible for a mileage allowance at 45p per mile for the first 10,000 miles and at 25p per mile thereafter. In most cases a company car is likely to be more tax efficient.
Meals are allowable if staff are likely to be away from their normal place of work for more than five hours but be aware that there is a lot of HMRC advisory guidance on the details. There is no tax relief for entertaining clients.
Repairs and equipment replacements are allowable as capital expenses if the value of the items is more than £100.
Business rates and overheads are allowable provided the business is occupying business premises. For the self-employed and people working from home the regulations for claiming overheads changed in 2015-16 to a new flat rate allowance graded on how many hours are worked.
The lessons are to seek advice about the details, to understand what precisely can be claimed for and to maintain meticulous records just in case HMRC wants to inspect them.

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Business Development & Marketing Finance General Turnaround

Why do visitors leave my website without buying?

the key elements of using online marketing tools successfullyIf a business relies on its website to make sales, as e-commerce websites in particular do, encouraging visitors to stay, look around and eventually to buy is crucial. Indeed whatever the purpose most websites need to know the desired outcome which some refer to as a ‘call to action’.
On many levels, research is essential to get this right.  The business plan should already have identified the business’ ideal customer and ensured that proposition, pricing, quality and delivery are viable and can all be maintained.
There are several factors that influence customer behaviour, such as their reason for visiting the site in the first place and the customer experience. The desired outcome from the ideal customer may be their making an online purchase without further contact, or it may be their requesting a sales visit but their experience will depend entirely on the way the website is designed.

Website basics

People, especially shoppers, are increasingly impatient and want to view the products as quickly and easily as possible.  Especially at the start of their buying decision-making they are likely to shop around and compare prices.
But price alone may not determine where they eventually choose to shop.
There is plenty of research to show that among website visitors’ pet hates are auto sound videos that cannot be switched off, pop ups, misspelling and typos that suggest the business does not pay enough attention to quality or to detail and complicated navigation.
A study by Statistia found that 25% of shoppers leave websites without buying because the website is too difficult to use.
Increasingly, as more people use mobile phones and tablets to browse, a design needs to render well to these devices. Slow loading pages can be a problem and it is important to check this using a speed tester such as Google Page Speed Insights.
Assuming that all these website basics are not the problem, why then might customers be leaving without making a purchase?

Making the buying process safe and easy to use

buying onlineThe first step to finding out is to look at the website’s analytics to pinpoint at what point visitors are leaving.
If the analysis reveals that visitors are staying on the website and looking at the products it may be that the online buying process itself  is too complicated or is not reassuring customers that their details will be secure.
It is important that the checkout process takes as few steps as possible and also that security certifications are prominently displayed.
Finally, shipping costs, if any, delivery times and returns policies should be clearly stated and, again, cause the minimum of inconvenience and cost to the buyer.
It’s a minefield but the rewards are considerable as Amazon has demonstrated.

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Business Development & Marketing General Turnaround

Managing remote workers – how to get it right

remote workingA business may have employees working remotely for a number of reasons.
They include parents of young children, people who need to care for a relative who is frail or ill, a sales force that is out on the road or key staff based away from the office. Whatever the reason, planning is necessary to make it work for both parties.
While communication is essential, it is important to decide whether remote workers are going to be closely monitored or whether they are going to be empowered to deliver results without too much scrutiny.
Of course, remote employees will need some management to ensure the company is fulfilling its obligations as employer. But it is not always necessary to know that they are doing. More important, both parties need to know what is expected of each other.
The key is to establish parameters so both parties can work together and in particular to ensure the right level of support is in place. Essentially the level of freedom will be based on the level of trust but however much they are trusted to get on with their job, remote staff should be valued and included so they feel part of a team.

The right tools and regular communication

mum with kids working from himeIt’s all about setting up the relationship and maintaining the right level of ongoing communication.
Remote workers will need the right tools to do their jobs, such as phones, online access and a PC or laptop, software, training and possibly a car.
Other considerations are whether they need to collaborate with colleagues, whether they can handle managing their own time and whether you expect them to work office hours or trust them to manage their own routines as long as they get the job done on time.
Are managers available if the need arises? Scheduled conference calls or meetings such as planning for the same time on the same day every week are a great way of ensuring a discipline is in place for regular reporting and communicating.
In many ways managing remote workers is no different from managing a sales team that is out on the road.
Essentially there need to be procedures and reporting systems in place for managers and remote workers to have access to relevant information, to be aware of each other and to spot problems early.
Getting it right can result in a loyal and dedicated workforce of people who feel valued. It is great for employee retention.
 

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

Negotiating on prices – what's your business model?

Business processes word cloudHere’s an amusing, but remarkably effective, tool that graphically demonstrates the choices that have to be made in negotiations over the supply of goods or services.
When a potential customer meets this businessman they will see a wooden block and two wooden pegs on his desk. The block has three holes in it labelled quality, cost and speed.
The purpose of the pegs becomes clear as negotiations proceed.
Suppose the customer emphasises really high quality, but also wants the lowest possible price.  The pegs go in the cost and quality holes. The customer’s needs can be met, but only within the current capacity of the company’s production schedule.
If the customer wants their order delivered fast, however, the pegs would go in the speed and quality holes. The businessman knows that to produce high quality goods at speed will mean rearranging his company’s existing schedules or increasing working hours, so speed + quality would increase the production costs.

There is always a trade-off between quality, cost and speed of delivery

While customers inevitably want all three, the fact is that generally there is a trade-off. Indeed everyone knows that overnight delivery is more expensive than second class post, but customers often need to decide what their priorities really are.
If a business is well known for the quality of its goods and services it is likely to be not only successful but also working to full or near-full capacity.
It will not want to compromise this reputation so the businessman’s little wooden block is a very effective way of demonstrating the compromises that may have to be made to satisfy a customer’s requirements.
In Europe, for example, many factories will not change their production timetable but sell their capacity. Customers know what quality they will get, what price they will pay but must wait for the next available slot on the production line. This is in fact a very efficient way of producing high quality output at a reasonable price since it allows for planned production and avoids the mistakes that can be made by disruption.
Businesses need to consider their business model and decide whether they will sell their capacity, i.e. goods at a fixed price, and to have a system for providing quality goods and services. The alternative is to offer speed but recognised that they will need to be flexible to meet customers’ demands.
The one area we believe should never be compromised is quality since this relates closely to the values of the business.
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)

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

Keep calm and carry on – how to enjoy Christmas!

keep-calm-and-carry-on-through-christmasThere is no doubt that the season of goodwill can be stressful, especially if you are worried about the state of your business.
Few of us are immune to the added pressure of wanting to ensure that our loved ones enjoy the Christmas festivities and to give them gifts that will please them.
Instead of worrying about the future, it can be useful to use the holiday period as an opportunity to plan for next year and in particular to prepare a cash flow forecast.
Businesses in rented premises, for example, may be facing a quarter day rent falling due on 25th December. December is often the end of a VAT quarter and for many it is a short month with offices and factories closing for the holiday period. The pressure on cash flow at this time of year needs careful budgeting to ensure you have sufficient funds to pay bills during the quiet period as well as allocating funds for next year’s plans, whether marketing, stock,  staff or more ambitious initiatives.
It is useful to work out a realistic budget, write it down, and stick to it. This applies to both business and home.
The planning process and allocation of cash will prompt you to decide what is really important and introduce discipline of spending it in a planned rather than reactive manner.
If the prospect of next year leaves you struggling to feel positive and optimistic remember there are plenty of people who are much worse off and perhaps lonely at this time of year.  You could do wonders for your state of mind and for your business reputation by allowing your staff the time off to volunteer to help out at a Christmas charity or and encouraging them to organise a fund raising event.
We hope that some planning will help you feel in control in such a way that you don’t need to worry about the future and can enjoy the Christmas season.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Economic forecasts for SMEs

Nobody starts a business without expectations and plans for its future success, and we all need to make predictions about the future when preparing plans and making key decisions?
While many plans and decisions are based on what happened last year, a view of the future is required. Decisions need to be underpinned by predictions about the market and the economy. While few SMEs carry out formal market research, they are generally well informed about their market and have a good feel for how to satisfy their customers at a profit to themselves. Indeed if they don’t they won’t survive.
SMEs also need to make predictions about the economy and broader market, and how this might influence key decisions: What type of products/ services to provide? How much stock to hold? Forward orders for supplies? Need more or less staff? Increase wages? Can prices be raised? Invest in new plant & machinery? Grow or contract the business? Say “no” to new business? Develop or reduce capacity? Interest rates? Exchange rates? Carriage costs? Invest more on marketing? Buy or lease vehicles? Enter into long term contracts?
The building sector is a good example: is it booming? Or are customers hanging on to their cash? Another is retail: how much and what type of stock to I need for Christmas? Indeed we have seen the recent collapse in commodity prices which has caused the collapse of steel manufacturers.
Despite any economic uncertainty there is still a need to make decisions and SMEs need to develop their own economic forecasts.
There is a wealth of macroeconomic data sources that can provide valuable insights into almost all markets. It may take time to find the ones that are relevant but once found they can become part of a tailored economic forecast for a business.
Baltic Dry - 30-year indexAs an example, the Baltic Dry Index (BDI) is an economic indicator issued daily by the London-based Baltic Exchange that monitors the price of moving the major raw materials by sea. This is relevant because it is a measure of the demand for shipping capacity versus the supply of dry bulk carriers where it takes two years to build a new ship, and the cost of laying up a ship is too high to take out of trade for short intervals. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.
Another is the Shanghai Containerised Freight Index (SCFI) that tracks spot rates (not contractual rates) of shipping containers from Shanghai to 15 major destinations around the world. It can give a useful view of global trade and another perspective on the cycle of boom and bust. Despite many pundits suggesting we are doing rather well, the SCFI has collapsed with the index down 51% since February this year.
SMEs that have their own economic forecasts can use them to inform both short term decisions and long term plans.

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Accounting & Bookkeeping Banks, Lenders & Investors Business Development & Marketing Finance General

How can a start-up business assess the advice it is given?

An intending start-up business needs advice that is good quality, good value for money and, crucially, impartial.
Getting good quality advice that is value for money is the challenge for every entrepreneur and start-up on a budget.
Whereas the large corporate looking for advice can afford expensive lawyers and advisers, this is rarely the case for a start-up, which has to be more careful about where it spends its money.
It is important to identify those areas for which it is important to pay as opposed to those where it is less so.
Typically the areas where advice is needed include fundraising, investor and shareholder agreements, terms of trading with clients and suppliers, employment, finance and accounts, business planning and development, production, systems, sales and website. Wow, it is a lot and as a business rescue specialist, it is easy to see which areas were neglected when a business gets into financial difficulties.
One way of prioritising what is worth paying for and is good value is to do a lot of research and exercise a degree of judgement. Most lawyers and advisers will provide a level of free advice so take advantage of it. In addition other business owners are normally happy to share the benefit of their experience, but beware that they may only know the way they dealt with a problem and may not be able to advise on alternatives, hence the need to do lots of research.
A good tip for assessing advice you are given is whether an adviser is outlining a range of possible alternatives as options and helping you work through the assessment process to consider the pros and cons of each option.
Steer clear of those who simply tell you what to do as you don’t know if they only know one way, or they have an agenda for recommending their way.
Furthermore you won’t learn from such advisers as it is the assessment and exercising of judgement about alternatives that helps you learn how to manage advisers and often reject advice.
Only when you have spoken to a number of lawyers and advisers will you be able to tell who is trying to sell you a product and who is giving genuine advice.

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Business Development & Marketing Finance General Turnaround

Does your business have an appraisal system?

I am astonished at how may SMEs have no formal staff appraisal system such that management and staff are surprised when a performance or behaviour problem escalates to the point when it needs to be dealt with.
Very few managers make notes about their staff and information is therefore lacking when it is needed as the basis of a discussion. All that is needed is a simple form to record the details.
When reviewing such things as performance, timekeeping and absences from work and the reasons, holiday periods taken or training needs and employee ambitions there needs to be some written record on which further discussion and action can be based.
Most crucially employees want to know where they stand, what managers think about them and their prospects for a future in the business. They want to feel as though the company is generally interested in them.
There are many ways of setting up a meaningful appraisal system, and that will be the subject of a future blog.
But there is no doubt that appraisals should be done at least once a year for the benefit of both the staff and for planning the future of the business. And they need to be based on facts that are captured during the period since the last appraisal.